20-F

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

FORM 20-F

[   ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

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

For the transition period from _______________ to _______________

OR

[   ]  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _______________

Commission file number: 0-15276

CLEARLY CANADIAN BEVERAGE CORPORATION
(Exact name of Registrant specified in its charter)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

220 Viceroy Road, Units 11/12
Vaughn, Ontario, Canada L4K 3C2
(Address of principal executive offices)

David Reingold
(905) 761-0597 220
Viceroy Road, Units 11/12
Vaughn, Ontario, Canada L4K 3C2
(Name, telephone, e-mail or facsimile number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class	Name of each exchange on which registered
None	Not applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of
December 31, 2007: 23,468,087 Common Shares

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes          [   ]               No                [X]

If this report is an annual or transition report, indicated by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes          [   ]               No                [X]

Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for 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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [   ]          Accelerated filer   [   ]        Non-accelerated filer   [X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
including in this filing:
U.S. GAAP        [   ]
International Financial Reporting Standards as issued by the International Accounting Standards
Board                 [   ]
Other                  [X]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow:
Item 17  [   ]                Item 18         [X]

If this report is an annual report, indicated by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes          [   ]               No                [X]

TABLE OF CONTENTS

		PAGE
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	2
ITEM 3.	KEY INFORMATION	2
ITEM 4.	INFORMATION ON THE COMPANY	14
ITEM 4A.	UNRESOLVED STAFF COMMENTS	23
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	23
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	34
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	44
ITEM 8.	FINANCIAL INFORMATION	47
ITEM 9.	THE OFFER AND LISTING	48
ITEM 10.	ADDITIONAL INFORMATION	49
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	62
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	62
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	63
ITEM 15T.	CONTROLS AND PROCEDURES	63
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	65
ITEM 16B.	CODE OF ETHICS	65
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	65
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	66
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	66
ITEM 17.	FINANCIAL STATEMENTS	66
ITEM 18.	FINANCIAL STATEMENTS	66
ITEM 19.	EXHIBITS	67

-i-

GENERAL

In this Annual Report on Form 20-F, all references to “Clearly Canadian”, “us”, “we” or the “Company” refer to Clearly Canadian Beverage Corporation, carrying on business as Clearly Canadian Brands, and its subsidiaries and affiliated companies. References to this “Form 20-F” and this “Annual Report” mean references to this Annual Report on Form 20-F for the year ended December 31, 2007.

We use the U.S. dollar as our reporting currency. All references in this Annual Report to “dollars” or “$” are expressed in U.S. dollars, unless otherwise indicated. See also “Item 3. Key Information” for more detailed currency and conversion information. Our consolidated financial statements which form part of the annual report are presented in U.S. dollars and are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) which differ in certain respects from accounting principles generally accepted in the United States (“U.S. GAAP”). The differences between Canadian GAAP and U.S. GAAP, as they relate to our business, are explained in the notes to our consolidated financial statements.

Unless otherwise indicated, all share numbers in this Annual Report give effect to the 1:10 reverse split on the common shares that was competed on May 2, 2005.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements (within the meaning of the United States Private Securities Litigation Reform Act of 1995) concerning our business strategies, market conditions, outlook and other matters. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management including, but not limited to, certain statements and projections concerning our plans, intentions, strategies, expectations, predictions, financial projections, assumptions and estimates related to accounting policies, concerning the our future activities and results of operations and other future events or conditions. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Forward-looking statements contained in this report are based on current facts and analyses and include, but are not limited to, the following:

• the effect of certain transactions, including marketing arrangements and product distribution system changes, on our revenues and results of operations in future periods;
• our discussions with potential new customers and the status of these discussions;
• our ability to secure additional financing and improve operating cash flow to allow it to continue as a going concern;
• application of critical accounting policies and the effect of recent accounting pronouncements on our results of operations;
• our focus on key long-term objectives, including diversifying its alternative beverage product lines, maintaining and expanding current market share, and improving its network of distributors;
• the sufficiency and availability of our supply of raw materials and water, distribution network, contract bottling supplier facilities and property, plant and equipment related to our operations; and
• other statements related to our business and results of operations.

Forward looking statements are made based on management’s reasonable beliefs, estimates and opinions on the date the statements are made. However, these forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risk factors include, but are not limited to, general economic conditions, our ability to generate sufficient cash flows to support capital expansion plans and general operating activities; changing beverage consumption trends of consumers; competition; pricing and availability of raw materials; our ability to maintain the current and future retail listings for its beverages and to maintain favourable supply arrangements and relationships

1

and procure timely and adequate production of our products; laws and regulations and changes thereto that may affect the way our products are manufactured, distributed and sold; and political and economic uncertainties including exchange controls, currency fluctuations, taxation and other laws or governmental economic, fiscal, monetary or political policies of Canada, the United States and foreign countries affecting foreign trade, investment and taxation and other factors beyond our reasonable control, which, in turn, could affect our current or future operations. See “Key Information – Risk Factors”. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. The reader is cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this filing. Readers should carefully review the cautionary statements and risk factors contained in this and other documents that we file from time to time with the Securities and Exchange Commission.

ITEM 1.               IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.               OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.               KEY INFORMATION

A. SELECTED FINANCIAL DATA

Annual Information

The following selected financial data has been derived from our audited consolidated financial statements. This financial data is in U.S. dollars, unless otherwise indicated, and is presented in accordance with Canadian GAAP and U.S. GAAP, as indicated. This information should be read in conjunction with, and qualified by reference to, our financial statements included in Item 18 of this Annual Report, as well as “Item 5. Operating and Financial Review and Prospects.” We also included, as note 19 to the audited financial statements, a U.S. GAAP reconciliation that describes the principal differences between Canadian GAAP and U.S. GAAP as they relate to the financial statements.

Statement of Operations Data:

		Year Ended December 31,
(in U.S. dollars, except number of shares)		2007			2006			2005			2004			2003
Canadian GAAP
Total revenues	$	10,263,000		$	7,462,000		$	8,712,000		$	11,064,000		$	13,270,000
Gross profit		1,411,000			1,785,000			2,363,000			3,016,000			3,310,000
Net loss from continuing operations		(12,796,000	)		(8,247,000	)		(6,069,000	)		(5,531,000	)		(3,713,000	)
Net loss		(11,639,000	)		(8,247,000	)		(6,069,000	)		(5,531,000	)		(3,713,000	)
Net loss per share (basic) from continued operations (1)		(0.63	)		(0.82	)		(1.06	)		(7.14	)		(5.48	)
Net loss per share (diluted) from continued operations (1)		(0.63	)		(0.82	)		(1.06	)		(7.14	)		(5.48	)
Net loss per share (basic)(1)		(0.63	)		(0.82	)		(1.06	)		(7.14	)		(5.48	)
Net loss per share (diluted)(1)		(0.63	)		(0.82	)		(1.06	)		(7.14	)		(5.48	)

2

	Year Ended December 31,
(in U.S. dollars, except number of shares)	2007			2006			2005			2004			2003
U.S. GAAP
Net loss under US GAAP	(14,229,000	)	$	(8,247,000	)	$	(6,007,000	)	$	(5,471,000	)	$	(4,046,000	)
Net loss per share (basic) (1)	(0.70	)		(0.81	)		(1.05	)		(7.03	)		(5.97	)
Net loss per share (diluted) (1)	(0.70	)		(0.81	)		(1.05	)		(7.03	)		(5.97	)

(1) Based on weighted average shares outstanding. For accounting purposes, there were 23,430,787 shares of our common stock outstanding as of December 31, 2007 (not including 37,300 shares owned by us, as previously acquired under normal course issuer bids).

Balance Sheet Data:

		As of December 31,
(in U.S. dollars, except number of shares)		2007		2006		2005		2004			2003
Canadian GAAP
Total assets	$	22,178,000	$	9,093,000	$	6,259,000	$	4,181,000		$	7,356,000
Short-term liabilities		4,358,000		1,616,000		3,025,000		5,739,000			4,432,000
Long-term liabilities		5,597,000		-		1,501,000		1,957,000			1,799,000
Shareholders’ Equity:
Shareholders’ Equity (Deficit)		12,223,000		7,464,000		1,724,000		(3,515,000	)		1,125,000
Capital Stock		84,047,000		77,330,000		66,756,000		60,072,000			58,757,000
Number of shares issued (1)		23,468,087		13,917,153		6,901,652		1,033,868			716,868
Number of shares outstanding (1)		23,430,787		13,879,853		6,864,352		996,568			679,568
Cash dividends declared per share		--		--		--		--			--
U.S. GAAP
Total assets		21,319,000		9,093,000		6,453,000		4,195,000			7,356,000
Short-term liabilities		4,358,000		1,616,000		3,025,000		5,739,000			4,432,000
Long term liabilities		8,811,000		-		1,501,000		1,878,000			1,786,000
Shareholders’ Equity (Deficit):
Net Equity (Deficit)		8,150,000		7,464,000		1,918,000		(3,422,000	)		1,138,000
Capital Stock		84,047,000		77,330,000		66,756,000		59,883,000			59,041,000

Currency Translations

Effective December 31, 1997, we adopted the U.S. dollar as our reporting currency. The assets and liabilities of our Canadian operations are translated into United States dollars at the rates of exchange at the balance sheet dates, and

3

revenue and expenses are translated at the average rates of exchange for the periods of operation. All references in this Annual Report, including our financial statements, to “dollars” or “$” are expressed in U.S. dollars, unless otherwise indicated.

The following table sets out the exchange rates for the conversion of one Canadian dollar into U.S. dollars in effect at the end of the following periods, and the average exchange rates (based on the average of the exchange rates on the last day of each month in such periods) and the range of high and low exchange rates for such periods.

At Year End December 31	2007	2006	2005	2004	2003
End ($)	1.0120	0.8581	0.8577	0.8308	0.7738
Average ($)	0.9311	0.8816	0.8255	0.7683	0.7135
High ($)	1.0907	0.9013	0.8751	0.8493	0.7738
Low ($)	0.8437	0.8640	0.7853	0.7159	0.6349

The following table sets forth the high and low exchange rates for the conversion of one Canadian dollar into U.S. dollars for each of the last 6 months.

	Thru	May	April	March	February	January
	June 17, 2008	2008	2008	2008	2008	2008
High for the month ($)	0.9989	1.0063	0.9979	1.0162	1.0291	1.0095
Low for the month ($)	0.9726	0.98164	0.9739	0.9732	0.9815	0.9714

Exchange rates are based upon the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The noon rate of exchange on June 17, 2008 as reported by the Federal Reserve Bank of New York for the conversion of one Canadian dollar into U.S. dollars was $0.9803 (US $1.00 = CDN $1.0201) .

B.        CAPITALIZATION AND INDEBTEDNESS

Not Applicable.

C.        REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

D.        RISK FACTORS

Our business is subject to a number of risks. These risks could cause actual results to differ materially from results projected in any forward-looking statement in this report. These risks should be carefully considered because such factors may have a significant impact on our business, operating results and financial condition. The following factors contain certain forward-looking statements involving risks and uncertainties. Our actual results may differ materially from the results anticipated in these forward-looking statements.

Risks Related to Our Business

There is a risk to our operating as a going-concern. If we cannot fund our operations and/or liabilities from revenues or financing efforts, we may have to change our business plan, significantly reduce or suspend our operations, sell or merge our business

Our financial statements have been prepared on the assumption that we are a going concern and will be able to realize our assets and discharge our liabilities in the normal course of business; however, certain events and

4

conditions cast substantial doubt on this assumption. For the year ended December 31, 2007, we had a loss of $12,796,000 and had working capital of $7,625,000, an accumulated deficit of $89,913,000 and shareholders equity of $12,223,000 at year end. For the year ended December 31, 2006, we had a loss of $8,247,000 for the year ended December 31, 2006 and had a working capital of $5,245,000, an accumulated deficit of $77,055,000 and a shareholders’ equity of $7,464,000 at year-end. Operations for the years ended December 31, 2007 and December 31, 2006 have been funded primarily from the issuance of capital stock and the continued support of creditors.

Management has continued to take steps to try to improve our financial results and cash flows. These steps include liquidation of non-core investments and pursuing equity financing to fund working capital requirements. Since January 2007, we have raised approximately $13,690,000 of debt and equity financing to fund working capital requirements. Nonetheless, we may need to seek additional sources of debt and/or equity financing in the future to fund our operations, liabilities and working capital requirements.

The auditors' report attached to the consolidated financial statements for the year ended December 31, 2007, which is included in this Form 20-F, includes an explanatory paragraph that states that as we have suffered recurring losses from operations, substantial doubt exists about our ability to continue as a going concern. The audited consolidated financial statements included with this Form 20-F do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

The 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.

We have a history of operating losses which are likely to continue unless we significantly increase sales volume and maintain fixed and variable costs

We incurred a net loss of $12,796,000 for the year ended December 31, 2007 compared to net loss for the year ended December 31, 2006 of $8,247,000 (including write downs of property, plant and equipment of $Nil and $137,000, respectively). Operating losses (gross profit less selling, general and administrative expenses) were $13,117,000 for the year ended December 31, 2007 compared to $7,392,000 for the year ended December 31, 2006. We will likely incur additional losses for fiscal 2008.

We believe that to operate at a profit we must significantly increase the sales volume for our products, achieve and maintain efficiencies in operations, maintain fixed costs at or near current levels and avoid significant increases in variable costs relating to production, marketing and distribution. Our ability to significantly increase sales from current levels will depend primarily on success in maintaining and/or increasing market share and availability for our Clearly Canadian® sparkling flavoured water and expanding distribution of our other beverage product lines into new geographic distribution areas, particularly in the United States and Canada. Our ability to significantly increase sales from current levels will also depend on success in maintaining and/or increasing market share and availability of our snack food and organic baby food lines of products recently acquired as part of our recent corporate acquisitions. Our ability to successfully enter new distribution areas will, in turn, depend on various factors, many of which are beyond our control, including, but not limited to, the continued demand for our current brands and products in target markets, the ability to price our products at levels competitive with competing products, the ability to establish and maintain relationships with distributors in each geographic area of distribution and the ability in the future to create, develop and successfully introduce new brands and products.

Dependence on key management employees

Our business is dependent upon the continued support of existing senior management, including our Chief Executive Officer, Robert Genovese, and our President, David Reingold. Mr. Genovese was appointed as our Chief Executive Officer on February 26, 2008. Mr. Reingold was appointed our President on May 29, 2007. We do not maintain key person insurance on the lives of either Mr. Genovese or Mr. Reingold. The loss of Mr. Genovese or Mr. Reingold, or any other key members of our existing management team, could adversely affect our business and prospects.

5

Our operations may be adversely affected by exchange controls, currency fluctuations, taxation laws and other laws or policies of Canada, the United States or other countries

Our operations are carried out primarily in Canada and in the U.S., with less significant operations in other countries. Such operations and the associated capital investments could be adversely affected by exchange controls, currency fluctuations, taxation laws and other laws or policies of Canada, the United States and other countries affecting foreign trade, investment and taxation, which, in turn, could affect our current or future foreign operations.

Our future operating results are subject to a number of uncertainties

Our future operating results are subject to a number of uncertainties, including our ability to market our products and to develop and introduce new products, our ability to penetrate new markets, the marketing efforts of distributors and retailers of our products, most of which also distribute or sell products that are competitive with our products, the number, quantity and marketing forces behind products introduced by competitors and laws and regulations and any changes thereto, especially those that may affect the way in which our products are marketed and produced, as well as laws or regulations that are enforceable by such regulatory authorities as the Canadian Food Inspection Agency and the U.S. Food and Drug Administration.

Enforcement of civil liabilities

As Canadian citizens and residents, some of our directors and officers may not subject themselves to U.S. legal proceedings so that recovery on judgments issued by U.S. courts may be difficult or impossible. While reciprocal enforcement of judgment legislation exists between Canada and the U.S., Clearly Canadian and its insiders may have defences available to avoid in Canada the effect of U.S. judgments under Canadian law, making enforcement difficult or impossible. Our management may not have any personal assets available in the U.S. to satisfy judgments of U.S. courts. Therefore, our shareholders in the United States may have to avail themselves of remedies under Canadian corporate and securities laws for perceived oppression, breach of fiduciary duty and like legal complaints. Canadian law may not provide for remedies equivalent to those available under U.S. law.

Our results of operations have fluctuated and are likely to continue to fluctuate

Our results of operations have fluctuated in the past and are likely to continue to fluctuate from period to period depending on a number of factors, including the timing and receipt of significant product orders, increased cost in the completion of product orders, increased competition, regulatory and other developments in our markets, changes in the demand for our products, the cancellation of product orders, difficulties in collection of receivables, the timing of new product introductions, changes in pricing policies by us and our competitors, delays in the introduction of products by us, expenses associated with the acquisition of production resources and raw materials from third parties, the mix of sales of our products, seasonality of customer purchases, personnel changes, political and economic uncertainty, the mix of international and North American revenue, tax policies, foreign currency exchange rates and general economic and political conditions.

We believe that economic developments and trends have adversely affected and may continue to affect levels of consumer spending in the markets that we serve. We believe that these and other factors have adversely affected demand for our products. While we believe that economic conditions in certain of our markets show signs of improvement, we also believe that economic conditions and general trends are likely to continue to affect demand for premium priced beverage products such as we produce and sell. Such factors may also increase the amount of doubtful accounts or adversely affect the likelihood of collection of such accounts with third parties, such as distributors and retailers, to whom we sells products.

Because we are unable to forecast with certainty the receipt of orders for products and our expense levels are relatively fixed and are based, in part, upon our expectation of future revenue, if revenue levels fall below expectations, operating results are likely to be adversely affected. As a result, net income may be disproportionately affected because a relatively small amount of our expenses vary with our revenue.

6

Based on all of the foregoing factors, we believe that our quarterly and annual revenue, direct expenses and operating results are likely to vary significantly in the future, that period-to-period comparisons of the results of operations may not necessarily be meaningful and that such comparisons should not be relied upon as an indication of future performance.

Our intellectual property rights are critical to our success, and the loss of such rights could materially and adversely affect our business

We regard our trademarks, trade dress, copyrights, trade secrets and similar intellectual property as critical to our success and we attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to forestall infringement. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. In the past, we have licensed elements of our distinctive trademarks, trade dress and similar proprietary rights to third parties, and we anticipate that we may license such elements in the future as well. While we attempt to ensure that the quality of our brand is maintained by such licensees, no assurances can be given that such licensees will not take actions that might materially and adversely affect the value of our proprietary rights or the reputation of our products, either of which could have a material adverse effect on our business. Furthermore, there can be no assurance that third parties will not infringe or misappropriate our trademarks, trade dress and similar proprietary rights. Despite our precautions, some or all of the trade secrets and other know-how that we consider proprietary could be independently developed, could otherwise become known by others or could be deemed to be in the public domain. If we lose some or all of our intellectual property rights, our business may be materially and adversely affected.

Increases in the cost of packaging and raw materials could reduce profits

We spend significant amounts on packaging for our products. We consider packaging to be an important component in the sale of our products. Packaging has been very important to our success and helps to distinguish our products from those of our competitors. We, and our co-packers from whom we buy products, purchase primary packaging supplies, including bottles, caps, preforms, plastic sleeves, labels, trays, jars, lids, tins and bags from outside vendors. In addition, we, and our co-packers, purchase a significant portion of the ingredients needed to produce our products, including sweeteners, flavors, dried fruits, nuts, vegetable products, rice, grains, milk and egg products and carbon dioxide from outside vendors. We rely on our ongoing relationships with key suppliers and co-packers to support our operations. If the cost of our packaging or raw materials increases significantly, the total cost of our products would increase significantly, which could adversely affect the sales of our products, as well as our financial performance.

We have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with Canadian GAAP. Actual results could differ significantly from anticipated results should such estimates and/or assumptions prove to be materially incorrect or inaccurate. We believe that the information herein (see “Item 5. Operating and Financial Review and Prospects – Application of Critical Accounting Policies” and “Note 2” to financial statements) addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and beyond our control.

Our directors, officers, promoters and other members of management may serve as directors, officers, promoters and other members of management of other companies, therefore it is possible that a conflict of interest may arise

Certain of our directors, officers, and other members of management, including Bobby Genovese, David Reingold and George Reznik, presently serve as directors, officers, promoters and members of management of other companies and therefore it is possible that a conflict may arise between their duties as a director, officer, promoter or

7

member of management of Clearly Canadian and their duties as a director, officer, promoter or member of management of such other companies.

Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of our directors or officers. All such conflicts will be disclosed in accordance with the provisions of applicable corporate legislation and directors or officers will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.

Our markets are highly competitive

We operate in highly competitive geographic and product markets, and most of our markets are dominated by competitors with greater resources. We cannot be certain that we could successfully compete for sales to distributors or stores that purchase from larger, more established companies that have greater financial, managerial, sales and technical resources. In addition, we compete for limited retailer shelf space for our products. Larger competitors, such as mainstream food and beverage companies including but not limited to Coca-Cola, PepsiCo, Cadbury, Hain-Celestial, Heinz, Nestle, and Johnvince Foods, also may be able to benefit from economies of scale, pricing advantages or the introduction of new products that compete with our products. Retailers also market competitive products under their own private labels.

In the future, competitors may introduce other products that compete with our products and these competitive products may have an adverse effect on our business, results of operations and financial condition.

We also compete with other manufacturers in the procurement of natural and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future along with increasing public demand for natural and organic products. This could cause our expenses to increase or could limit the amount of product that we can manufacture and sell.

Consumer preferences for our products are difficult to predict and may change

A significant shift in consumer demand away from our products or our failure to maintain our current market position could reduce our sales or the prestige of our brands in our markets, which could harm our business. While we continue to diversify our product offerings, we cannot be certain that demand for our products will continue at current levels or increase in the future.

Our acquisition strategy exposes us to risk

We intend to continue to grow our business in part through the acquisition of new brands, both in Canada and the United States. Our acquisition strategy is based on identifying and acquiring brands with products that complement our existing product mix. We cannot be certain that we will be able to successfully:

• identify suitable acquisition candidates;
• negotiate identified acquisitions on terms acceptable to us; or
• integrate acquisitions that we complete.

We may encounter increased competition for acquisitions in the future, which could result in acquisition prices we do not consider acceptable. We are unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed.

Our future success may be dependent on our ability to integrate brands that we acquire

Our future success may be dependent upon our ability to effectively integrate new brands that we acquire, including our ability to realize potentially available marketing opportunities and cost savings, some of which may involve operational changes. We cannot be certain:

8

• as to the timing or number of marketing opportunities or amount of cost savings that may be realized as the result of our integration of an acquired brand;
• that a business combination will enhance our competitive position and business prospects; or
• that we will not experience difficulties with customers, personnel or other parties as a result of a business combination.

In addition, we cannot be certain that we will be successful in:

• integrating an acquired brand’s distribution channels with our own;
• coordinating sales force activities of an acquired brand or in selling the products of an acquired brand to our customer base; or
• integrating an acquired brand into our management information systems or integrating an acquired brand’s products into our product mix.

Additionally, integrating an acquired brand into our existing operations will require management resources and may divert our management from our day-to-day operations. If we are not successful in integrating the operations of acquired brands, our business could be harmed.

We are dependent on the distribution services of independent distributors and independent food/beverage brokers in order to distribute and sell our products to retailers and consumers

We rely, in addition to our own sale organization, upon sales efforts made by or through distributors and brokers to sell our products. The loss of, or business disruption at, one or more of these distributors or brokers may harm our business. If we were required to obtain additional or alternative distribution and food brokerage agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner.

For our beverages, we rely, to a significant extent, on the distribution services of distributors in order to distribute and sell our beverage products to retailers and consumers. Over recent years, we have observed an increased consolidation of distribution services within the alternative beverage industry. Traditional soft drink companies, which also own or operate distribution companies that provide distribution services to alternative beverage companies, have acquired or developed alternative beverage products. As a result of these developments, these distribution companies that are associated with traditional soft drink beverage companies are less willing to distribute and sell other companies’ alternative beverage products, especially if such products compete with the products that the traditional soft drink companies have within their portfolio of beverages. In view of these developments, we are attempting to diversify our distribution network to align ourselves with distribution companies that are not affiliated only with traditional soft drink beverage companies. Our recent efforts include a transition from our largest distributor, the Dr. Pepper/Seven-Up Bottling Group, which has been distributing our products in the Mid West, South Central and South West of the United States, to a network of these other types of distributors who distribute a variety of alternative beverages. There is no assurance that the volume of sales from these new distributors will match or exceed the volume of sales which in the past was generated by the Dr. Pepper/Seven-Up Bottling Group, and this shift in distribution strategy may have an adverse impact on our sales and results of operations.

There is no assurance that the volume of sales to any of our distributors will match or exceed the volume of sales which in the past was generated by these customers and lower sales to these customers may have an adverse impact on our sales and results of operations.

Loss of one or more of our independent co-packers could harm our business

Our revenue is derived from products manufactured by independent co-packers. The loss of one or more co-packers, or our failure to retain co-packers for newly acquired products or brands, could delay or postpone production of our products, which could have a material adverse effect on our business, results of operations and financial condition until such time as an alternate source could be secured, which may be on less favorable terms.

Our future results of operations may be adversely affected by escalating fuel costs

9

Many aspects of our business have been, and continue to be, directly affected by the continuously rising cost of fuel. Increased fuel costs have translated into increased costs for the products and services we receive from our third party providers including, but not limited to, increased production and distribution costs for our products. As the cost of doing business increases, we may not be able to pass these higher costs on to our customers and, therefore, any such increase may adversely affect our earnings.

Our inability to use our trademarks could have a material adverse effect on our business

We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in the highly competitive food, beverage and personal care industry. Although we endeavour to protect our trademarks and trade names, there can be no assurance that these efforts will be successful, or that third parties will not challenge our right to use one or more of our trademarks or trade names. We believe that our trademarks and trade names are significant to the marketing and sale of our products and that the inability to utilize certain of these names could have a material adverse effect on our business, results of operations and financial condition.

Our products must comply with government regulation

The USDA has adopted, and the Canadian Food Inspection Agency is soon to adopt regulations with respect to a national organic labelling and certification program. We currently manufacture organic products which are covered by these regulations. Future developments in the regulation of labelling of organic foods could require us to further modify the labelling of our products, which could affect the sales of our products and thus harm our business.

In addition, the Canadian Food Inspection Agency has recently adopted regulations with respect to natural health products (NHP) which require that all products sold as natural health products be NHP licensed. Some of our Clearly Canadian® Natural Enhanced Waters are natural health products and we have applied for an NHP license for these products but are able to sell them during the application process. If we do not obtain an NHP license for these products we may not be able to sell them in Canada which could harm our business.

We continually monitor and modify packaging to be in compliance with the rules of the various countries where we sell our products. Our ability to meet local packaging regulations impact our ability to sell products in these regions.

Furthermore, new government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and financial condition.

Product recalls could have a material adverse effect on our business

Manufacturers and distributors of products in our industry are sometimes subject to the recall of their products for a variety of reasons, including for product defects, such as ingredient contamination, packaging safety and inadequate labelling disclosure. If any of our products are recalled due to a product defect or for any other reason, we could be required to incur the expense of the recall or the expense of any resulting legal proceeding. Additionally, if one of our significant brands were subject to recall, the image of that brand and our image could be harmed, which could have a material adverse effect on our business.

Product liability suits, if brought, could have a material adverse effect on our business

If a product liability claim exceeding our insurance coverage were to be successfully asserted against us, it could harm our business. We cannot assure you that such coverage will be sufficient to insure against claims which may be brought against us, or that we will be able to maintain such insurance or obtain additional insurance covering existing or new products. As a marketer of food, beverage and personal care products, we are subject to the risk of claims for product liability. We maintain product liability insurance and generally require that our co-packers maintain product liability insurance naming us as a co-insured.

10

We rely on independent certification for a number of our food products

We rely on independent certification, such as certifications of our products as “organic” or “kosher,” to differentiate our products from others. The loss of any independent certifications could adversely affect our market position as a natural and organic food company, which could harm our business.

We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified. For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all raw materials must be certified organic. Similarly, we can lose our “kosher” certification if a manufacturing plant and raw materials do not meet the requirements of the appropriate kosher supervision organization.

Our industries are subject to seasonal variations in demand.

Sales of both beverage products and snack food products are subject to seasonal variations in demand. For example, consumers in North America typically consume fewer beverage products in the late fall, winter and early spring months and consume a higher amount of snack food around some holidays. As a result, our sales and results of operations vary seasonally and such variations may be significant. For these reasons you should not rely on quarterly operating results as indications of future performance.

Our growth is dependent on our ability to introduce new products and improve existing products

Our growth depends in large part on our ability to generate and implement improvements to our existing products and to introduce new products to consumers. The innovation and product improvements are affected by the level of funding that can be made available, the technical capability of our team in developing and testing product prototypes, and the success of our management in rolling out the resulting improvements in a timely manner. If we are unsuccessful in implementing product improvements that satisfy the demands of consumers, our business could be harmed.

The profitability of our operations is dependent on our ability to manage our inventory

Our profit margins depend on our ability to manage our inventory efficiently. A number of factors, such as changes in customers’ inventory levels, access to shelf space and changes in consumer preferences, may lengthen the number of days we carry certain inventories, hence impeding our effort to manage our inventory efficiently.

Risks Related to our Capital Stock

BG Capital Group beneficially owns a majority of the voting power and effectively controls our company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our shareholders

As of June 17, 2008, BG Capital Group Ltd. is the holder of 2,673,651 of our common shares and warrants to acquire an additional 4,000,000 common shares at a price of $1.25 per share. In the event BG Capital exercised all of its rights to acquire stock on the exercise of its outstanding warrants, as of June 17, 2008, it would own approximately 24.1% of our common shares. Based on 23,716,878 common shares issued and outstanding as of June 17, 2008, the number of votes accruing by formula to each Variable Multiple Voting Share is approximately 39,783,340, for a total of 62.7% votes. The ownership of the Variable Multiple Voting Shares has the effect of increasing BG Capital’s outstanding voting power further. Accordingly, this single shareholder can influence the outcome of shareholder votes, involving the election of directors, the adoption or amendment of provisions in our articles of association and the approval of mergers or other similar transactions, such as a sale of substantially all of our assets. Such control by BG Capital could have the effect of delaying, deferring or preventing a change in control of our Company.

In addition, we have a shareholders’ rights plan and super majority approval requirements, each of which may prevent or delay a change of control.

11

Future financings and exercise of the outstanding options and warrants could result in significant dilution to our shareholders

During 2007, we completed several private placements, resulting in the issuance of common and preferred shares and common share warrants. We also completed a Senior Convertible Note financing resulting in the issuance of $9,360,000 in Senior Convertible Notes and 4,517,162 warrants to purchase common shares. The material terms of and additional risks relating to our Senior Convertible Note financing are discussed in further detail throughout this annual report.

We may need to seek additional sources of debt or equity financings in the future to fund our operations and working capital requirements. As we issue stock or convertible securities in the future, including for any future financing, those issuances would also dilute our shareholders. If additional funds are raised through the issuance of equity or convertible debt securities, the newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. If additional shares are issued or if we acquire other businesses through the sale of equity securities, our shareholders will be diluted.

In addition, we have reserved, in aggregate, 1,750,000 common shares for issuance upon exercise of options under our 2005 Stock Option Plan, and 10,000,000 common shares for issuance upon exercise of options or other stock-based awards under our 2006 Equity Incentive Plan. As of June 17, 2008, we have also issued warrants to purchase up to 11,193,495 shares at exercise prices ranging from $1.25 to $3.25 per share. The issuance of shares under either of our stock plans or upon exercise of any of the outstanding stock purchase warrants will also dilute our shareholders.

Our shares have experienced significant price volatility and continued volatility may adversely affect the price of our common shares

Our common share price has experienced significant price volatility, with trading prices on the OTC Bulletin Board ranging from $2.50 (high) to $1.10 (low) during the year ended December 31, 2005, from $4.41 (high) to $2.05 (low) during the year ended December 31, 2006 ,from $3.18 (high) to $0.40 (low) during the period from January 1, 2007 to December 31, 2007, and from $1.26 (high) to $0.47 (low) during the period from January 1, 2008 to June 16, 2008. There are many reasons for fluctuations in trading, including announcements of developments related to our business, fluctuations in operating results, failure to meet investor expectations, general conditions in the beverage industry and the worldwide economy, announcements of innovations, new products or product enhancements by us or our competitors, acquisitions and divestitures, changes in governmental regulations, developments in licensing arrangements and changes in relationships with trade partners and suppliers. In addition, in recent years the stock market in general, and the market for small capitalization stocks in particular, has experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Such fluctuations could adversely affect the market price of our common shares.

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of the common stock and make it difficult for shareholders to resell their shares

Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a national securities exchange. Accordingly, an investor in our common stock may have difficulty reselling his or her shares.

Because our common stock is considered a “penny stock,” our shareholders’ ability to sell or buy shares in the secondary trading market may be limited

Our common stock is subject to certain rules and regulations relating to “penny stock.” A “penny stock” is generally defined as any equity security that has a price less than $5.00 per share and that is not quoted on a national securities exchange. Being a penny stock generally means that any broker who wants to trade in our shares (other than with established clients and certain institutional investors) must comply with certain “sales practice

12

requirements,” including delivery to the prospective purchaser of the penny stock a risk disclosure document describing the penny stock market and the risks associated therewith. In addition, broker-dealers must take certain steps prior to selling a “penny stock,” which steps include:

• obtaining financial and investment information from the investor;
• obtaining a written suitability questionnaire and purchase agreement signed by the investor; and
• providing the investor a written identification of the shares being offered and the quantity of the shares.

If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker-dealers to sell our common stock, and as a practical matter, these requirements may mean that brokers are less likely to make recommendations on our shares to its general clients.

As a result, for as long as our common stock is subject to these penny stock rules, our shareholders may have difficulty in selling their shares in the secondary trading market. In addition, prices for shares of our common stock may be lower than might otherwise prevail if our common stock were traded on a national securities exchange, like the New York Stock Exchange, NASDAQ Stock Market or American Stock Exchange. This lack of liquidity may also make it more difficult for us to raise capital in the future through the sale of equity securities.

Risks Related to our Senior Convertible Notes and Acquisition Notes (collectively, the “Notes”)

If an event of default occurs on the Notes our debt holders may require repayment of the debt which could have a material adverse effect on our business and operations.

On September 26, 2007, we closed on our Senior Convertible Note financings and restructured our obligations to the sellers of My Organic Baby, Inc. and DMR Food Corporation, for which we issued Notes in principal amount totalling $11.8 million. In the event that an event of default occurs under the terms of the Notes, each debt holder may require us to pay the greater of (i) 125% of the principal amount and any additional amounts owing under the Notes or (ii) 125% of the value of the common shares issuable upon conversion of the principal amount and any additional amounts owing under the Notes, as determined by the highest selling price of our common shares on or around the event of default.

The cash required to pay such accelerated amounts on the Notes following an event of default would most likely come out of our working capital. As we rely on our working capital for our day to day operations, such a default could have a material adverse effect on our business, operating results, or financial condition to such extent that we are forced to restructure, file for bankruptcy, sell assets or cease operations. In addition, upon an event of default, the holders of Notes may exercise any additional other remedies available to them. If we were forced to file for bankruptcy or cease operations, shareholders may not receive any proceeds from disposition of our assets and may lose their entire investment in our stock.

Our obligations under the Notes may adversely affect our ability to enter into significant transactions with other parties and take certain actions related to our business.

As a result of the issuance of the Notes, we agreed to certain restrictions and conditions with respect to significant transactions with third parties. Unless we obtain the consent of 70% of the aggregate principal amount of the outstanding Notes, we may not enter into a significant business transaction, such as a merger, sale of assets, a transaction in which a third party obtains voting control, or a material reorganization. Moreover, we may only enter into a significant transaction with a publicly traded corporation that is listed on a U.S. securities exchange and that agrees to assume all Notes. In connection with a significant transaction, each debt holder can require us to redeem a Note greater of (i) 130% of the outstanding principal balance and any additional amounts owing under the notes or (ii) 125% of an amount determined by multiplying the outstanding principal balance and any additional amounts owing under the Notes by a ratio of the consideration price paid per common share in the transaction to the conversion price of the Notes.

13

Additionally, for so long as any Notes are outstanding, we may not be able take certain actions related to the operation of our business, including the following:

• create, incur, assume or guarantee any debt (except as expressly permitted under the Notes);
• mortgage or encumber our assets (except as expressly permitted under the Notes); or
• redeem or pay any dividends on our common shares;

These provisions could have the practical effect of increasing the costs of any potential significant transaction, and restrict our ability to enter into any such transaction and our ability to operate aspects of our business.

The Notes provide full ratchet anti-dilution provisions that could further dilute the ownership of our shareholders.

The initial conversion price of the Notes is $2.33 per share. The number of shares to be issued upon conversion of the Notes will depend on the actual dollar amount of principal and interest being converted. We also issued 4,517,162 warrants to purchase our common shares. Of the warrants, the warrants designated as Series E Warrants and Lane Warrants are exercisable at an initial exercise price of $2.33 per common share and the warrants designated as Series F Warrants are exercisable at an initial exercise price of $2.56 per common share. The conversion of the Notes and the exercise of the Series E and Series F Warrants and Lane Warrants will dilute our shareholders.

Each Note and Warrant carries a full ratchet anti-dilution provision. If we issue any convertible or equity securities at any time in the future (subject to certain exceptions including stock option grants and issuances in connection with certain acquisition transactions) at a price less than the applicable conversion price or exercise price, then the conversion price and exercise price will be automatically adjusted down to that lesser price. Any such adjustment will further dilute our shareholders.

We are currently involved in negotiations with the holders of the Notes as to whether the full-ratchet anti-dilution provision has been triggered and whether we are obligated to adjust the conversion price of the Notes and the exercise price of the Series E Warrants, Series F Warrants and Lane Warrants. If the conversion price is adjusted, this will result in a significant additional number of shares issuable upon conversion of the Notes and upon exercise of the Warrants, which will further dilute our shareholders.

ITEM 4.               INFORMATION ON THE COMPANY

A.        HISTORY AND DEVELOPMENT OF THE COMPANY

Name and Incorporation

Clearly Canadian Beverage Corporation is a British Columbia corporation, governed by the Business Corporations Act of British Columbia.

We were incorporated under the name Cambridge Development Corporation on March 18, 1981; we subsequently changed our name to Bridgewest Development Corporation on October 28, 1983, to BDC Industries Corp. on November 15, 1984 and to the Jolt Beverage Company, Ltd. on September 3, 1986. On December 14, 1987, the Jolt Beverage Company, Ltd. amalgamated with Interbev Packaging Corp. and Brewmaster Systems Ltd. and on May 13, 1988, we changed our name to International Beverage Corporation. We finally changed our name to Clearly Canadian Beverage Corporation on May 14, 1990. We registered the trade name, Clearly Canadian Brands, in British Columbia on June 5, 2007 and we currently carry on business as Clearly Canadian Brands.

Our corporate head office is presently located at 220 Viceroy Road, Units 11/12, Vaughn, Ontario, Canada L4K 3C2 (telephone no: 905-761-0597) and our registered office is located at Suite 1780, 400 Burrard Street, Vancouver, BC V6C 3A6. We do not have an agent in the U.S.

Material Events

14

In fiscal 2007, we completed the following material transactions:

Convertible Note Financing

On September 26, 2007, we completed a $9.36 million senior debt financing (the “Financing”) from institutional investors through the sale of senior convertible notes (the “Senior Convertible Notes”) and the issuance of five-year share purchase warrants to purchase 4,017,162 common shares (the “Series E Warrants” and the “Series F Warrants”). The 2,008,581 Series E Warrants are exercisable at an initial exercise price of $2.33 per share (subject to future adjustment) and the 2,008,581 Series F warrants are exercisable at an initial exercise price of $2.56 per share (subject to future adjustment).

We received net proceeds from the Financing of approximately $9 million, after payment of a 4% fee paid to Lane Capital Markets as placement agent in the Financing. In addition, we issued to Lane Capital Markets 500,000 share purchase warrants exercisable at an initial exercise price of $2.33 per share on the same terms as the Series E Warrants (the “Lane Warrants”).

The primary features of the Senior Convertible Notes are (i) interest at 9% per annum for years 1-3 and at 18% per annum for years 4 and after, payable monthly in cash or, subject to volume and ownership limitations and in our discretion, common shares based on a 10% discount to the then-market price, (ii) convertible at any time by the holders at the conversion price (initially $2.33 per share, subject to future adjustment), (iii) during years one and two, provided the market price of our common shares is double the conversion price, we can, subject to volume and ownership limitations, call the Senior Convertible Notes (iv) in year three and beyond, we can, subject to volume and ownership limitations, force conversion of the Senior Convertible Notes at the lower of the initial conversion price or at a 15% discount to the then-market price and so long as we are converting the Senior Convertible Notes, the interest rate remains at 9% and (v) in year 4 and beyond the Senior Convertible Notes can be called by the note holders.

In addition, the Senior Convertible Notes, and the Series E Warrants, Series F Warrants and the Lane Warrants, carry a full ratchet anti-dilution provision. If we issue any convertible or equity securities at any time in the future (subject to certain exceptions including stock option grants and issuances in connection with certain acquisition transactions) at a price less than the applicable conversion price or exercise price, then the conversion price and exercise price will be automatically adjusted down to that lesser price. Any such adjustment will further dilute our shareholders.

We are currently involved in a dispute with the note holders in our Senior Convertible Note financing, which we are attempting to resolve. On January 28, 2008, we issued shares as payment of interest on the Notes to the sellers of DMR Food Corporation and My Organic Baby, Inc. at a value of $0.46 per share. Subsequently, on February 1, 2008, one of the note holders notified us that it believes such issuance of shares triggered the full-ratchet anti-dilution provisions on its Senior Convertible Note and the Series E and Series F Warrants, requiring adjustment of the conversion price of the Notes and the exercise price of the Series E and Series F Warrants to $0.46 per share. On February 4, 2008, the note holder tendered to us a conversion notice for $15,000 of its Note, at a conversion price of $0.46 per share. We disagree with the note holders that the full-ratchet anti-dilution provision has been triggered and we have rejected the conversion notice.

In the event that the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Senior Convertible Notes and upon exercise of the Warrants, and our existing shareholders will be diluted.

Pursuant to the terms of a Registration Rights Agreement with the holders of Senior Convertible Notes, we were required to use our best efforts to file a registration statement registering the common shares underlying the Senior Convertible Notes and to have that registration statement declared effective by the Securities and Exchange Commission on or before the January 23, 2008. The registration statement was not declared effective by January 23, 2008 (the “Effectiveness Failure”), and as of June 17, 2008, it has not been declared effective. As a result of that Effectiveness Failure, we are obligated to pay liquidated damages in cash to the note holders. The amount of liquidated damages for the Effectiveness Failure is calculated as follows: (A) $187,200 (2% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants) payable on the day of an Effectiveness Failure

15

and on the 30^th day after the day of an Effectiveness Failure; (B) $93,600 (1% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants) payable on every 30^th day following the 31^st first day following such Effectiveness Failure (pro-rated for periods totalling less than 30 days) until such Effectiveness Failure is cured. These liquidated damages payments bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. We are currently in default of our obligations to pay these liquidated damages. Although we paid in full the initial required liquidated damage payment on January 23, 2008, we have not paid and have been accruing additional liquidated damages.

We are currently in negotiations with the holders of the Senior Convertible Notes to enter into a comprehensive agreement to resolve our dispute with respect to the anti-dilution adjustment and our default with respect to the liquidated damages payments.

Acquisitions

On May 24, 2007, we acquired all of the outstanding shares of My Organic Baby Inc. (“MOB”), which markets Canada’s first full nationwide line of organic baby food. On September 25, 2007, we agreed with MOB to restructure the consideration owing to the MOB sellers pursuant to the share purchase agreement. As restructured, the consideration for the acquisition consisted of $2,676,470 CDN in cash, 215,000 common shares (provided, that we agreed that if a gain of $600,000 CDN is not realized from a sale of these shares by March 18, 2009, we will pay any shortfall) and convertible notes in the amount of $1,564,082 on terms comparable to the Senior Convertible Notes. Our consolidated financial statements for the second quarter of 2007 included the results of operations of MOB beginning on May 24, 2007.

On February 7, 2007, we acquired all of the outstanding shares of DMR Food Corporation (“DMR”), a leading packager and marketer of natural and organic snack foods in Canada. On September 25, 2007, we also agreed with DMR to restructure the consideration owing to the DMR sellers pursuant to the share purchase agreement. As restructured, the consideration for the acquisition consisted of $1,323,530 CDN in cash, the equivalent of $450,000 CDN in common shares issued on August 13, 2007 (provided that we agreed that if a gain of $450,000 CDN is not realized from a sale of these shares by March 18, 2009 we will pay any shortfall) and convertible notes in the amount of $725,689 on terms comparable to the Senior Convertible Notes. Our consolidated financial statements for the first quarter of 2007 include the results of operations of DMR beginning on February 7, 2007.

The features of the convertible notes issued to the MOB and DMR sellers as described above are comparable to the Senior Convertible Notes.

On September 25, 2007, we entered into a Securities Purchase Agreement to restructure the consideration payable to the MOB and DMR sellers resulted in elimination of some of our original obligations to MOB and DMR. The original liabilities in connection with the DMR acquisition related to our obligation to pay any shortfall if the sellers did not realize a gain of $2,100,000 CDN from the exercise and sale of our common shares issuable under 3,000,000 warrants received by the sellers. The original liabilities in connection with the MOB acquisition related to our obligation to pay any shortfall if the sellers did not realize a gain of $4,350,000 CDN from the exercise and sale of common shares issuable under 3,750,000 warrants received by the sellers and 215,000 shares. These liabilities were restructured by (i) the DMR and MOB sellers surrendering for cancellation the said warrants and shares, (ii) us paying to the sellers $4 million CDN in cash, (iii) us issuing the Convertible Notes to the sellers in the amount of $2,450,000 CDN on terms comparable to the Senior Convertible Notes, and (iv) us agreeing to a reset, 18 months from the closing of the Senior Convertible Note financing, on 370,279 common shares owned by the sellers. In addition, the sellers have agreed not to sell any common shares they own, other than interest shares in connection with each of their Acquisition Notes, for one year from the closing of the Senior Convertible Note financing.

Additional Financings

In 2007, we completed three private placement equity sales totalling 1,166,333 shares, which cumulatively raised $3,499,000. Additionally, we raised $1,260,806 in cash by issuing of 792,946 shares on the exercise of stock options and warrants. We issued an additional 6,560,000 common shares on the conversion of our remaining Class B Preferred shares throughout 2007, for which we did not receive any cash proceeds.

16

Capital Expenditures

A discussion of our principal capital expenditures over the last three years may be found under “Results of Operations” in Item 5. A description of the principal capital expenditures, if any, currently in progress or planned for the coming year may be found in “Item 4 – Business Overview” below in this Annual Report.

B.        BUSINESS OVERVIEW

Clearly Canadian Beverage Corporation markets premium alternative beverages, including Clearly Canadian® sparkling flavoured waters and Clearly Canadian dailyEnergy, dailyVitamin and dailyHydration Natural Enhanced Waters which are distributed primarily in the United States and Canada. Since its inception, the Clearly Canadian brand has sold over 2 billion bottles worldwide. Clearly Canadian’s acquisition of DMR Food Corporation and My Organic Baby Inc. marked our debut into organic and natural products and organic baby food, with a wide range of dried fruit and nut snacks offerings from SunRridge Farms, Naturalife, Sweet Selections, Simply by Nature, Glengrove Organics brands, and wide range of organic baby products for toddlers under the name My Organic Toddler and My Organic Baby. We believe that the health focussed nature of our beverage, baby products and snack product lines complement each other and will provide opportunities for synergy in marketing and distribution in the future.

Our beverage products are considered “alternative” beverages, a category which became identifiable in the mid-1980s. Alternative beverages are distinguishable from traditional soft drinks in that they generally contain natural ingredients, less sugar and calories, and less or no carbonation. Alternative beverages are traditionally seen as healthful, premium-priced and distinctively packaged.

We are focused on creating new alternative beverage brands, developing product extensions and reformulations for existing brands and strengthening the distribution network for our products. In so doing, we have attempted to expand the availability of our existing products and to diversify our alternative beverage product line offerings.

In 2006, we repackaged and reformulated our sparkling flavoured water product lines and developed and introduced a new line of non-carbonated, functional beverages under the name Clearly Canadian Natural Enhanced Waters. We continue to develop beverage product extensions in an attempt to reverse the decline in our beverage sales and market share. To improve brand awareness of our products we have also obtained the right to utilize the name and likeness of Steve Nash, a two-time National Basketball Association MVP .

In addition to the rollout of our repackaged and reformulated sparkling, flavoured waters and our new Natural Enhanced Waters, we have, since the beginning of 2007, been transitioning our beverage distribution system from reliance on one large distribution network to a network consisting of a multitude of distributors who are independent of any major soft drink company. We are continuing to evaluate the potential to improve the exposure of our product at the retail level by investing in shelf placement fees with selected national retailers. While we believe all of these initiatives will result in renewed growth in our beverage business, it is still too early to make any trend assessment with respect to sales.

Products

Beverages

Our beverage products are considered “alternative” beverages, a category which became identifiable in the mid-1980s. Alternative beverages are distinguishable from traditional soft drinks in that they generally contain natural ingredients, less sugar and calories, and less or no carbonation. Alternative beverages are traditionally seen as healthful, premium-priced and distinctively packaged. The alternative beverage category is now generally recognized in the beverage industry to include beverages such as: “retail PET waters”, “enhanced waters”, “premium sodas”, “nutrient-enhanced fruit drinks”, “fresh packaged juices”, “smoothies”, “regular single-serve fruit beverages”, “sparkling waters”, “sports beverages”, “ready-to-drink coffees”, “regular ready-to-drink teas”, “energy

17

drinks”, “vegetable/fruit juice blends”, “nutrient-enhanced dairy products”, “nutrient-enhanced teas” and “shelf-stable dairy drinks”.

We are focused on creating new alternative beverage brands, developing product extensions and reformulations for existing brands and strengthening the distribution network for our products. In so doing, we have attempted to expand the availability of our existing products and to diversify our alternative beverage product line offerings.

Our current beverage offerings are:

• Clearly Canadian® sparkling flavored waters, an all natural, no preservative, carbonated water in various flavors, with different caloric levels and which is produced in a 14 oz. proprietary glass bottle and a 1 Litre proprietary PET (plastic) bottle;

• Clearly Canadian® Natural Enhanced Waters, an all natural, no preservative, non-carbonated enhanced water in various flavors, with different vitamin, mineral and organic essence enhanced formulations and which is produced under the sub brand names dailyEnergy, dailyVitamin and dailyHydration in a stock, 20 oz. PET bottle; and

• An oxygen enhanced water which we have co-packed for a private label customer.

In fiscal 2006, sale of our beverage products represented 100% of our total product revenues and in fiscal 2007, sales of our beverage products represented 52.7% of our total product revenues. However, we anticipate this percentage to diminish to approximately 16.7% of our revenue in fiscal year 2008 with the addition of our organic baby food and dried fruit and nut products, both of which we acquired in 2007.

Organic Baby Food

We market over 40 different certified organic baby food products under the brand name My Organic Baby. These products, which we develop, cover the full range of baby foods including, biscuits, juice, formula, cereal and baby food in jars. We are currently the only company in Canada offering every type of baby food product in a certified organic format.

Dried Fruit and Nut Snacks

We develop, package and market over 100 different dried fruit and nut products, most of which are either certified organic or natural. Most of our snack products are sold under the brand names SunRidge Farms, Naturalife, Sweet Selections, SSG, Simply by Nature and Glengrove Organics and come in various bag and PET container sizes. We also customize and package private label bag and bulk dried fruit and nut snacks for several major retailers in Canada.

Prior Products

During the past four years, we have marketed Clearly Canadian® sparkling flavored waters in a 14 oz. proprietary glass bottle, Clearly Canadian O+2® oxygen enhanced water in a stock, 20 oz. PET bottle, and our oxygen enhanced water which we have co-packed for a private label customer. In 2006, we launched a reformulated and redesigned version of our sparkling flavoured waters. These changes included a new package design that trades on the Clearly Canadian® brand’s established history and reformulated flavours that include the product’s original, full flavours and new zero calories flavors. In 2007, we discontinued the Clearly Canadian O+2® oxygen enhanced waters due to diminishing sales and introduced Clearly Canadian® Natural Enhanced Waters as a natural and organic entry into the rapidly growing enhanced water category.

New Initiatives

Our Company has historically introduced innovative beverage products to the marketplace, including Clearly Canadian® sparkling flavoured waters, Battery energy drink (one of North America’s first energy drinks), Orbitz

18

(beverage with floating beads) and Reebok Fitness Water (one of North America’s first vitamin enhanced waters). We are focused on continuing this tradition and using our experience and technical knowledge to invest in research and innovation for all of our product offerings, including beverages, organic baby products and organic and natural snacks. We are also consistently exploring opportunities to license our Clearly Canadian® brand name for profitable ventures and to acquire niche companies or products in the “alternative” beverage or organic and natural food category which could increase their competitiveness by utilizing our existing sales, marketing and administrative infrastructure.

Distribution and Sales

For most of our product lines, we distribute and sell through a network of food or beverage distributors (our DSD System). Typically, we appoint distributors to distribute and sell our products within an assigned territory. Our distributors purchase finished goods from our company and are, in certain circumstances, subject to certain minimum sales performance and sales promotion requirements within their territories in order to maintain their distribution rights. In addition to the DSD System, we also sell some of our products on a direct sale basis to certain retailers. We utilize our own sales team, and, in certain territories, a broker sales team to sell into the DSD network, to support the DSD network and to sell directly to retailers. Distributors purchase products from us for resale to retailers. Brokers act as sales agents for us within designated territories and receive commissions to sell to distributors or to retailers. Because distributors take title to the products upon purchase, product pricing decisions on sales of our products by the distributors are generally made in their sole discretion, although we may participate in product pricing during promotional periods.

In 2007, we discontinued our relationship withDr. Pepper/Seven Up Bottling Group based in Dallas, Texas, which previously covered the majority of states in the Mid West, South Central and South West of the United States and accounted for over 20% of our U.S. sales of Clearly Canadian® beverage products, in an attempt to diversify our distribution network to align ourselves with distribution companies that are not affiliated with traditional soft drink beverage companies. Since these efforts began, we have signed several significant independent distributors in key markets such as New York and Los Angeles and we have ongoing resources devoted to expanding our network of beverage distributors. In Canada, our principal selling arrangement for beverages is through Acosta Canada, which is a large food and beverage broker providing a full range of selling and merchandising services. With respect to distribution of our beverage products in countries other than the U.S. and Canada, we have distribution arrangements with various distribution groups in the Caribbean, Turkey, Korea, Indonesia, and other countries. During the 2007 fiscal year, the largest markets for our products were the United States (approximately 37.4% of total sales), Canada (approximately 61.6% of total sales) and International (1.0%) .

Our customer base for our organic baby food and dried fruit and nut snack products consists principally of natural food distributors, including Tree of Life, the largest such distributor in Canada which also focuses heavily on mainstream retailers. Recently, growth of natural and organic foods has shifted from the natural food channel to the grocery channels as mainstream grocery distributors and retailers provide these products to meet consumer demand and awareness. Three of our distributors account for over 50% of sales of our organic baby food and dried fruit and nut snack products. We currently only sell these products in Canada.

Marketing

We use a mix of trade, retail and consumer advertising to promote our products, including retail listing fees, in store promotions, distribution drive incentives and for our My Organic Baby brand we are utilizing mass print advertising. For many of our products, we are at a stage where our marketing activities in certain regions and categories require us to spend greater than our profitability, however, in those situations we have determined that the investment is necessary to gain market share. We also expect to gain consumer exposure through the significant role our beverage products are playing in an eight-episode business reality television series that is airing on a U.S. cable network in 2008.

Concerning our charitable initiatives, we have partnered with Global Water, a U.S. based, non-profit organization committed to establishing safe water supplies in developing nations. Through corporate donations and upcoming fundraising events, we finance and construct the creation of clean and safe drinking water systems in villages in

19

developing nations. We plan to finance a minimum of two projects a year at a cost of $20,000 per project. We completed two projects in fiscal 2007 in Central America and expect to complete two projects in 2008.

Concerning our charitable initiatives, we have partnered with Global Water, a U.S. based, non-profit organization committed to establishing safe water supplies in developing nations. Through corporate donations and upcoming fundraising events, we finance and construct the creation of clean and safe drinking water systems in villages in developing nations. We plan to finance a minimum of two projects a year at a cost of $20,000 per project. We completed two projects in fiscal 2007 in Central America and expect to complete two projects in 2008.

Seasonality

Sales of both beverage products and snack food products are subject to seasonal variations in demand. For example, consumers in North America typically consume fewer beverage products in the late fall, winter and early spring months and consume a higher amount of snack food around some holidays. As a result, our sales and results have varied seasonally.

Competition

We products compete in highly competitive geographic and product markets against companies with much greater resources than us. The alternative beverage market includes international, national, regional and local producers and distributors such as:

• Coca-Cola – producer of Fruitopia, Nestea, Powerade, Fuze, Vitamin Water and Dasani;

• PepsiCo – producer of Lipton Teas, Aquafina, SoBe, Izze and Gatorade;

• Cadbury – producer of Snapple and Stewart’s Soda;

• Nestlé – producer of Perrier, Poland Springs, Arrowhead and other water beverages; and

• Red Bull and Monster energy drinks;

Our direct competitors in the natural and organic snack food and baby food markets include:

• Heinz Company – producer of Heinz organic baby foods in jars and cereals;

• Hain-Celestial – producer of Earth’s Best, a full line of organic baby food line in the U.S. and baby food jars in Canada;

• President’s Choice – producer of PC Organics, an organic line of baby food exclusive to Loblaws, a Canadian grocery chain;

• Johnvince – markets dried fruits and nuts in bulk and packages under many brand names such as Planters;

• Dan-D Foods – markets dried fruits and nuts under Dan-D-Pack and sold primarily in Western Canada;

• Navitas Natural Foods – markets organic functional foods under brand names Cacao Power TM, Goji Power TM, Golden Power TM, Maca Power TM, Yacon Power TM, Cashew Power TM.

While we believe that we compete favorably on factors such as quality, merchandising, range of flavors, brand name recognition and loyalty, the expansion of competitors for all markets in which we operate, along with the expansion of our competitor’s products, many of whom have substantially greater marketing, cash, distribution, technical and other resources than we do, could resulted in our products having a decreased market share, as we have experienced with our beverages over the past several years, or decreased growth potential. While we will continue to experience

20

these increasing competitive pressures, we believe that we can improve our market share in this competitive environment by implementing the initiatives described above.

Raw Materials and Suppliers

We, and our co-packers, acquire the raw materials that we use in producing our finished products from a variety of suppliers. The pricing and availability of such raw materials is subject to change based on competitive conditions. However, in certain instances we secure the supply and pricing of some raw materials through contractual commitments.

Our bottles are supplied from one glass bottle manufacturer and two plastic (PET) bottle manufacturers. Based on our knowledge of the capacities of our suppliers, we expect to have a sufficient supply of bottles to enable us to meet our anticipated future requirements.

We currently use three co-pack bottling facilities to produce our beverages and between five and six co-pack facilities to produce our organic baby food, all of whom utilize facilities in the U.S. and Canada.

The water used in our Clearly Canadian® sparkling flavoured sparkling beverages presently comes from municipal water supplied by our co-packers. The water used in our private label oxygen enhanced water beverage is supplied by our co-packer from a spring water supply source located in the Cascade Mountains in Washington and the water used in our Clearly Canadian® Natural Enhanced Waters is derived from an artesian water source we own in Formosa, Ontario. On an on-going basis, we review the sources of the water used in our products and may make changes to the sourcing of its water in the future.

We believe we have an adequate supply of raw materials, including dried fruits, nuts, organic baby food materials and water to meet our present production requirements.

Quality Control

The quality of all of our products is intended to meet or exceed the requirements imposed by applicable regulatory authorities in the United States, Canada and other countries where our products are sold. For products that utilize water from our water sources, our system of quality control begins at the well site where we closely monitor the quality of the source water. The water is tested a second time as it is received at the bottling facility. For all of our products, the final test is of the finished product, which is conducted after production. We conduct, or intend to conduct (in relation to our newly acquired businesses) regular inspections at each of our co-packing facilities. Our quality assurance team conducts continuous random on-site audits of the quality control systems at each facility, and continuously review standards with both suppliers and production operations. Each and every production run at our facilities is tested to ensure our product specifications are being met. We also use independent testing labs on a regular basis.

Trademarks, Copyright and Protection of Intellectual Property

We have numerous trademark registrations in the United States, Canada and in other countries worldwide in connection with our Clearly Canadian® beverage product lines. We also have trademark registrations in Canada in connection with Simply by Nature and Naturalife. Our trademark registrations are valid for varying periods of time, but are renewable before expiry. We have also applied for trademark registrations in Canada and/or the United States in connection with dailyEnergy, dailyVitamin, dailyHydration, My Organic Baby, My Organic Toddler and Glengrove Organics.

We retain copyright to any work created by our employees during the course of their employment and, where necessary, acquire copyright by assignment from independent contractors who prepare artistic work for our products and promotional materials.

We regard our trademarks, copyrights, trade secrets and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on

21

disclosure and other actions to forestall infringement. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. We have in the past, and expect that we may in the future, license elements of our distinctive trademarks, trade dress and similar proprietary rights to third parties. Product package, merchandising design and artwork are also important to our success and we intend to take action to protect against imitation of our products and packages and to protect our trademarks, patents and copyrights as necessary.

Insurance

We maintain “all risk” property insurance up to an aggregate policy limit of approximately $2,000,000 CDN, which covers loss and damage to our product inventories (loss limited to approximately $2,000,000 CDN), office contents, tenant improvements and certain buildings and equipment. Additionally, we have commercial general liability insurance that covers claims against us by third parties for bodily injury and property damage, including claims based upon product liability. The aggregate policy limit for our commercial general liability insurance is Cdn$10 million.

Government Regulation

In Canada, we, our co-packers and suppliers are required to meet the requirements of a variety of federal, provincial and local government authorities and agencies in connection with our products. With respect to federal matters, our products are regulated by Health Canada, which deals with product quality requirements, and by the Canadian Food Inspection Agency, which deals with product content and product labeling issues. At the provincial level, we are subject to regulation and controls imposed by the Ontario Ministry of Environment with respect to water drawn from our Formosa water source. Additionally, at the local level, we are regulated by certain regional authorities who deal with issues concerning land and property uses that relate to our well sites.

In the United States, we our co-packers and suppliers are required to meet the rules and regulations set down by the Federal Food and Drug Administration relating to the production, packaging, quality, labelling and distribution of our products. The operations of our production and distribution facilities are subject to various federal, state and local environmental laws and workplace regulations, including Occupational Safety and Health Act, the Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act and laws relating to the maintenance of fuel storage tanks. Additionally, at the state level, a number of government agencies and authorities impose certain licensing requirements for our products.

Independent Certification

We rely on independent certification, such as certifications of certain of our products as “organic” or “kosher,” to differentiate our products in natural and specialty food categories. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified. We utilize organizations such as Quality Assurance International (QAI) to certify our products as organic under the guidelines established by the USDA. Similarly, we utilize appropriate kosher supervision organizations to certify certain of our products as kosher.

Employees

As of December 31, 2007, we and our subsidiaries had a total of 36 staff, who were either employed as employees or retained as consultants. Of this number, nine worked in various management and administration positions, 13 were involved in various sales, marketing and operations, and 14 work in our plant.

C.        ORGANIZATIONAL STRUCTURE

Subsidiaries

We have five wholly-owned active subsidiaries:

22

• CC Beverage (U.S.) Corporation, a Washington corporation which distributes certain of our beverage products in the U.S.;

• Blue Mountain Springs Ltd., an Ontario corporation which owns certain property in Ontario containing a potential future source of water for our products;

• Clearly Canadian Beverage (International) Corporation, a Barbados corporation which has no current operations;

• DMR Food Corporation, an Ontario corporation which operates our dried fruit and nut snack business; and

• My Organic Baby Inc., an Ontario corporation which operates our organic baby products business.

D.        PROPERTY, PLANTS AND EQUIPMENT

Our corporate head offices are currently located at 220 Viceroy Road, Units 11/12, Vaughn, Ontario. This space comprises approximately 12,000 square feet, which packages and warehouses our dried fruit and nut products and is used as an office for sales and marketing staff for those products along with our organic baby food products. This facility is leased at a basic rate of CDN$120,000 per year plus expenses and has a lease which expires on June 13, 2013.

During 2007, our corporate head offices were located at 2267 10th Avenue W., Vancouver, British Columbia. The space was approximately 1,600 square feet in size, and was leased at a basic rate of $60,000 CDN per year plus expenses. This lease expired on December 31, 2007. We maintain these offices on a month to month basis with basis lease rate of $30,000 CDN per year.

We own two properties in Ontario which contain water sources. One site is in Formosa, Ontario which as an artesian well with a water-taking permit allowing up to approximately 238,000 gallons per day to be drawn from the property. This permit is subject to renewal every two years. The other site is in Collingwood, Ontario and consists of a 4 acre parcel of land with a spring water source which currently has no permit to draw water. We also own 300 acres of land in Piney, Manitoba which may be developed as a future water source.

Environmental Issues

Based on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital expenditures, earnings and competitive position of our company in the current financial year and are not expected to have a significant effect in the reasonably foreseeable future.

ITEM 4A.            UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5.               OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.        Operating Results Overview

In 2007, we were primarily in the business of producing, distributing and marketing premium alternative beverages, organic baby food and healthy snack products, Our beverage products were distributed primarily in the United States and Canada and certain of our beverage products were distributed in Korea, Indonesia, and other countries.

During the 2007 fiscal year, the largest markets for our beverage products were the United States (approximately 73.4% of total beverage sales), Canada (approximately 24.6% of total beverage sales) and International (2.0 % of total beverage sales). In total, our beverage sales equalled approximately 52.7% of our total sales. In 2007, we

23

began selling organic baby food and healthy snack products in Canada as a result of our acquisitions of My Organic Baby and DMR Food Corporation, respectively. In 2007, sales of organic baby food equaled 10.6 % of our total sales and sales of healthy snack products equalled 36.7% of our total sales.

Critical Accounting Policies

The following discussion is based on the consolidated financial statements included in this annual report which have been prepared in accordance with Canadian GAAP. These principles differ in certain material respects from U.S. GAAP. These differences are described in note 19 of our consolidated financial statements.

In the ordinary course of business, we make estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with Canadian GAAP. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

There are several accounting policies that we believe are critical to the presentation of our consolidated financial statements. Note 2 - “Summary of significant accounting policies” to our consolidated financial statements summarizes each of these significant accounting policies. Those accounting policies should be read in conjunction with the other notes to the consolidated financial statements and management’s discussion and analysis of results of operations and financial condition described in this “Operating and Financial Review and Prospects.” Set out below are certain of the accounting policies that we believe are critical to the presentation of its consolidated financial statements.

Going concern

The accompanying 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 we are 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. We recorded a loss of $12,796,000 for the year ended December 31, 2007. Operations have been funded primarily from the issuance of capital stock, and we will likely continue to draw down our cash reserves for the foreseeable future until a self-sustaining level of sales is attained.

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

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.

Finished Goods, Inventory

We value our finished goods at standard costs and our work in progress inventories at moving average costs. We assess the need for inventory write-downs based on its assessment of net realizable value using assumptions about future demand and market conditions. When the results of these assumptions differ from our projections, an additional inventory write-down may be required.

Intangibles, Long-lived Assets and Goodwill

24

We assess the impairment of goodwill on an annual basis and identifiable intangibles and long lived-assets whenever event or changes in circumstance indicate that the carrying value may not be recoverable. Factors which could trigger an impairment review include significant underperformance relative to plan, a change in our business strategy, or significant negative industry or economic trends. When we believe that the carrying value of intangibles, long lived assets or goodwill may not be recovered based on the existence of one or more of the above indicators of potential impairment, we determine what impairment exists based on the fair value of the long lived asset as goodwill. At December 31, 2007 no impairment write-down was required.

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 and land and water sources. Actual results could differ materially from those estimates.

Recent Canadian Accounting Developments

The CICA issued four new accounting standards: Handbook Section 1530, Comprehensive Income ("Section 1530"), Handbook Section 3855, Financial Instruments - Recognition and Measurement ("Section 3855"), Handbook Section 3865, Hedges ("Section 3865") and Handbook Section 3861, Financial Instruments - Disclosures which become effective for us for periods beginning on or after January 1, 2007.

Comprehensive income: Section 1530 introduces Comprehensive income which is comprised of Net income and Other comprehensive income and represents changes in Shareholders' equity during a period arising from transactions and other events with non-owner sources. Other Comprehensive Income ("OCI") includes unrealized gains and losses on financial assets classified as available-for-sale, unrealized foreign currency translation amounts, net of hedging, arising from self-sustaining foreign operations, and changes in the fair value of the effective portion of cash flow hedging instruments. Clearly Canadian’s Consolidated Financial Statements will include a Consolidated Statement of Comprehensive Income and the cumulative amount, Accumulated Other Comprehensive Income ("AOCI"), will be presented as a new category of Shareholders' equity in the Consolidated Balance Sheet.

Financial instruments - recognition and measurement: Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. It requires that financial assets and financial liabilities including derivatives be recognized on the balance sheet when we become a party to the contractual provisions of the financial instrument or a non-financial derivative contract. All financial instruments should be measured at fair value on initial recognition except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other liabilities.

Financial assets and financial liabilities held-for-trading will be measured at fair value with gains and losses recognized in net income. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading, will be measured at amortized cost using the effective interest method of amortization. Available-for-sale financial assets will be measured at fair value with unrealized gains and losses including changes in foreign exchange rates being recognized in OCI. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market will be measured at cost. Derivative instruments must be recorded on the balance sheet at fair value including those derivatives that are embedded in financial instruments or other contracts but are not closely related to the host financial instrument or contract, respectively.

Changes in the fair values of derivative instruments will be recognized in net income, except for derivatives that are designated as a cash flow hedge, the fair value change for which will be recognized in OCI. Section 3855 permits an entity to designate any financial instrument as held-for-trading on initial recognition or adoption of the standard, even if that instrument would not otherwise satisfy the definition of held-for-trading set out in Section 3855. Other significant accounting implications arising on adoption of Section 3855 include the initial recognition of certain financial guarantees at fair value on the balance sheet and the use of the effective interest method of amortization for

25

any transaction costs or fees, premiums or discounts earned or incurred for financial instruments measured at amortized cost.

Hedges: Section 3865 specifies the criteria under which hedge accounting can be applied and how hedge accounting should be executed for each of the permitted hedging strategies: fair value hedges, cash flow hedges and hedges of a foreign currency exposure of a net investment in a self-sustaining foreign operation. In a fair value hedging relationship, the carrying value of the hedged item will be adjusted by gains or losses attributable to the hedged risk and recognized in net income. The change in the fair value of the hedged item, to the extent that the hedging relationship is effective, will be offset by changes in the fair value of the hedging derivative. In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative will be recognized in OCI. The ineffective portion will be recognized in net income. The amounts recognized in AOCI will be reclassified to net income in the periods in which net income is affected by the variability in the cash flows of the hedged item. In hedging a foreign currency exposure of a net investment in a self-sustaining foreign operation, the effective portion of foreign exchange gains and losses on the hedging instruments will be recognized in OCI and the ineffective portion is recognized in net income.

Impact of adopting sections 1530, 3855, 3861 and 3865

Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated except to redefine amounts previously presented in shareholders’ equity as cumulative translation account to be accumulated other comprehensive loss. The adoption of these Handbook Sections had no impact on opening retained earnings.

Upon adoption of these new standards, on January 1, 2007, we designated our cash, cash equivalents, and short-term investments as held-for-trading, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities. We had neither available-for-sale, nor held-to-maturity instruments during the year ended December 31, 2007. We have not designated any financial liabilities as held-for-trading.

Results of Operations

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Sales were $10,623,000 for the twelve months ended December 31, 2007 compared with $7,462,000 for the twelve months ended December 31, 2006, an increase of 42% or $3,161,000. The overall increase in sales was a result of the addition of $3,896,000 in sales from our healthy snack division (acquired in February, 2007 through our acquisition of DMR Food Corporation) and $1,124,000 in sales from our organic baby product division (acquired in May, 2007 through our acquisition of My Organic Baby, Inc.). Sales for the twelve months ended December 31, 2007 from our beverage division were $5,603,000 compared with $7,462,000 for the same period last year, a decrease of $1,859,000 or 24.9% . The decrease in beverage sales is attributable to the decline in sales of our 14oz flavoured sparkling water by 36% due to the increase in competition and product alternatives in the marketplace. Also the decline can be attributed to our non-carbonated, non-branded water beverage which was influenced materially by the size of orders from a major customer. However, sales from our new beverage products including our 1 Litre sparking flavoured format and our new Enhanced Waters, grew 342% for the twelve months ended December 31, 2007 compared to the same period in 2006. We expect sales of our new beverage product offerings to continue to grow.

Cost of sales expenses were $9,212,000 for the twelve months ended December 31, 2007 compared with $5,677,000 for the same period last year, an increase of $3,535,000. The net of sales less cost of sales, being the gross profit margin percentage, decreased to 13.2% for the twelve months ended December 31, 2007 from 23.9% for the twelve months ended December 31, 2006, a decrease of 10.7% . The decrease in gross profit margin is a result of a number of factors. First, lower margins can be attributed to the continued integration of our new healthy snack and organic baby product business units with our beverage units. The healthy snack unit has lower gross profit margin percentages than the other businesses, however, it also has lower selling and marketing expenses associated with its business. Second, the beverage unit is encountering higher costs in raw materials and increases in fuel surcharges

26

resulting in increases in costs of goods sold. Finally, there were one time charges associated with obsolete inventory and a product recall.

Selling, general and administrative expenses were $14,258,000 for the twelve months ended December 31, 2007 compared with $9,177,000 for the same period in 2006, an increase of $5,081,000 (Note: certain stock-based compensation previously recorded as a separate line item is now being recorded, and compared to the previous year, as a remuneration and payroll expense). An analysis of the major components of these expenses is as follows:

	Twelve months ended December 31, 2007	Twelve months ended December 31, 2006	Increase (Decrease)
Remuneration and payroll cost	$9,901,198	$5,834,522	$ 4,066,676
Marketing programs and retail support	1,696,839	1,401,995	294,844
Professional fees	885,498	505,001	380,497
Corporate development and financing	-	190,000	(190,000)
Management fees	-	302,788	(302,788)
Investor relations and shareholder information	949,083	240,297	708,786
Product development	437,575	63,482	374,093
Insurance	198,832	332,246	(133,414)
Other general and administrative	459,343	306,669	152,674
Total Selling, General & Administrative expenses	$14,528,368	$9,177,000	$ 5,351,368
Portion of SG&A expenses which are stock- based compensation (paid in shares, options, warrants)	$3,322,00	$3,310,000	$12,000

Remuneration and payroll costs increased in 2007 compared to 2006 by $4,066,676, primarily as of the following: (i) a consulting agreement that was terminated on May 24, 2007, for which we expensed $1,459,800 (ii) our determination that the value of outstanding the warrants was $1,449,200, which we also expensed and (iii) an $533,200 relating to the employment agreement with former officers and shareholders of My Organic Baby Inc. We also increased our management and administrative remuneration with the addition of the healthy snack and organic baby divisions.

Marketing programs and retail support expenses related to our beverage division increased in 2007 compared to 2006 as a result programs to promote our healthy snack food and organic baby products business units. As we complete the integration of the sales and marketing functions of our beverage, healthy snack and organic baby product business units, we will be able to provide a trend analysis of our selling expenses.

Professional fees increased by $380,497 because we had to incur legal fees and fees for our auditor’s review of the financial statements for the second and third quarters of 2007, related to our Form F-3 filing (see “History and Development of the Company – Convertible Note Financing”). The decrease in corporate development and financing expenses related to the inclusion in the second quarter of 2006 of a one-time corporate development expense in the amount of $190,000. Our management fees decreased by $302,778 due to our termination of a management contract with BG Capital Management Corp. after the end of March 31, 2006. Our increase in investor relations costs relates to an increase in shareholder awareness initiatives.

The increase in product development costs relates to an increase in development of new products in the beverage unit schedule to launch in 2008, which we did not have in 2006. The decrease in insurance costs relates to the decrease to our Directors and Officers Liability insurance coverage. Other general and administrative expense increased due to commissions paid to brokers in the beverage unit, and the addition of DMR Food Corporation and My Organic Baby Inc. into the consolidated expenses.

27

The loss for the twelve months ended December 31, 2007 was $12,796,000 ($0.63 per share) compared with a loss of $8,247,000 for the twelve months ended December 31, 2006 ($0.82 per share). An analysis of the loss taking into account additional items is as follows:

	Twelve months ended December 31, 2007	Twelve months ended December 31, 2006	Increase (Decrease)
Earnings (Loss)	($12,796,000)	($8,247,000)	$4,549,000
Interest income	319,000	132,000	187,000

Interest income represents interest we earn on our surplus cash reserves invested in short term bank interest earning deposits.

Year ended December 31, 2006 compared with Year ended December 31, 2005

Sales were $7,462,000 for 2006 compared with $8,712,000 for 2005, a decrease of 14.3% ($1,250,000) compared to 2005. This decline in sales is attributable to the cumulative impact of increased competition, lack of new product and package design initiatives and significantly reduced sales and marketing activities in recent years. This has been a direct result of working capital constraints which we have has addressed, in part, through our recently completed financings (see Liquidity and Capital Resources). Going forward it will be necessary for us to secure additional financing in order to support more aggressive marketing and sales activities for our beverage products.

The decrease in sales for 2006 compared with 2005 comprised of decreases in sales of both the non-carbonated and carbonated lines. Sales of non-carbonated product were $2,465,000 for 2006 compared with $2,627,000 for 2005, a decrease of $162,000 from 2005. Sales of our carbonated product line were $4,997,000 for 2006 compared to $6,086,000 in 2005, a decrease of $1,089,000 from 2005. We believe the decline in the carbonated product line was a result of increased competition and product alternatives in the marketplace.

Cost of sales expenses were $5,677,000 for 2006 compared with $6,349,000 for 2005, a decrease of $672,000 from 2005. The net of sales less cost of sales, being the gross margin percentage, decreased to 23.9% in 2006 compared with 27.1% in 2005. The decrease in gross margin percentage was due primarily to a write down of inventory in 2006 (62.5% of the 3.2% decrease). The remainder of the decrease in gross margin represents cost escalation of product inputs of raw materials and packaging which we were unable to pass on to our customers. We have made adjustments to our selling prices and distribution model which we believe will help offset anticipated increases in raw materials and packaging.

Beginning January 1, 2006, we deduct all sales incentives paid to direct or indirect customers from gross sales in accordance with new EIC-156 of the Canadian Institute of Chartered Accountants. Sales incentives include contractual marketing payments to distributors, coupons, rebates, free product and slotting fees. The amount of such sales incentives were $343,000 in 2006 and $429,000 in 2005. The 2005 sales figures have been restated on a consistent basis; accordingly the impact on this change in required presentation is an increase in reported sales of $86,000 in 2006 over 2005.

Selling, general and administrative expenses for 2006 compared to 2005 were as follows:

	Twelve months ended December 31, 2006	Twelve months ended December 31, 2005	Increase (Decrease)
Remuneration and payroll cost	$5,834,522	$4,474,653	$1,359,869
Marketing programs and retail support	1,401,995	1,553,349	(151,354)
Professional fees	505,001	240,436	264,565
Corporate development and financing	190,000	-	190,000
Management fees	302,788	-	302,788
Investor relations and shareholder information	240,297	35,147	205,150
Product development	63,482	-	63,482

28

Insurance	332,246	260,691	71,555
Other general and administrative	306,669	307,724	(1,055)
Total Selling, General & Administrative expenses	$9,177,000	$6,872,000	$2,305,000
Portion of SG&A expenses which are stock- based compensation (paid in shares, options, warrants)	$3.310,000	$1,612,000	$1,698,000

The primary reason for the increase in general and administrative expenses for 2006 compared to 2005 was due to our incurring certain remuneration and payroll expenses which are the fair value of stock options and warrants ($1,405,000) granted for marketing and consulting services which have resulted both in our gaining national retail listings in 2007 and raising capital in 2006 and 2007. The increase in professional fees is due to the re-audit of our December 31, 2003 and December 31, 2004 financial statements, amending our previously filed Annual Report for 2005, and fees associated with the registration with the US Securities Exchange Commission of stock issued in our financings.

Corporate development and financing costs of approximately $190,000 were paid to BG Capital Group Ltd., our controlling shareholder, in respect of reorganization and financing costs incurred on our behalf, compared with Nil in 2005. Management fees of $322,000 were paid under a contract for services with BG Capital Group Ltd. as compared with no comparable expense in 2005. The increase in investor relations costs relates to our planned increase in shareholder awareness initiatives. Product development costs in 2006 relate to the redesign and reformulation of our new sparkling water line and the creation of our Natural Enhanced Waters. The increase in insurance cost relates to the increased cost of our Directors and Officers Liability insurance coverage; however we expect a significant reduction in the cost of our Directors and Officers Liability insurance in 2007.

We incurred selling expenses of $2,326,000 for 2006 or 31.2% of sales, compared with $2,755,000 or 31.7% of sales for 2005.

Selling expenses decreased for 2006 compared to 2005 primarily due to the reversal of accrued marketing program expenses of $161,000 as a result of our review of the previously estimated liabilities to former distributors, and an overall decrease in selling expenses of approximately $470,000 due to lower variable remuneration, marketing costs and retail support associated with decreased sales. A significant portion of our beverage sales expenses in the United States have, for 2007, been transitioned to a variable expense model to assist our working capital requirements going forward. Offsetting these lower costs were additional expenses in 2006 of the one-time cost of video programming of $50,000 related to the creation of a reality TV series about us and new product design fees of approximately $157,000.

Stock based compensation was $2,426,000 in 2006 compared with $1,612,000 in 2005. The increased expense of $814,000 is due to the increased number and fair value of stock options granted for 2006 over 2005.

Lawsuit settlement costs of $797,000 in 2006 represents an increase of $797,000 from the previous year. This expense comprises the excess of the consideration given by us in common shares, the fair value of common share purchase warrants, and land, over the book value of debt extinguished on settlement of all litigation associated with the purchase of our Blue Mountain subsidiary. On settlement of this litigation, we retain clear title to a 4 acre parcel of land containing a significant potential water source.

Write down of property for 2006 was $137,000, compared to $382,000 in 2005, a decrease of $245,000. Management reviews the carrying cost of its capital assets at least annually, and where there is an indication of impairment in value, this loss is recognized in the year.

Amortization of property, plant and equipment for 2006 was $16,000, compared to $122,000 for 2005, a decrease of $106,000. The decrease was result of write down of machinery and equipment in 2006 and 2005.

29

Gain on sale of investments of marketable securities for 2006 was $201,000 compared with Nil in 2005. This was due to the sale of all of our holdings of a public company investment.

Restructuring costs were $112,000 in 2006, compared with $680,000 in 2005, for a decrease of $568,000. The restructuring, now completed, related to the amendment of consulting contracts with former management, and premises lease obligations.

Interest income of $132,000 in 2006 represents an increase of $132,000 over 2005. Our surplus cash reserves are invested in short term bank interest earning deposits. These reserves were raised in private placements of stock for future working capital requirements.

Royalty income was $125,000 for 2006 compared with $76,000 for 2005, an increase of $49,000. The royalty of $125,000 is the maximum royalty receivable in any year, and is received pursuant to an agreement with the purchaser of our Washington State bottling facilities in 2002 and is based on the number co pack sales at the facility with the purchaser. Under the terms of the sale agreement, the purchaser’s obligation to pay the royalty expires February 2007.

Other expense was a recovery of ($35,000) for 2006 compared with an expense of $231,000 for 2005, a decrease of $266,000. The $231,000 in other expense in 2005 related to financing and accretion costs on short term debt which was retired.

The loss for 2006 was $8,247,000 (or $.82 per share) compared with $6,069,000 for 2005 (or $1.06 per share). The increase in the loss for 2006 over 2005 of $2,178,000 is primarily due to the reasons detailed above.

Selected Annual Information
($ in thousands, except per share data)
		Year Ended		Year Ended		Year Ended
		December 31,		December 31,		December 31,
		2007		2006		2005
Total revenue	$	10,623	$	7,462	$	8,712
Net loss		12,796		8,247		6,069
Basic and diluted loss per share		0.63		0.82		1.06
Total assets		22,178		9,093		6,259
Long term debt		9,955		-		1,501
Cash dividends paid (Preferred Shares)		62		94		-

Total revenue has been reclassified in the above presentation for all comparative periods to give effect to the presentation adopted with EIC-156, whereby vendor and reseller sales incentives are deducted from gross sales.

The following is a summary of our quarterly results for the eight most recently completed financial quarters ended December 31, 2007.

Amounts in Accordance with Canadian	2007		2007		2007		2007		2006		2006	2006		2006
GAAP (unaudited)	31-Dec		30-Sept		30-Jun		31-Mar		30-Dec		30-Sep	30-Jun		31-Mar
($ in thousands, except per share data)
Sales	2,848		3,312		2,996		1,467		1,065		2,022	2,673		1,702
Cost of sales	2,901		2,778		2,422		1,111		1,023		1,402	1,910		1,342
Gross profit	(53	)	534		574		356		42		620	763		360
Selling, general and administrative expenses	2,839		2,444		5,590		1,881		1,727		1,597	1,785		1,642
Amortization of property, plant and equipment	22		38		6		6		(62	)	18	28		32
Royalty	-		-		-		-		-		-	(66	)	(59	)
Interest Income	(108	)	(64	)	(84	)	(63	)	4		1	68		101

30

Other, interest, gains, losses and writedowns	(312	)	294		650		746		(256	)	1,167		1,572		688
Net loss	(2,494	)	(2,178	)	(5,588	)	(2,214	)	(1,371	)	(2,208	)	(2,624	)	(2,044	)
Net loss per share	(0.11	)	(0.10	)	(0.29	)	(0.12	)	(0.11	)	(0.19	)	(0.27	)	(0.29	)
Weighted average shares outstanding	20,392,029		20,809,731		19,784,680		18,836,629		12,896,845		11,754,491		9,086,385		7,072,681

Total revenue has been reclassified in the above presentation for all comparative periods to give effect to the presentation adopted with EIC-156, whereby vendor and reseller sales incentives are deducted from gross sales.

Revenue has remained relatively consistent quarter over quarter after the acquisitions in Q1 & Q2 of 2007. Q4 revenue has decreased slightly due to the seasonality of the beverage business. Cost of Sales has also remained consistent except for the one-time charges in Q4 due to obsolete inventory and a product recall. We have not had a consistent trend in selling, general and administrative costs due to the integration of the acquisitions and professional fees associated with our recent financing and acquisitions.

B.        Liquidity and Capital Resources

Working Capital Requirements

We had working capital of $7,625,000 as of December 31, 2007, compared to working capital of approximately 5,245,000 as of December 31, 2006. Our spending in fiscal 2008 has decreased our working capital.

We improved our cash position in 2007, having cash and cash equivalents of approximately $8,786,000 as of December 31, 2007 compared to approximately $5,267,000 as of December 31, 2006. In the spring of 2007, we completed a series of brokered and non-brokered private placements for a total sale of 1,166,333 common shares for an aggregate purchase price of $3,499,000. In September of 2007, we completed our Senior Convertible Note financing for an aggregate amount of $9,360,000, of which we received $9,000,000 in cash. Our increase in our working capital and cash position in 2007 is due to the private placements that occurred in 2007 and our Senior Convertible Note financing.

We continue to operate at a loss and are currently utilizing approximately $325,000 of our cash reserves per month to sustain operations. We are continuing to evaluate various marketing initiatives and the potential of acquiring shelf space at national retailers. Should we decide to make investments of this nature we will be required to draw down our cash reserves accordingly unless additional equity can be raised.

We believe that our internal sources of liquidity, together with our operating line of credit and the net proceeds from our recent private placements and Senior Convertible Note financing will be sufficient to satisfy cash and working capital requirements through fiscal 2008. However, to the extent that such sources of liquidity are not sufficient, we may need to seek additional sources of debt and/or equity financing in the future to fund our operations and working capital. Such financings may or may not be available on attractive terms, or at all, or may be dilutive to current or future shareholders. We have no significant other potential sources of financing such as term debt facilities available to us at this time. Please also see the risk factors and notes regarding “Forward-Looking Statements” and “Going Concern” assumptions set out in this annual report.

Operating Activities

Net cash from operating activities was a deficit of approximately of $6,069,000 as of December 31, 2007 compared to deficit of $5,655,000 as of December 31, 2006, due to the loss for the year ended December 31, 2007 of $12,796,000 ( December 31, 2006 - $8,247,000) . Our operating losses, conversion to inventory and acquisition expenditures for the twelve months ended December 31, 2007 used cash of $6,069,000. This loss was offset by the add back of non-cash working capital balance related to operations of $3,469,000 cash used (December 31, 2006 - $414,000 cash used) and non cash items such as depreciation and amortization of $875,000 (December 31, 2006 - $16,000), stock-based compensation expenses of $3,310,000 (December 31, 2006 - $3,310,000), loss on settlement of debt of $Nil (December 31, 2006 – $35,000), loss on settlement of lawsuits by issuing shares of $Nil (December 31, 2006 – $797,000), issued shares as payment for services of $269,000 (December 31, 2006 – $772,000) and a write-down on property plant and equipment of $Nil (December 31, 2006 - $137,000), interest accretion of

31

$238,000 (December 31, 2006 - $120,000), and gain on financial instruments of $1,434,000 (December 31, 2006 - $Nil).

Financing Activities

In 2007, we completed our Senior Convertible Note financing for an aggregate amount of $9,360,000, of which we obtained $9,000,000 in cash. We also completed three private placement equity sales totalling 1,166,333 shares to raise $3,499,000 in cash. We raised $1,260,806 in cash upon the issuance of 792,946 shares on the exercise of stock options and warrants. The total cash raised by the issuance of shares in the year ended December 31, 2007 totalled $4,690,000.

We issued an additional 6,560,000 common shares on the conversion of our remaining Class Preferred Shares in 2007. The conversion of Class B Preferred shares to common shares had no effect on our cash position.

Investing Activities

Investing activities used cash of $4,914,000 for the year ended December 31, 2007 compared to additional cash flow of $547,000 for December 31, 2006. Our primary investing activities were:

• Acquisition of DMR Food Corporation for $1,743,000

• Acquisition of My Organic Baby Inc. for $3,105,000

• Purchase of property, plant and equipment of $66,000

Bank and Trade Indebtedness

At December 31, 2007, our liabilities relating to operations consisted primarily of operating bank loan indebtedness of, $49,000, accounts payable to suppliers and accrued liabilities of $4,273,000, and capital lease obligations of approximately $191,000.

Our 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 December 31, 2007 - $303,839, December 31, 2006 - $403,593). The weighted average interest rate for the period ended September 30, 2007 was 12.04% (December 31, 2006 – 11.96%) . As at December 31, 2007 nil (December 31, 2006 - nil) had been drawn on this line of credit. This operating line of credit is also secured by a guarantee from the Company. As of February 29, 2008, the line of credit expired and we did not renew the operating line of credit.

Our subsidiary, DMR Food Corporation, has a demand operating loan facility of CA$250,000, 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 DMR as well as guarantee and postponement of claims in the amount of CA$455,000 by the Company. The weighted average interest rate from February 7, 2007 to December 31, 2007 was 5.86% . As of December 31, 2007 $49,407 had been drawn on this line of credit.

Our subsidiary, My Organic Baby, Inc., has a demand operating loan facility of CA$250,000, 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 My Organic Baby, Inc., as well as guarantee and postponement of claims in the amount of CA$250,000 by a former shareholder of My Organic Baby, Inc. and a collateral mortgage in the amount of $211,000 on property owned by the former shareholder. The weighted average interest rate from February 7, 2007 to December 31, 2007 was 5.90% . As of December 31, 2007 $nil had been drawn on this line of credit. As of December 31, 2007, the line of credit expired and we did not renew the operating line of credit.

32

Long-Term Debt

Our long-term debt at December 31, 2007 was $5,442,000. This amount is attributable to our Senior Convertible Notes of $9,360,000 and the Notes issued in connection with our acquisition of My Organic Baby, Inc. and DMR Food Corporation for a total of $2,421,00, less a total discount on our Senior Convertible Notes and the acquisition Notes of $6,339,000, using the Black-Scholes method.

C.        RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

During the past three years, we have had no material research and development expenditures.

D.        TREND INFORMATION

A significant trend reflected in our recent financial results is declining sales revenues for our beverage products. Other than in 2001, where revenues increased slightly, our revenues on beverage sales have declined each year since 1996. For our beverage division, we had revenues of $5,603,000 in fiscal 2007, compared to $7,462,000 in fiscal 2006, $8,712,000 in fiscal 2005, $11,064,000 in 2004, $13,270,000 in 2003, $20,205,000 in 2002, $23,257,000 in 2001, and $23,247,000 in 2000. However, our overall sales revenues increased in fiscal 2007 due to ours sales of organic baby food and healthy snack products. These sales are attributable to our acquisitions of My Organic Baby, Inc. and DMR Food Corporation. As a result of these acquisitions and as a result of expected internal growth in both these companies and with our improved beverage products in, we expect, in fiscal 2008, to increase our overall revenues.

Another significant trend for our company had been deterioration in our working capital position. However, we managed to significantly improve our working capital from financing activities in 2007.

E.        OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

F.        TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Our total contractual obligations at December 31, 2007 were $47,398,000 and were comprised of various types of debt instruments, including consulting contracts, and operating leases. See sections above entitled “Recent Financing” and “Acquisitions in 2007” for further information.

The following table is a summary of our contractual obligations as at December 31, 2007:

	Payments Due by Year Ending December 31,
Contractual Obligations	Total	2008	2009	2010	2011	2011	2012 and
($ in thousands, except per share data)							thereafter
Senior convertible note payable(1)	40,313	842	842	1053	1684	1684	34,208
Subordinate convertible note	6,857	221	221	221	221	221	5,752
payable(1)
Operating leases (office equipment
and premises)	228	57	57	57	57	-	-
Total Contractual obligations	47,398	1,120	1,120	1,331	1,962	1,905	39,960

33

(1) Includes interest payable on convertible notes. See “Item 4 –History and Development of the Company – Material Events” to this annual report for additional information.

G.        SAFE HARBOR

The foregoing discussion in this Item 5 contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 concerning our business strategies, market conditions, outlook and other matters. This discussion and analysis of our results of operations and financial condition is qualified in its entirety by reference to and should be read in conjunction with our audited financial statements for the fiscal year ended December 31, 2007 and the related notes thereto, as well as the risk factors set out in this annual report.

ITEM 6.               DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.        DIRECTORS AND SENIOR MANAGEMENT

Our board of directors (the “Board”) is currently comprised of three directors, as of June 17, 2008. Directors are appointed for three-year terms, however one-third (or the next smaller whole number if the number of directors is not a multiple of three) of the number of directors fixed pursuant to the articles is required to retire from office at succeeding annual general meetings. A retiring director is eligible for re-election and shall act as a director throughout the meeting at which he retires.

Executive officers are appointed by the Board and hold office until their death, resignation or removal from office.

During the latter half of fiscal 2007 and into fiscal 2008, there have been a number of changes in the composition of our Board and our senior management:

• on January 17, 2008, Marco Martin resigned from the Board;

• on February 26, 2008, Bobby Genovese was appointed as the Chairman of our Board;

• on November 30, 2007, Andrew Strang resigned from Corporate Affairs;

• on June 15, 2008, Edwin Fok’s term as our Chief Financial Officer expired;

• on February 26, 2008, Brent Lokash resigned as our Chief Executive Officer and as a member of our Board, and on February 26, 2008 Bobby Genovese was appointed as our Chief Executive Officer;

• on April 16, 2008, David Reingold, our President, resigned from the Board; and

• on June 10, 2008, Samantha Alfonzo-Casanova was appointed to the Board.

Our current directors and senior management, their ages, positions held, and duration as such, are as follows as of June 17, 2008:

34

Name	Position Held with the Company	Age	Date First Elected or Appointed
Bobby Genovese	Chairman of the Board of Directors and Chief Executive Officer	46	November 8, 2006(1) February 26, 2008(2)
David Reingold	President	46	May 29, 2007
Samantha Alfonzo-Casanova	Director	32	June 10, 2008
George Reznik	Director	41	May 29, 2007

(1)	Appointed to board of directors. Mr. Genovese was appointed Chairman of the Board on February 26, 2008.
(2)	Appointed as Chief Executive Officer

The following is a brief account of the education and business experience of our current directors and senior management during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.

Bobby Genovese, Chairman of the Board and Chief Executive Officer

Bobby Genovese became Chairman of our Board Mr. Genovese is the founder and owner of BG Capital Group Limited and BG Capital Management Corporation, both based out of Barbados. Mr. Genovese has over 15 years of mergers and acquisition experience. His portfolio of companies holds assets of over $200 million and generates revenues in excess of $150 million.

David Reingold, President

David Reingold currently serves as our President. Mr. Reingold was previously a Director from May 2007 to April 16, 2008. Mr. Reingold is the founder of DMR Food Corporation, a top seller of organic and natural snack foods in Eastern Canada and is responsible for some of the leading brands in the industry. In addition, Mr. Reingold is the co-founder of My Organic Baby Inc., the first full line of certified organic baby food in Canada. His years of service within the Canadian health food industry have been highlighted by numerous product, service and supplier awards.

Samantha Alfonzo-Casanova, Director

Samantha Alfonzo-Casanova was appointed to the Board on June 10, 2008. She is a Canadian lawyer currently residing in the Cayman Islands. As an associate for a Canadian national law firm, she was involved in a number of corporate and commercial law matters including mergers and acquisitions, secured lending transactions and outsourcing agreements. She currently provides consulting services to international corporations in the Caribbean.

George Reznik, Director

George Reznik has served on the Board since May 2007. Mr. Reznik brings over eighteen years of corporate finance, operational management, investor relations and M & A experience to the Clearly Canadian Board of Directors. Mr. Reznik is currently the CFO of Intrinsyc Software, a publicly traded software developer. Previously, Mr. Reznik served at the CFO of publicly traded Digital Dispatch and CFO and COO of publicly traded Infowave Software, and as the Vice President of Finance for publicly traded Pivotal Corporation where he led the company through an Initial Public Offering on the NASDAQ and Toronto Stock Exchange during Pivotal's high revenue growth phase. Mr. Reznik is a Chartered Accountant, Chartered Business Valuator and a Certified Fraud Examiner, and holds a Bachelor of Commerce degree from the University of Manitoba, Canada.

35

Advisory Board

In the first quarter of 2006, we created the Clearly Canadian Advisory Board to provide advisory services to the company regarding product development and the expansion of sales and distribution channels. We believe that retaining persons as advisors or consultants with expertise in marketing and beverage distribution will assist in all aspect of our business, particularly with regard to enhancing our existing strategies to market and developing new strategies to market. We provide compensation to the members of our Advisory Board in the form of cash, stock options or warrants.

As of June 17, 2008, we do not have any members on the Advisory Board.

Significant Employees

Other than our senior management, we do not have any employees upon whose work we are substantially dependent.

Family Relationships

There are no family relationships between any director, executive officer or significant employee.

Arrangements with Major Shareholder

Bobby Genovese is the founder and owner of BG Capital Group Limited and BG Capital Management Corp. As of June 17, 2008, BG Capital Management Corp. is our controlling shareholder.

Marco Markin and Brent Lokash, two of our former Directors during fiscal 2007, were originally appointed to such offices in 2005 as nominees of BG Capital Group in connection with our corporate restructuring and pursuant to the Preferred Share Purchase Agreement. Marco Markin is also an employee of BG Capital Management Corp.

Involvement in Certain Legal Proceedings

None of our current directors, executive officers and control persons has been involved in any of the following events during the past five years:

• any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

• any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

• being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

• being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

B.        EXECUTIVE COMPENSATION

Set out below are particulars of compensation paid to the following persons (the “Named Executive Officers”) in fiscal 2007:

• our Chief Executive Officer

36

• our President;

• our Chief Financial Officer

• each of our three most highly compensated executive officers, other than the Chief Executive Officer, who was serving as an executive officer at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $150,000 per year; and

• any additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer at the end of the most recently completed fiscal year.

For our most recently completed fiscal year ended December 31, 2007, we had three Named Executive Officers, whose names and positions held with us are set out in the summary of compensation table below.

Summary of Compensation Table

The following table is a summary of compensation paid to the Named Executive Officers for each of our three most recently completed fiscal years, in accordance with National Instrument 51-102, Continuous Disclosure Obligations (“NI 51-102”):

Name and Principal Position of Named Executive Officers	Annual Compensation				Long Term Compensation			All Other Compen- sation
					Awards		Pay- Outs
	Fiscal Year Ending	Salary	Bonus	Other Annual Compen- sation	Securities Under Options/ SAR’s Granted	Restricted Shares or Restricted Share Units	LTIP Pay Outs
Brent Lokash(1) President, CEO & Director	2007 2006 2005	200,000 146,725 52,000	100,000 NIL N/A	NIL NIL N/A	250,000 300,000 210,000	NIL NIL NIL	N/A N/A N/A	NIL NIL NIL
David Reingold(2) President & Director	2007 2006 2005	24,257 N/A N/A	NIL N/A N/A	NIL N/A N/A	50,000 N/A N/A	NIL N/A N/A	NIL N/A N/A	NIL N/A N/A
Edwin Fok (3) Chief Financial Officer	2007 2006 2005	73,125 N/A N/A	NIL N/A N/A	NIL N/A N/A	N/A N/A N/A	NIL N/A N/A	NIL N/A N/A	NIL N/A N/A

(1) Compensation is paid in part to company controlled by the named executive officer on a fee basis for consulting services rendered to the company and in part to named executive officer for role as officer and director of Company. Mr Lokash resigned as President and was appointed CEO on May 29, 2007. Mr. Lokash resigned as a director and as Chief Executive Officer on February 26, 2008.

(2) Appointed as President and a Director on May 29, 2007.

(3) Term of appointment as CFO ended on June 15, 2008.

Report on Executive Compensation

37

During the most recently completed financial year, our compensation committee set compensation of executive officers (including the Named Executive Officers) in a manner consistent with the compensation provided by other comparable companies within the beverage industry.

The basis upon which the compensation of our President or Chief Executive Officer is determined is consistent with the compensation policy and structure which is applicable to all of our executive officers.

Our executive compensation program is based in part on a pay-for-performance philosophy. The executive compensation program is designed to encourage, compensate and reward employees on the basis of individual and corporate performance, both in the short and the long term. Base salaries are set at levels which are competitive with the base salaries paid by companies within the beverage industry and companies of comparable size, thereby enabling our company to compete for and retain executives important to our company’s long term success. Incentive compensation is directly tied to corporate and individual performance. Share ownership opportunities are provided to align the interests of executive officers with the longer term interests of shareholders.

The objectives of the executive compensation strategy are as follows: (i) to attract and retain talented and effective individuals to provide those functions which are important to our company’s success; (ii) to encourage and recognize high levels of performance by linking achievement of specific goals with inventive compensation; and (iii) to establish a clear linkage between long term executive compensation and the interests of our company and its shareholders.

Our executive compensation program has four components: (i) base salary; (ii) bonus compensation; (iii) stock option grants; and (iv) other compensation and benefits. These components may be summarized as follows:

• Base Salary. We approve ranges for base salaries for executive officers at all levels of our company and our subsidiaries based upon our analysis of appropriate external comparisons and industry reviews, together with periodic advice received from independent consultants and reviews of market data from peer groups, industry and national surveys. The level of base salary for each executive officer within a specified range is determined by our company based primarily on the executive officer’s past performance, contractual commitments, as well as by the level of responsibility, expertise and the importance of the executive officer’s position to our company.

• Bonus Compensation. Officers and employees of our company are eligible for annual incentive awards. Corporate performance, as assessed by the compensation committee or the board of directors, determines the bonus compensation to be paid to all eligible officers and employees. The targets for corporate performance established by the board of directors are set primarily by reference to our company’s expected financial performance during the fiscal year, as well as by reference to other significant factors, such as, cash management, strategic business development and management of personnel resources. The compensation committee and the board of directors have the discretion to modify corporate performance targets throughout the year.

• Stock Option Grants. Our stock option plans are administered by the corporate secretary, or such other officer or employee as may be designated by the Board. The stock option plans are designed to give each option holder an interest in preserving and maximizing shareholder value in the longer term, to enable our company to attract and retain individuals with experience and ability, and to reward individuals for current performance and expected future performance. We consider stock option grants when reviewing executive officer compensation packages as a whole.

• Equity Incentive Plan. Our equity incentive plan is administered by our directors, or such committee as may be designated by our directors. The purpose of our equity incentive plan is to provide long-term performance incentives to certain key employees and consultants of our company and our company’s subsidiaries who are largely responsible for the management and protection of the business of our company and our company’s subsidiaries.

38

• Other Compensation and Benefits. Benefits are maintained at a level which is competitive overall in relation to appropriate external comparisons. Executive officers are entitled to certain perquisites which vary with their level of responsibility. These perquisites are considered part of a competitive compensation package and are not always related to corporate performance.

Stock Options

We currently maintain three equity compensation plans -- the 1997 Stock Option Plan; 2005 Stock Option Plan; and 2006 Equity Incentive Plan.

1997 Stock Option Plan

We maintain a stock option plan (the 1997 Stock Option Plan) that was initially approved by the shareholders at our annual meeting held on June 27, 1997. An amendment to the 1997 Stock Option Plan was subsequently approved by the shareholders at an annual meeting held on June 29, 2001. The amendment increased the number of common shares issuable under the 1997 Stock Option Plan to 1,750,000 pre-consolidated common shares, representing approximately 25% of our company’s issued and outstanding common shares at that time. The 1997 Stock Option Plan is administered by our corporate secretary, or such other officer or employee as may be designated by our board of directors. As of June 17, 2008, there were options outstanding under the 1997 Stock Option Plan entitling the holders of the options to purchase up to 87,958 common shares at exercise prices between CDN$6.50 and CDN$13.50 per share. While the 1997 Stock Option Plan remains in effect, we do not expect to issue any additional stock options under it.

2005 Stock Option Plan

At our annual and special general meeting held on April 29, 2005, a new stock option plan was approved by shareholders and adopted (the 2005 Stock Option Plan) to replace the 1997 Stock Option Plan. The 2005 Stock Option Plan was adopted to bring our stock option plan in line with the stock option plans of comparable companies, and to make changes to the termination and vesting provisions. Upon the adoption of the 2005 Stock Option Plan, the 1997 Stock Option Plan is continuing in effect only until the exercise or expiry of all of the stock options currently outstanding pursuant to the 1997 Stock Option Plan. As of June 17, 2008, there were options outstanding under the 2005 Stock Option Plan entitling the holders of the options to purchase up to 788,030 common shares at exercise prices between $1.00 and $2.75 per share.

The purpose of the 2005 Stock Option Plan is to provide us with a share related mechanism to enable us to attract, retain, motivate and reward qualified directors, officers, employees and consultants, and to secure the benefits of the incentive inherent in share ownership by directors and key employees and consultants who, in the judgment of our directors will be largely responsible for our future growth and success.

The following information is intended as a brief description of the 2005 Stock Option Plan and is qualified in its entirety by the full text of the 2005 Stock Option Plan.

1.	The maximum number of common shares issuable under the 2005 Stock Option Plan is 1,750,000.
2.	The exercise price of the initial options granted under the 2005 Stock Option Plan is $1.00, and thereafter the exercise price of options, as determined by our board of directors in its sole discretion, will not be less than the weighted average trading price per share on the OTC Bulletin Board market for the ten trading days immediately preceding the date of grant of the option, or, if the shares are no longer listed for trading on the OTC Bulletin Board market, then such other exchange or quotation system on which the common shares are listed or quoted for trading.
3.	All options granted under the 2005 Stock Option Plan have an expiry date of five years from the date of grant of the option, except that options will expire one year following the date of termination of an option holder.

39

4.

Upon expiry of an option, or in the event an option is otherwise terminated for any reason, without having been exercised in full, the number of common shares in respect of the expired or terminated option will again be available for the purposes of the 2005 Stock Option Plan.

5.

Any option granted under the 2005 Stock Option Plan may include a stock appreciation right, which may be exercisable only to the extent that the option with which it is included is exercisable. A stock appreciation right will entitle the holder to elect to surrender to our company, unexercised, the option with which it is included, or any portion thereof, and to receive from our company that number of common shares, disregarding fractions, having an aggregate value equal to the excess of the value of one share over the exercise price per share of such option, times the number of shares for which the option or portion thereof, is being exercised. The value of a common share will be determined for these purposes, unless otherwise specified or permitted by applicable regulatory policies, based on the weighted average trading price per share on the OTC Bulletin Board market for the five trading days immediately preceding the date we receive notice of the exercise of the stock appreciation right (or, if the common shares are no longer listed for trading on the OTC Bulletin Board market, then such other exchange or quotation system on which the common shares are listed or quoted for trading).

2006 Equity Incentive Plan

On February 1, 2006, our Board of Directors adopted the 2006 Equity Incentive Plan, providing for the grant of up to 10,000,000 common stock based awards. As of June 17, 2008, there were options outstanding under the 2006 Equity Incentive Plan entitling the holders of the options to purchase up to 2,825,499 common shares at exercise prices between $1.25 and $2.85 per share.

The purpose of the 2006 Equity Incentive Plan is to provide long-term performance incentives to key employees and consultants responsible for the management, growth and protection of our business. The following information is intended as a brief description of the 2006 Equity Incentive Plan and is qualified in its entirety by the full text of the 2006 Equity Incentive Plan.

1.	The maximum number of common shares issuable under the 2006 Equity Incentive Plan is 10,000,000.
2.	The 2006 Equity Incentive Plan provides for the granting of (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) stock granted as a bonus or in lieu of other awards, (e) other stock-based awards, (f) tax bonuses or other cash payments, and (g) any combination of the foregoing.
3.	The Board, or the Committee of the Board administering the Plan, has the power, subject to the terms of the Plan, to determine the amount and terms of any award under the Plan.

Stock Purchase Warrants

As of June 17, 2008, we had the following outstanding stock purchase warrants:

• Warrants to purchase 1,000,000 common shares at an exercise price of $2.00 per share, expiring October 31, 2010; warrants to purchase 356,667 common shares at an exercise price of $3.25 per share expiring Sept, 2008; warrants to purchase 856,333 common shares at an exercise price of $3.25 per share expiring in July, 2009; warrants to purchase 333,333 common shares at an exercise price of $3.25 per share expiring in April, 2009; and warrants to purchase 100,000 common shares at an exercise price of $2.00 per share expiring in July, 2011.

• Warrants to purchase 4,030,000 Series A Preferred shares at an exercise price of $1.25 per share, expiring December 28, 2010.

• Warrants to purchase 2,508,581 common shares at an exercise price of $2.33 per share, expiring September, 2012; and warrants to purchase 2,008,581 common shares at an exercise price of $2.56 per

40

share, expiring September, 2012. These warrants were issued in connection with our Senior Convertible Note financing.

Stock Options Granted During the 2007 Fiscal Year

The following table sets out detail regarding stock option grants made to our Named Executive Officers during the 2007 fiscal year:

Stock Option Grants in Last Fiscal Year Individual Grants
Name	Number of Securities Underlying Options	% of Total Options Granted to Employees in Fiscal Year	Exercise Price ($/Sh)	Expiration Date
Brent Lokash	250,000	13.4%	$1.50	December 31, 2011
David Reingold	50,000	2.7%	$2.82	February 4, 2010

Aggregated Option Exercises during the 2007 Fiscal Year and Fiscal Year End Option Values

The following table sets forth details of all exercises of stock options by Named Executive Officers during our fiscal year ended December 31, 2007 and the fiscal year end value of unexercised options on an aggregated basis:

Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Name	Shares Acquired on Exercise (#)	Aggregate Value Realized ($)	Number of Securities Underlying Unexercised Options/SARs at FY-End (#) Exercisable/Unexercisable	Value of Unexercised In-the- Money Options/SARs at FY- End(1) ($) Exercisable/Unexercisable
Brent Lokash	20,000	$57,600	470,000/Nil	Nil/Nil

______________

(1) “In-the-Money Options” are those where the market value of the underlying securities as at the most recent fiscal year end exceeds the option exercise price.

Compensation of Directors

During the 2007 fiscal year, we paid or accrued an aggregate of $30,000 to our non-management directors, who are also not executive officers (Marco Markin, Cameron Strang, David Parkes and George Reznik).

We have no standard incentive arrangement pursuant to which we compensate directors for their services in their capacity as directors, except for the granting from time to time of incentive stock options. During the most recently completed financial year, we granted an aggregate of 354,166 incentive stock options to directors, as set forth in the table below, solely for services rendered in their capacity as directors of our Company or for their involvement in board committees:

Name	No. of Option Shares
Brent Lokash	250,000
Marco Markin	25,000
Cameron Strang	2,083
David Reingold	50,000
David Parkes	2,083
George Reznik	25,000

41

Employment, Management and Consulting Agreements

The following is a summary of the employment and consulting agreements with our senior management and directors as of June 17, 2008:

• Employment Agreement with David Reingold dated May 24, 2007 and expiring on May 24, 2010, pursuant to which Mr. Reingold agrees to operate My Organic Baby Inc., among other duties, and will receive cash and shares as base employment compensation;

• Director/Officer Agreement with David Reingold dated May 29, 2007, pursuant to which he is appointed as our President and a Director, and which provides for compensation in the form of stock options to Mr. Reingold. This director/officer agreement is terminable by us at any time upon notice, and is terminable by Mr. Reingold upon 60 days’ notice;

• Consulting Agreement with David Reingold dated February 5, 2007 and expiring on January 31, 2010, pursuant to which Mr. Reingold agrees to operate DMR Food Corporation, among other duties, and will receive options to purchase Company stock as compensation for services;

• Director Agreement with George Reznik dated May 29, 2007, which provides for compensation in the form of cash and stock options to Mr. Reznik. This director agreement is terminable by us at any time upon notice, and is terminable by Mr. Reznik upon 60 days’ notice;

• Consulting Agreement with BRL Consulting Inc., a company wholly owned and operated by Mr. Lokash, dated February 26, 2008, pursuant to which BRL Consulting provides certain consulting services to us in exchange for cash compensation. This consulting agreement is terminable by the Company upon 12 months notice;

• Director Agreement with Samantha Alfonzo-Casanova dated June 10, 2008, pursuant to which she is appointed a Director. This director agreement is terminable by us at any time upon notice, and is terminable by Ms. Alfonzo-Casanova upon 60 days’ notice;

• Director Agreement with Bobby Genovese dated February 26, 2008. This director agreement is terminable by us at any time upon notice, and is terminable by Mr. Genovese upon 60 days notice.

C.        BOARD PRACTICES

Committees of the Board of Directors

Our board of directors has established the following committees:

• Audit Committee: The Board’s audit committee reviews our annual and interim financial statements and certain other public disclosure documents required by regulatory authorities and makes recommendations to the board of directors with respect to such statements and documents. This committee also makes recommendations to the board of directors regarding the appointment of independent auditors, reviews the nature and scope of the annual audit as proposed by the auditors and management, and reviews with management the risks inherent in our business and risk management programs relating thereto. This committee also reviews with the auditors and management the adequacy of our internal accounting control procedures and systems, considers our audit procedures and reviews and approves the non-audit services to be performed by the independent accountants. During the fiscal year ended December 31, 2007, no non- audit services were performed or approved by the audit committee to be performed by our independent accountants, other than certain tax compliance services which the audit committee believes that the independent accountants could provide without impairing their independence.

42

The audit committee is currently comprised of George Reznik who is considered “independent” within the meaning of section 1.4 of MI 52-110. The Board has determined that Mr. Reznik meets the requirements of an “audit committee financial expert” as defined by the SEC. All other members of the audit committee have significant business experience and a general understanding of accounting principles and knowledge of financial statements.
 
The Board adopted an Audit Committee Charter on May 11, 2004, a copy of which is available upon request in writing to our corporate secretary.
 

• Compensation Committee. The Board’s compensation committee is currently comprised of George Reznik.
   
  
• Corporate Governance Committee: The Board’s corporate governance committee is currently comprised of George Reznik and is responsible for developing and implementing our policies regarding corporate governance as imposed under corporate and securities laws and consistent with good corporate practices. Our corporate governance policy is substantially aligned with the guidelines set out in the report of The Toronto Stock Exchange Committee on Corporate Governance in Canada.

D.        EMPLOYEES

As of December 31, 2007, we and our subsidiaries had a total of 36 staff, who were either employed as employees or retained as consultants. Of this number, nine worked in various management and administration positions, 13 were involved in various sales, marketing and operations, and 14 work in our plant.

E.        SHARE OWNERSHIP

As of June 17, 2008, there were 23,716,878 shares of common stock issued and outstanding.

The following table provides information as of June 17, 2008 regarding beneficial ownership of our common stock by (i) each of our executive officers and directors who held those positions during fiscal 2007 and who hold those positions as of June 17, 2008, and (ii) all such executive officers and directors as a group. The information in this table is based upon information supplied by such executive officers and directors. To our knowledge and except as set forth in the footnotes to the table, each of the persons named in the table has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. Unless indicated otherwise, each holder’s address is c/o Clearly Canadian Beverage Corporation, 220 Viceroy Road, Units 11/12, Vaughn, Ontario, Canada L4K 3C2:

	Shares Beneficially	Percent
Beneficial Owner	Owned	of Total(5)
David Reingold, President and Director (1)(2)	1,458,028	5.93%
George Reznik, Director (3)	25,000	**
Bobby Genovese, Chief Executive Officer and Chairman (4)	6,673,651	24.1%
All directors and executive officers as a group (3 persons)	8,156,719	28.5%

______________

**	Less than one percent
(1)	Includes securities held by Mr. Reingold’s wife.
(2)	Includes 50,000 common shares underlying stock options that are exercisable within 60 days of June 17, 2008, (“Vested Options”) (ii) 841,202 common shares issuable upon conversion of a Convertible Notes.
(3)	Consists of 25,000 shares underlying Vested Options held by Mr. Reznik.
(4)	Includes of 4,000,000 shares issuable upon exercise of warrants.
(5)	Assumes full exercise of Vested Options or warrants and full conversion of Convertible Notes.

43

ITEM 7.               MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.        MAJOR SHAREHOLDERS

Beneficial Stock Ownership

The following tables provide information as of June 17, 2008 regarding beneficial ownership of our common stock and preferred stock by each person that is known to us to beneficially own 5% or more of any class of our stock (“Major Shareholders”). The information in this table is based upon information supplied by such major shareholders. To our knowledge and except as set forth in the footnotes to the table, each of the persons named in the table has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable:

				Variable
				Multiple
	Common Stock			Voting Shares
	No. of			No. of
Name and Address	Shares		Percent(6)	Shares	Percent
Bobby Genovese (1)	6,673,651	(2)	24.1%	1,600,000	100.0%
c/o BG Capital Group Ltd.
Slot 2000 A.P. 59223
Nassau, The Bahamas
David Reingold(3)	1,458,028	(4)	5.93%	--	--
67 Gatcombe Circle,
Richmond Hill, Ontario
L4C 9P5
James Dines	1,681,666	(5)	6.62%	--	--
PO Box#22
Belvedere CA
94920

______________

**	Less than one percent
(1)	Bobby Genovese is the sole shareholder of BG Capital Group Ltd and has sole voting and dispositive power
	over the shares of capital stock owned by BG Capital Group Ltd.
(2)	Includes 4,000,000 common shares issuance upon exercise of warrants owned by BG Capital.
(3)	Includes securities held by Mr. Reingold’s wife.
(4)	Includes (i) 50,000 Vested Options and (ii) 841,202 common shares issuable upon conversion of Convertible
	Notes.
(5)	Includes 1,333,333 common shares issuable upon exercise of outstanding warrants held by Mr. Dines.
(6)	Assumes full exercise of Vested Options or warrants and full conversion of Convertible Notes.

Changes in Stock Ownership

The following provides a summary of changes in stock ownership during fiscal 2007 with respect to the above Major Shareholders:

• BG Capital Group converted all remaining Class B Preferred Shares into 6,560,000 common shares.

• On September 25, 2007, we issued a Convertible Note to David Reingold having a principal amount of CDN $1,791,765 and a Convertible Note to Mr. Reingold’s wife having a principal amount of $168,235. The principal amounts of these Convertible Notes are convertible into our 841,202 of our common shares at

44

a conversion price of $2.33 per share. We have also issued our common shares as interest payable under these Convertible Notes, which is included in the tables presented above.


• We issued 50,000 options to purchase our common shares to David Reingold in 2007.

Voting Rights

All holders of common shares have the same voting rights. Based on 23,716,878 common shares issued and outstanding as of June 17, 2008, the number of votes accruing by formula to each Variable Multiple Voting Share is approximately 39,783,340, for a total of 62.7% of the votes. (see “Item 10. Additional Information – General Description of Capital Structure – Variable Multiple Voting Shares”).

U.S. Stockholders

At June 17, 2008, based on the records of Pacific Corporate Trust, our transfer agent, there were 1,195 holders of record of common stock with an address in the United States, who collectively held 2,336,577 shares of common stock, representing approximately 9.85% of the total issued and outstanding common shares. The actual number of stockholders may be greater than the amount on record with our transfer agent due to shares being held with nominees.

Control

BG Capital Group Ltd., our majority shareholder, has two nominees on the Board and as of June 17, 2008 beneficially owns or controls approximately 62.7% of our voting power and effectively controls our company. Through its holdings, BG Capital Group Ltd. can influence matters requiring shareholder approval, including the election of directors. Such control could have the effect of delaying, deferring or preventing a change of control of our company.

Other than BG Capital Group Ltd., to the best of our knowledge, we are not directly nor indirectly owned or controlled by any other person, entity or government.

Change of Control

We have a shareholders’ rights plan and supermajority approval requirements, each of which may prevent or delay a future change of control of our company (See “Item 10. Additional Information – Shareholder Protection Provisions” below).

B.        RELATED PARTY TRANSACTIONS

Except as set out below or otherwise disclosed in this report or in our audited financial statements attached hereto, there are no material transactions with any of our directors, officers or control persons that have occurred during the last three fiscal years.

• In May, 2007, we completed the acquisition of 100% of the shares of My Organic Baby Inc. In connection therewith, we issued 415,000 common shares, 200,000 of which we surrendered when we subsequently entered into a Securities Purchase Agreement with the former shareholders of My Organic Baby Inc on September 25, 2007. We also issued 215,000 common shares in connection with employment agreements between us and the former officers and shareholders of My Organic Baby Inc. For additional information, please see note 14(a) to our financial statements.

• In the year ended December 31, 2006, the Company paid $55,000 in remaining costs associated with the lease of its former office premises to a limited partnership in which certain ex-directors of the Company had an interest. The Company terminated this lease on December 31, 2005 and has moved to different premises;

45

• In the year ended December 31, 2006, the Company recorded management fees of $322,000 in connection with a contract for service provided by BG Capital Group Ltd., our controlling shareholder. The contract was terminated on March 15, 2006. In August 2006 the Company issued 140,000 shares at $2.30 per share as settlement of services provided;

• In the year ended December 31, 2006 the Company paid $190,000 in corporate development and financing expense reimbursements to BG Capital Group Ltd.;

• In August 2006, the Company paid $50,000 to BG Capital Group Ltd. as a finder’s fee in connection with a private placement of 333,334 common shares issued by the Company at $3.00 per share. BG Capital has the right until August, 2007 to convert any or all of this finder’s fee into the Company’s common shares at a price of $3.00 per share;

• In July 2006, the Company paid $137,187 to BG Capital Group Ltd. as a finder’s fee in connection with a private placement of 1,205,000 common shares issued by the Company at $2.75 per share. BG Capital has the right until July, 2007 to convert any or all of this finder’s fee into the Company’s common shares at a price of $2.75 per share;

• In May 2006, the Company paid $130,750 to BG Capital Group Ltd. as a finder’s fee in connection with a private placement of 1,312,500 common shares issued by the Company at $2.00 per share. BG Capital has the right until May, 2007 to convert any or all of this finder’s fee into the Company’s common shares at a price of $2.00 per share;

• On December 28, 2005, we completed a private placement of units with four investors, BG Capital Group Ltd., Douglas L. Mason, a director, Brent Lokash, our then President, CEO and a director, and Gladys Jenks, for an aggregate purchase price of $1,000,000. The private placement units consisted of an aggregate of 800,000 shares of our common stock, 5,000,000 Series A share purchase warrants, 5,000,000 Series B share purchase warrants, 5,000,000 Series C share purchase warrants and 5,000,000 Series D share purchase warrants. Subsequently, in May 2006, the holders of the foregoing warrants agreed to surrender all but 4,120,000 warrants of their 20,000,000 warrants;

• On May 24, 2005, we issued 450,000 shares to BG Capital Group Ltd. as a finder’s fee in connection with our recently completed private placements;

• On May 25, 2005, BG Capital Group exchanged its 2,000,000 Class A Preferred shares for 2,000,000 Class B Preferred shares (100% of class). Subsequently, in 2007, BG Capital Group converted its remaining Class B Preferred shares into 6,560,000 common shares;

• On May 5, 2005, BG Capital Group Ltd. converted its $1,000,000 loan with our company into 1,000,000 Class A Preferred shares at $1.00 per share and concurrently we sold to BG Capital Group Ltd. an additional 1,000,000 Class A Preferred shares at $1.00 per share. Also on May 5, 2005, three nominees of BG Capital Group Ltd., Marco Markin, Brent Lokash and Cameron Strang, were appointed to our board of directors;

• On April 1, 2005, we entered into a consulting agreement with BG Capital Group Ltd., pursuant to which BG Capital Group Ltd. agreed to provide to us certain consulting services, including assistance with accounting, financing and cash flow management as well as advice relating to our corporate restructuring, future financing requirements and on-going strategic planning. In consideration for such services, we agreed to pay to BG Capital Group Ltd. 10,000 shares of our common stock, payable in monthly in arrears, at a deemed price of $1.00 per share;

• On February 9, 2005, we entered into a loan agreement and demand note with BG Capital Group Ltd., pursuant to which BG Capital Group Ltd. agreed to loan to us an aggregate of $1,000,000. The loan bore interest at a rate of 10% per annum and was payable within 90 days, upon demand;

46

Except as disclosed in the preceding discussion, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holders, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.

C.        Interests of Experts and Counsel

Not Applicable.

ITEM 8.               FINANCIAL INFORMATION

A.        Consolidated Statements and Other Financial Information

Financial Statements

See Item 18 and see Item 5 for additional financial information.

Legal Proceedings

Other than as set out below, there are no material legal proceedings to which we are a party or to which any of our properties is subject, nor are any such proceedings known to be contemplated. From time to time, we are subject to other legal proceedings and claims that arise in the ordinary course of its business.

Dispute with D. Bruce Horton and Continental Consulting Ltd.

In August 1999, a claim was filed against us in the Supreme Court of British Columbia by D. Bruce Horton and his company, Continental Consulting Ltd. (Continental). Mr. Horton is claiming compensation from us for allegedly constructively dismissing him as an officer. Continental is claiming compensation from us alleging that we terminated our management agreement without cause. Mr. Horton and Continental are claiming an aggregate of CA$2.4 million plus interest and costs. We do not accept Mr. Horton’s and Continental’s allegations, and have filed statements of defence and has further filed counterclaims against Mr. Horton and Continental for monies owed and damages. We have made an accrual based on our expected costs.

Dividend Policy

During the year ended December 31, 2007 we did not pay cash dividends to holders of our equity securities.

During fiscal 2007, there were no Class A Preferred shares issued and outstanding, and no dividends are accruing on the Class A Preferred shares.

Our Class B Preferred shares provide for the payment of cash dividends at the rate of 10% per annum of the deemed issue price of $1.00 per Class B Preferred share. In June 2007, we paid a dividend of $61,150 on our Class B Preferred Shares to BG Capital Group Ltd for dividends payable between November 1, 2006 and June 30, 2007. During 2007, BG Capital Group converted all of its remaining Class B Preferred shares into 6,560,000 common shares. As of December 31, 2007, there were no Class B Preferred shares issued and outstanding.

We have no fixed dividend policy. The payment of dividends in the future will depend, among other things, upon our earnings, capital requirements and operating and financial condition. Generally, dividends can only be paid if a corporation has retained earnings. There can be no assurance that we will generate sufficient earnings to allow us to pay dividends.

B.        Significant Changes

There have been no significant changes to our business since December 31, 2007, except as disclosed herein.

47

ITEM 9.               THE OFFER AND LISTING

A.        Offer and Listing Details

Trading Markets

Our common stock currently trades on the OTC Bulletin Board under the symbol “CCBEF”. Our common stock commenced trading through the NASDAQ system on September 3, 1987; however, on February 14, 2001, our shares were delisted from NASDAQ (based on non-compliance with NASDAQ’s minimum bid price and minimum market value requirements for continued listing) and our shares have been trading in the United States on the OTC Bulletin Board since.

Previously, our common shares were also traded in Canada. Originally, our common shares were listed for trading on the Vancouver Stock Exchange (the “VSE”) on January 25, 1984. On December 3, 1997, our shares were listed for trading on the Toronto Stock Exchange (the “TSX”) and on January 9, 1998, we voluntarily delisted our securities from the VSE. On February 17, 2005, our shares commenced trading on the Canadian Trading and Quotational System Inc. (“CNQ”) under the symbol “CCBC” and concurrently our common shares were voluntarily delisted from trading on the TSX as we were not meeting the TSX’s continued listing requirements. Subsequently, on May 6, 2005, we voluntarily delisted from trading on the CNQ to facilitate certain contractual and financing matters related to our transactions with BG Capital.

On May 2, 2005, a 1:10 reverse split was completed on our common stock and the common stock began trading on a post-consolidated basis on May 5, 2005. The market price information provided in the tables below represents actual trading prices. The following table sets out the annual high and low sale prices for the common shares traded on the OTC Bulletin Board for the five years ended December 31, 2007. These quotations represent inter-dealer prices without mark-ups or commissions and may not necessarily be indicative of actual sales prices.

Year	High	Low
2003	$0.51	$0.20
2004	0.45	0.16
2005	2.50	1.10
2006	4.41	2.06
2007	3.18	0.40

The following table sets the quarterly high and low sale prices (in U.S. dollars) for our common shares traded on the OTC Bulletin Board for the 2007 and 2006 fiscal years. These quotations represent inter-dealer prices without mark-ups or commissions and may not necessarily be indicative of actual sales prices.

	Calendar Quarter	High	Low
2006:	1st Quarter	$2.62	$2.11
	2nd Quarter	4.41	2.34
	3rd Quarter	3.68	2.48
	4th Quarter	2.95	2.05
2007:	1st Quarter	$3.18	$2.40
	2nd Quarter	2.99	2.20
	3rd Quarter	2.95	2.05
	4th Quarter	2.09	0.40

48

The following table sets out the monthly high and low sale prices (in U.S. dollars) for our common shares traded on the OTC Bulletin Board during the six months ended May 31, 2008. These quotations represent inter-dealer prices without mark-ups or commissions and may not necessarily be indicative of actual sales prices.

Month	High	Low
December 2007	$0.69	$0.40
January 2008	0.59	0.47
February 2008	0.92	0.61
March 2008	1.26	0.83
April 2008	1.23	0.87
May 2008	1.15	0.96

Our Variable Multiple Voting Shares do not trade on a Canadian marketplace or foreign marketplace.

Transfer Agent

The transfer agent and registrar for our common stock is Pacific Corporate Trust Company, 10th Floor –625 Howe Street, Vancouver, BC, Canada V7V 1E1 (Telephone: 1-877-288-6822).

B.        Plan of Distribution

Not applicable.

C.        Markets

See “Item 9. Offer and Listing Details – Trading Markets” above.

D.        Selling Shareholders

Not applicable.

E.        Dilution

Not applicable.

F.        Expenses of the Issue

Not applicable.

ITEM 10.             ADDITIONAL INFORMATION

A.        Share Capital

Not applicable.

B.        Memorandum and Articles of Association

We were incorporated under the Company Act (British Columbia), and we are now governed by the Business Corporations Act (British Columbia) (the “BCA”). Our “Notice of Articles” (formerly called a “memorandum”) does not restrict the business that we may carry on, nor does it set out any specific objects or purposes for our business.

49

Directors

Under the BCA, every director and every senior officer of our company who is, in any way, directly or indirectly, materially interested in a proposed material contract or transaction with us is required, subject to certain exemptions, to disclose the nature and extent of his or her interest at a meeting of the directors. The BCA further provides that every director must account to us for any profit made as a consequence of our entering into or performing the proposed material contract or transaction in which the director has a material interest, unless either:

(a)	the director or senior officer discloses his or her interest as described above and the proposed contract or transaction is approved by the non-conflicted directors, or by special resolution of the shareholders; or
(b)	the contract or transaction was approved by the court as being reasonable and fair to our company at the time it was entered into.

A special resolution is a resolution passed by a majority of not less than three-quarters of the votes cast by our shareholders who, being entitled to do so, vote in person or by proxy at a duly called general meeting of our company. Under our articles, a director who is interested in a proposed contract or transaction with us may be counted in the quorum at any directors’ meeting at which the proposed contract or transaction is approved.

Compensation payable to our directors is set by the board of directors with input from the compensation committee. An independent quorum of directors is not required in order for the board of directors to approve compensation payable to directors.

Under our articles, the board of directors may authorize the borrowing of money in such manner and amount, on such security, from such sources and upon such terms and conditions as they in their absolute discretion think fit. These borrowing powers may be varied by an amendment to our articles approved by a special resolution of the shareholders.

Our articles provide for a rotation of the terms of office for directors. Directors are appointed for three-year terms, however one-third (or the next smaller whole number if the number of directors is not a multiple of three) of the number of directors fixed pursuant to the articles is required to retire from office at succeeding annual general meetings. Directors are not required to hold shares in our company.

General Description of Capital Structure

As of December 31, 2007, our capital structure was as follows:

• an unlimited number of common shares without par value (designated as “Limited Voting Shares”), of which 23,468,087 common shares were issued and 23,430,787 were outstanding;

• an unlimited number of Variable Multiple Voting Shares, of which 1,600,000 shares are issued and outstanding;

• 2,000,000 Class A Preferred Shares, none of which were issued and outstanding; and

• 2,000,000 Class B Preferred shares, all of which have been issued and have since been converted into common shares.

In addition, as of December 31, 2007, there were 3,704,000 common shares issuable upon exercise of outstanding stock options at exercise prices ranging from $1.00 to $13.34 per share, and 11,193,495 common shares issuable upon exercise of outstanding share purchase warrants at exercise prices ranging from $1.25 to $4.00 per share.

50

Common Shares (Limited Voting Shares)

Each common share entitles the holder to one vote at any meeting of our shareholders, to receive, as and when declared by the Board of Directors, dividends in such amounts as shall be determined by the Board of Directors; and to receive any remaining property in the event of liquidation, dissolution or winding-up of our company.

Class A Preferred Shares

As of December 31, 2007, there were no Class A Preferred Shares issued and outstanding.

The rights attached to 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 calculated at a share price equal to the ten day average closing price of our 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, and the right of conversion into common shares at a conversion price equal to the ten day average trading price of common shares on the OTC Bulletin Board market preceding the date of conversion. The Class A Preferred Shares rank, as to dividends, redemptions, and the distribution of assets upon liquidation, prior to (i) the common shares and (ii) any class or series of shares of our capital stock created subsequent to these Class A Preferred Shares which by their terms ranks junior to the Class A Preferred Shares and junior to the Class B Preferred shares and (iv) any class or series of shares of our capital stock created subsequent to the Class A Preferred Shares which by their terms ranks senior to the Class A Preferred Shares (the “Senior Securities”); and pari passu with (v) any class or series of shares of our capital stock created subsequent to the Class A Preferred Shares by their terms ranks on a parity with the Class A Preferred Shares.

Class B Preferred Shares

As of December 31, 2007, all of the previously issued Class B Preferred shares had been converted into common shares and were no longer issued and outstanding.

The rights attached to 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 at a price of $1.00 per share, and thereafter in advance in monthly cash instalments. Each Class B Preferred share has the right to five votes on any vote of the common shareholders. The Class B Preferred shares as a class are convertible, in whole but not in part, into such number of common shares as would equal 50% of the number of fully diluted common shares immediately prior to such conversion of the Class B Preferred shares. The Class B Preferred shares rank, as to dividends, redemptions, and the distribution of assets upon liquidation, prior to (i) the common shares and the Class A Preferred Shares; and (ii) any class or series of shares of our capital stock created subsequent to these Class B Preferred shares which by their terms ranks junior to the Class A Preferred Shares and junior to the Class B Preferred shares and (iv) any class or series of shares of our capital stock created subsequent to the Class B Preferred shares which by their terms ranks senior to the Class B Preferred shares (the “Senior Securities”); and pari passu with (v) any class or series of shares of our capital stock created subsequent to the Class B Preferred shares by their terms ranks on a parity with the Class B Preferred shares.

Variable Multiple Voting Shares

On March 16, 2006, we held a special general meeting of shareholders, at which 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.

The Variable Multiple Voting Shares rank equally with the common shares with respect to dividends and rights on liquidation. With regard to voting, each Variable Multiple Voting Share entitles the holder thereof to 10 votes for

51

each share held or such greater number of votes for each Variable Multiple Voting Share as may be determined in accordance with the following formula:

V       =       LVS        x   10 
CS

Where:

V	=	the number of votes attaching to each issued Variable Multiple Voting Share
LVS	=	the number of issued common shares, redesignated as Limited Voting Shares
CS	=	the number of issued common shares as at March 16, 2006, which number shall be increased upon any subdivision and decrease upon any consolidation of the Limited Voting Shares after March 16, 2006 on the same basis as that subdivision or consolidation.

Share Rights

Amendments to our articles, including any provisions affecting rights attaching to shares of our capital stock, must be approved by a special resolution of the shareholders, or as otherwise provided for in the BCA. Rights or special rights attached to a particular class or series of shares may not be prejudiced or interfered with without first obtaining consent by way of special resolution of the holders of the affected class or series of shares.

We have adopted a shareholders’ rights plan. Under the plan, a person or group of persons acting jointly that acquire beneficial ownership of 20% or more of our outstanding common shares may not be entitled to exercise rights issued under the plan. See “Shareholder Protection Provisions – The Rights Plan” below.

Meetings of Shareholders

We must hold an annual general meeting of shareholders at least once in every calendar year and not more than 13 months after the date the last annual general meeting was held. In addition, our directors may, whenever they think fit, convene a general meeting of shareholders for whatever purpose the directors may determine. Under the BCA, directors must convene a general meeting of shareholders on the requisition of one or more shareholders holding in the aggregate not less than 5% of the issued voting shares. All shareholders of record as at the record date set for a meeting of shareholders are entitled to attend and vote at the meeting in person or by proxy.

Shareholder Protection Provisions

Our shareholders have previously approved the adoption of certain shareholder protection measures to deter coercive or unfair takeover tactics or offers, and to encourage potential acquirers in any takeover attempts to negotiate directly with our board of directors. Specifically, the shareholders have approved and we have implemented a rights plan (the “Rights Plan”), the terms of which are contained in a rights agreement dated October 1, 1990, as amended, and a supermajority amendment (the “Supermajority Amendment”) which forms a part of our articles.

The Rights Plan

Pursuant to the Rights Plan, each common share carries one right (a “Right”) which becomes exercisable on the date (the “Distribution Date”) which corresponds to the close of business on the 10th business day after the earlier to occur of (i) the date of a public announcement that a person or group of persons acting jointly (an “Acquiring Person”) have acquired beneficial ownership of 20% or more of the outstanding common shares, other than pursuant to an offer which is determined by our board of directors to be fair and otherwise in the best interests of us and our shareholders (a “Qualified Offer”), such date being the “Stock Acquisition Date”, or (ii) the date of a public announcement of the commencement, or announcement of an intention to make, a takeover offer, the consummation of which would result in the beneficial ownership by a person or group of persons acting jointly of 20% or more of the outstanding common shares. Until the Distribution Date, the Rights are evidenced by the certificates representing the common shares and the Rights may be transferred only with the common shares. Following the

52

Distribution Date, the Rights are transferable and certificates representing the Rights will be issued to the holders of record of the common shares.

Each Right will entitle its holder upon exercise and payment of the exercise price in effect from time to time (currently CDN$15.00) (the “Exercise Price”) to one common share. Upon the occurrence of certain events including (i) the acquisition by a person or a group of persons acting jointly of 20% or more of the common shares other than pursuant to a Qualified Offer or (ii) a merger or other business combination transaction (other than a merger which follows a Qualified Offer) or (iii) the sale of 50% or more of our consolidated assets or earning power, provision will be made so that each Right will entitle its holder upon exercise to receive, upon payment of the Exercise Price in effect at the time, that number of common shares which have a market value of two times such Exercise Price provided that any Acquiring Person shall not be entitled to the benefit of such adjustment.

Until the 10th business day following the Stock Acquisition Date, the Rights may be redeemed, in whole, but not in part, by the board of directors at a price of Cdn$0.001 per Right and upon the redemption of the Rights the holders of the Rights will be entitled only to receive the redemption price.

The Rights Plan was first approved by our shareholders at the annual general meeting held on December 1, 1989. The Rights Plan was for an initial term of 10 years to expire on December 31, 1999. However, at the annual general meeting held on June 24, 1999, the shareholders approved the re-adoption and extension of the Rights Plan for a further 10 years (expiry date December 31, 2009). At the annual general meeting held on June 23, 2000, the shareholders approved reducing the Exercise Price of a Right from Cdn$70.00 to Cdn$15.00.

This description is qualified in its entirety by reference to the rights agreement pursuant to which the Rights Plan was established.

The Supermajority Amendment

The Supermajority Amendment requires that certain mergers and other forms of business combinations involving us and beneficial owner of greater than 20% of the outstanding common shares be approved by the holders of at least 80% of the outstanding common shares unless such transaction is approved by the board of directors in which case the Supermajority Amendment will not apply. The Supermajority Amendment provides that the approval of the holders of at least 80% of the outstanding common shares must be obtained in order to amend, repeal, or adopt any provisions inconsistent with the Supermajority Amendment, unless such action is approved by the majority of the board of directors.

The full text of the Supermajority Amendment is contained in our articles and this description is qualified in its entirety by reference to our articles.

C.        Material Contracts

Other than contracts entered into in the ordinary course of business, we have entered into the following material contracts during the two years preceding the date of this annual report:

• Share Purchase Agreement dated May 24, 2007, pursuant to which we acquired all of the outstanding shares of My Organic Baby Inc., an Ontario corporation;

• Share Purchase Agreement dated February 7, 2007, pursuant to which we acquired all of the outstanding shares of DMR Food Corporation, an Ontario corporation;

• Securities Purchase Agreement dated September 25, 2007, pursuant to which we set the general terms of our $9,360,000 Senior Convertible Note financing;

• Senior Convertible Note dated September 26, 2007 issued to each of the investors participating in our Senior Convertible Note financing;

• Registration Rights Agreement dated September 25, 2007, pursuant to which we agreed to register the

53

shares underlying the Senior Convertible Notes and warrants issued in connection with our Senior Convertible Note financing.


• Securities Purchase Agreement dated September 25, 2007 with the sellers of My Organic Baby, Inc. and DMR Food Corporation, pursuant to which we restructured the consideration payable to the sellers of My Organic Baby, Inc. and DMR Food Corporation; and
   
  
• Senior Convertible Note issued to the sellers of My Organic Baby, Inc. and DMR Food Corporation

The general terms of: (i) our acquisition of My Organic Baby, Inc. and DMR Food Corporation (ii) our Senior Convertible Note financing and (iii) the restructuring of the consideration payable to the sellers of My Organic Baby, Inc. and DMR Food Corporation are each discussed in further detail in “Item 4 –History and Development of the Company” to this annual report.

D.        Exchange Controls

There are no governmental laws, decrees or regulations in Canada restricting the import or export of capital or affecting the remittance to the United States of interest, dividends or other payments to non-resident holders of our shares. However, the payment or crediting of interest or dividends to United States residents may be subject to applicable withholding taxes at a rate prescribed by the Income Tax Act (Canada) and modified by the provisions of the Canada-United States Income Tax Convention, 1980 (see commentary in the section entitled “Taxation” below).

Except as provided in the Investment Canada Act (the “ICA”), there are no limitations under the laws of Canada, the Province of British Columbia or in our Memorandum or Articles on the right of foreigners to hold and/or vote the shares of our capital stock.

The ICA has application where a “non-Canadian” individual or entity or controlled group of entities proposes to make an investment to acquire control of a Canadian business enterprise, either directly or indirectly, by way of purchase of voting shares of a corporation or of substantially all of the assets used in the Canadian business enterprise. An investment to acquire voting shares of a corporation is deemed to be an acquisition of control where more than one-half of the voting shares are acquired. An acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control and an acquisition of between one-third and one-half of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that the acquisition does not in fact result in control of the corporation by the investor.

An investment to acquire control of a Canadian business enterprise, the gross assets of which exceed certain thresholds, must be reviewed and approved under the ICA before implementation. An investment to acquire control of a Canadian business enterprise, the gross asset value of which falls below these threshold amounts, is one in respect of which notification must be given under the ICA although approval is not required prior to implementation of the investment.

Specific investment thresholds apply to investors of the United States. The investment threshold for a direct acquisition of control has been established at Cdn$250 million for 2005 and no review is required for an indirect acquisition of control. Each year the direct acquisition investment threshold is adjusted for inflation.

E.        Taxation

Canadian Federal Income Tax Considerations

The following is a general discussion of the material Canadian federal income tax consequences applicable to a holder of our common shares who is a resident of the United States and who is not, and is not deemed to be, a resident of Canada, who holds such common shares as capital property and who does not use or hold such common shares in carrying on a business in Canada (a “Non-Resident Holder”).

This summary is based on the current provisions of the Income Tax Act (Canada) and regulations thereunder (the “ITA”) and all specific proposals to amend the ITA publicly announced prior to the date hereof by the Minister of

54

Finance (Canada) and the current administrative practices of the Canada Revenue Agency. It has been assumed that all specific proposals to amend the ITA will be enacted in substantially their present form and that no other relevant amendments to the ITA will come into force. However, no assurance can be given to this effect. Except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations which may differ from those described herein. See “United States Federal Income Tax Consequences” below.

This summary is not exhaustive of all possible Canadian federal income tax consequences to all Non-Resident Holders and in particular will not be applicable where the Non-Resident Holder is a non-resident insurer carrying on an insurance business in Canada in respect of which our common shares are held or used in Canada. Nor should these comments be interpreted as legal or tax advice to any particular Non-Resident Holder, each of whom should consult their own tax advisors with respect to their particular circumstances.

Dividends

Dividends (including deemed dividends) paid or credited on our common shares to a Non-Resident Holder will be subject to withholding tax in Canada. The Canada-United States Income Tax Convention, 1980, as amended (the “Treaty”) provides that the normal 25% rate of withholding tax on the gross amount of such dividends is reduced to 15% if paid to a resident of the United States. The Treaty provides for a further reduction of the withholding tax rate to 5% if the beneficial owner of such dividends is a company (any entity which is treated as a body corporate for purposes of the ITA) which is a resident of the United States and which owns at least 10% of our voting stock.

Capital Gains

A Non-Resident Holder will not be subject to tax under the ITA in respect of a capital gain realized upon the disposition or deemed disposition (such as would arise on the death of an individual Non-Resident Holder) of a common share unless such share is “taxable Canadian property” to the Non-Resident Holder. A common share in the capital of our company will be taxable Canadian property to a Non-Resident Holder if (i) at any time during the five year period ending at the time of disposition of such share, the Non-Resident Holder, persons with whom the Non-Resident Holder did not deal at arm’s length, or the Non-Resident Holder together with all such persons owned (or had an option to acquire) 25% or more of the issued shares of any class or series of our capital stock; or (ii) the Non-Resident Holder elected under the ITA to treat such common shares as taxable Canadian property upon ceasing to be a resident of Canada prior to October 2, 1996.

However, under the Treaty, a Non-Resident Holder to whom our common shares represent taxable Canadian property will not be liable to tax in Canada in respect of a capital gain realized on the disposition of such shares unless:

• the value of such shares is derived principally from real property situated in Canada (including mineral properties in Canada and rights in relation thereto), or

• the Non-Resident Holder was a resident of Canada for 120 months during any period of 20 consecutive years preceding the disposition of such shares and was a resident of Canada at any time during the 10 years immediately preceding such disposition and owned such shares (or property for which such shares were substituted) at the time the Non-Resident Holder ceased to be a resident of Canada.

U.S. Federal Income Tax Consequences

The following is a summary of the anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our common shares (“Common Shares”).

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition,

55

ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

Scope of this Disclosure

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (“IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Annual Report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.

U.S. Holders

For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.

Non-U.S. Holders

For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code; or (i) U.S. Holders that own, directly or indirectly, 10% or more,

56

by voting power or value, of our outstanding shares. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

If an entity that is classified as partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed

This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Considerations” above).

U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares

Distributions on Common Shares

General Taxation of Distributions

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current or accumulated “earnings and profits.” To the extent that a distribution exceeds our current and accumulated “earnings and profits,” such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).

Reduced Tax Rates for Certain Dividends

For taxable years beginning after December 31, 2002 and before January 1, 2009, a dividend paid by us generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) we are a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date” (i.e., the first date that a purchaser of such Common Shares will not be entitled to receive such dividend).

We generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) we are incorporated in a possession of the U.S., (b) we are eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the Common Shares are readily tradable on an established securities market in the U.S. However, even if we satisfies one or more of such requirements, we will not be treated as a QFC if we are a “passive foreign investment company” (as defined below) for the taxable year during which we pay a dividend or for the preceding taxable year. In 2003, the U.S. Department of the Treasury (the “Treasury”) and the IRS announced that they intended to issue Treasury Regulations providing procedures for a foreign corporation to certify that it is a QFC. Although these Treasury Regulations were not issued in 2004, the Treasury and the IRS have confirmed their intention to issue these Treasury Regulations. It is expected that these Treasury Regulations will obligate persons required to file information returns to report a distribution with respect to a foreign security issued by a foreign corporation as a dividend from a QFC if the foreign corporation has, among other things, certified under penalties of perjury that the

57

foreign corporation was not a “passive foreign investment company” for the taxable year during which the foreign corporation paid the dividend or for the preceding taxable year.

As discussed below, we do not believe that we were a “passive foreign investment company” for the taxable year ended December 31, 2006, and we do not expect that we will be a “passive foreign investment company” for the taxable year ending December 31, 2007. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). However, there can be no assurance that the IRS will not challenge our determination concerning our “passive foreign investment company” status or that we will not be a “passive foreign investment company” for the current or any future taxable year. Accordingly, although we anticipate that we may be a QFC, there can be no assurances that the IRS will not challenge the determination made by us concerning our QFC status, that we will be a QFC for the current or any future taxable year, or that we will be able to certify that we are a QFC in accordance with the certification procedures issued by the Treasury and the IRS.

If we are not a QFC, a dividend paid by us to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.

Distributions Paid in Foreign Currency

The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).

Dividends Received Deduction

Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financial advisor, legal counsel, or accountant regarding the dividends received deduction.

Disposition of Common Shares

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules. (See more detailed discussion at “Foreign Tax Credit” below).

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses and net capital losses are subject to complex limitations. For a U.S. Holder that is an individual, estate, or trust, capital losses may be used to offset capital gains and up to U.S.$3,000 of ordinary income. An unused capital loss of a U.S. Holder that is an individual, estate, or trust generally may be carried forward to subsequent taxable years, until such net capital loss is exhausted. For a U.S. Holder that is a corporation, capital losses may be used to offset capital gains, and an unused capital loss generally may be carried back three years and carried forward five years from the year in which such net capital loss is recognized.

58

Foreign Tax Credit

A U.S. Holder who pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income (including “passive income,” “high withholding tax interest,” “financial services income,” “general income,” and certain other categories of income). Dividends paid by us generally will constitute “foreign source” income and generally will be categorized as “passive income” or, in the case of certain U.S. Holders, “financial services income.” However, for taxable years beginning after December 31, 2006, the foreign tax credit limitation categories are reduced to “passive income” and “general income” (and the other categories of income, including “financial services income” are eliminated). The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.

Information Reporting; Backup Withholding Tax

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from certain sales or other taxable dispositions of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.

Additional Rules that May Apply to U.S. Holders

If we are a “controlled foreign corporation” or a “passive foreign investment company” (each as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.

Controlled Foreign Corporation

We generally will be a “controlled foreign corporation” under Section 957 of the Code (a “CFC”) if more than 50% of the total voting power or the total value of our outstanding shares is owned, directly or indirectly, by citizens or residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts (each as defined in Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or more of the total voting power of our outstanding shares (a “10% Shareholder”).

If we are a CFC, a 10% Shareholder generally will be subject to current U.S. federal income tax with respect to (a) such 10% Shareholder’s pro rata share of our “subpart F income” (as defined in Section 952 of the Code) and (b) such 10% Shareholder’s pro rata share of our earnings invested in “United States property” (as defined in Section 956 of the Code). In addition, under Section 1248 of the Code, any gain recognized on the sale or other

59

taxable disposition of Common Shares by a U.S. Holder that was a 10% Shareholder at any time during the five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of our “earnings and profits” that are attributable to such Common Shares. If we are both a CFC and a “passive foreign investment company” (as defined below), we generally will be treated as a CFC (and not as a “passive foreign investment company”) with respect to any 10% Shareholder.

We do not believe that we have has previously been, or currently is, a CFC. However, there can be no assurance that we will not be a CFC for the current or any future taxable year.

Passive Foreign Investment Company

We generally will be a “passive foreign investment company” under Section 1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of our gross income for such taxable year is passive income or (b) 50% or more of the assets held by us either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if we are not publicly traded and either are a “controlled foreign corporation” or makes an election). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

For purposes of the PFIC income test and assets test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, we will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat us as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be rateably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Shares generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year. A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.

A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, a U.S. Holder that makes a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) our “net capital gain,” which will be taxed as long-term capital gain to such U.S. Holder, and (b) our “ordinary earnings,” which will be taxed as ordinary income to such U.S. Holder. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us.

A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are “marketable stock” (as defined in Section 1296(e) of the Code). A U.S. Holder that makes a Mark-to-Market Election will include in gross income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s

60

adjusted tax basis in the Common Shares over (b) the fair market value of such Common Shares as of the close of such taxable year.

We do not believe that we were a PFIC for the taxable year ended December 31, 2005, and we do not expect that we will be a PFIC for the taxable year ending December 31, 2006. There can be no assurance, however, that the IRS will not challenge our determination concerning its PFIC status or that we will not be a PFIC for the current or any future taxable year.

The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

F.        Dividends and Paying Agents

Not applicable.

G.        Statements by Experts

Not applicable.

H.        Documents on Display

Copies of our notice of articles and articles, along with copies of the Rights Plan, the 1997 Stock Option Plan, the 2005 Stock Option Plan and the 2006 Equity Incentive Plan may be inspected at our offices 2267 10th Avenue W., Vancouver, British Columbia, Canada during normal business hours.

I.        Subsidiary Information

All subsidiary information for Clearly Canadian is included in its consolidated financial statements.

ITEM 11.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than described below, we are not a party to any market risk sensitive instruments other than instruments evidencing interest-bearing debt obligations as described in “Item 4 – History and Development of the Company, Material Events” and in Note 2 and Note 11 to our audited financial statements for the year ended December 31, 2007 entitled “Significant Accounting Policies” and “Convertible Note Payable”, respectively.

Financial instruments

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 approximates its fair value based upon the discount rates applied.

Concentration of credit risk

We grant credit to our 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 December 31, 2007, four customers represented 74% (three customers as of December 31, 2006 - 64%) of total accounts receivable.

Interest rate risk

Our short term bank credit facility for CC Beverage (US) Corporation bears interests at U.S. prime plus 4%. We did not renew this line of credit as of February 29, 2008. Our short term bank credit facilities for DMR Food

61

Corporation and My Organic Baby, Inc. bear interest at Canadian prime rate plus 1.25% . We did not renew the line of credit for My Organic Baby, Inc. as of December 31, 2007.

Our long term debt bears interest at a fixed rate, which increases after three years. This is described in further detail in “Item 4 – History and Development of the Company” of this annual report and in Note 11 to our financial statements.

We do not use derivative instruments to manage our exposure to interest rate risk.

Foreign exchange rate risk

The majority of our revenues are earned and production costs incurred in the United States. However, certain selling, general and administration costs are incurred in Canada and we are therefore subject to risk due to fluctuations in exchange rates. We do not use derivative instruments to manage our exposure to foreign exchange rate risk.

ITEM 12.             DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable.

PART II

ITEM 13.             DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

We are currently involved in a dispute with the note holders in our Senior Convertible Note financing, which we are attempting to resolve. On January 28, 2008, we issued shares as payment of interest on the Notes to the sellers of DMR Food Corporation and My Organic Baby, Inc. at a value of $0.46 per share. Subsequently, on February 1, 2008, one of the note holders notified us that it believes such issuance of shares triggered the full-ratchet anti-dilution provisions on its Senior Convertible Note and the Series E and Series F Warrants, requiring adjustment of the conversion price of the Notes and the exercise price of the Series E and Series F Warrants to $0.46 per share. On February 4, 2008, the note holder tendered to us a conversion notice for $15,000 of its Note, at a conversion price of $0.46 per share. We disagree with the note holders that the full-ratchet anti-dilution provision has been triggered and we have rejected the conversion notice.

In the event that the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Senior Convertible Notes and upon exercise of the Warrants, and our existing shareholders will be diluted.

Pursuant to the terms of a Registration Rights Agreement with the holders of Senior Convertible Notes, we were required to use our best efforts to file a registration statement registering the common shares underlying the Senior Convertible Notes and to have that registration statement declared effective by the Securities and Exchange Commission on or before the January 23, 2008. The registration statement was not declared effective by January 23, 2008, and as of June 17, 2008, it has not yet been declared effective. As a result of that Effectiveness Failure, we are obligated to pay liquidated damages in cash to the note holders. The amount of liquidated damages for the Effectiveness Failure is calculated as follows: (A) $187,200 (2% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants) payable on the day of an Effectiveness Failure and on the 30^th day after the day of an Effectiveness Failure; (B) $93,600 (1% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants) payable on every 30^th day following the 31^st first day following such Effectiveness Failure (pro-rated for periods totalling less than 30 days) until such Effectiveness Failure is cured. These liquidated damages payments bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. We are currently in default of our obligations to pay these liquidated damages. Although we paid in full the initial required liquidated damage payment on January 23, 2008, we have not paid and have been accruing additional liquidated damages.

62

We are currently in negotiations with the holders of the Senior Convertible Notes to enter into a comprehensive agreement to resolve our dispute with respect to the anti-dilution adjustment and our default with respect to the liquidated damages payments.

ITEM 14.             MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

No material modifications have been made to the rights of holders of our shares of capital stock as presented in our notice of articles and articles. We have adopted a shareholder rights plan, the terms of which are described in “Item 10. Additional Information – Shareholder Protection Provisions.”

ITEM 15T.           CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2007 due to a material weakness discussed below. However, the material weakness will be remediated in fiscal 2008.

Management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for certifying the design of our internal control over financial reporting. Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles (GAAP) and the reconciliation to U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that establish the following:

•    maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets;

•    reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP;

63

•    receipts and expenditures only being made in accordance with authorizations of management and the Board of Directors; and

•    reasonable assurance regarding prevention or timely detection of unauthorized collection, use or disposition of our assets that could have a material effect on the financial statements.

Management, under the supervision and with the participation of our principal executive officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007. In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.

Our Independent Registered Public Accountants have not issued an attestation report on our internal control over financial reporting pursuant to the temporary rules of the U.S. Securities and Exchange Commission that permit us to provide only management's report for the year ended December 31, 2007.

A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No.5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, the effectiveness of our internal control over financial reporting is subject to the risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.

Our management identified a material weakness in that we do not have a formal Disclosure Committee. The purpose of the Disclosure Committee is to assist the Senior Officers in fulfilling their responsibility to oversee the accuracy, completeness and timeliness of the disclosures made by the Company. Due to a corporate reorganization which included changes within the Board of Directors, the relocation of the Vancouver office and subsequent changes in management, the Disclosure Committee was delayed until 2008. Although a formal process of a Disclosure Committee was not set up in 2007 (e.g. Minutes to meetings etc.) the Board of Directors, principal executive officer and principal financial officer do approve company disclosures. In 2008 a formal Disclosure Committee will be set up.

                                Bobby Genovese
principal executive officer, principal financial officer

THE FOREGOING MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING SHALL NOT BE DEEMED TO BE “FILED” WITH THE SEC, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE IT BY REFERENCE INTO SUCH FILING.

Changes in Internal Control Over Financial Reporting

With the exception of the identification of the deficiency as discussed above, during the fourth quarter of the fiscal year ended December 31, 2007, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

64

ITEM 16A.            AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that none of members of the Audit Committee meets the requirements of an “audit committee financial expert” as defined by the SEC. All of the members of the Audit Committee have significant business experience and a general understanding of accounting principles and knowledge of financial statements. Our Controller is available to assist the audit committee with respect to accounting issues.

ITEM 16B.            CODE OF ETHICS

We have adopted a code of ethics for our Chief Executive Officer, principal financial officer, principal accounting officer, controller and other persons performing similar functions. Our code of ethics complies with the SEC rules. The code of ethics addresses the following:

• honest and ethical conduct, including handling of corporate opportunities and conflicts of interest;
• full, fair, accurate, timely and quality public disclosure filed with the SEC and otherwise publicly made by us;
• compliance with applicable the laws and regulations;
• prompt internal reporting of violations of the code of ethics; and
• accountability for adherence to the code of ethics;

A copy of the code of ethics was previously filed with the SEC as an exhibit to our annual report on Form 20-F for the year ended December 31, 2003.

There have been no waivers to the code of ethics as of the date of this report.

ITEM 16C.            PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our current independent auditing firm, KPMG LLP, has served as our independent auditor since October 6, 2006 and has audited our financial statements for the 2007 and 2006 fiscal years. The table below sets forth the total amount billed, in Canadian dollars, by KPMG LLP for services performed in the 2007 and 2006 fiscal years, and breaks down these amounts by category of service:

		2007		2006
Audit fees	$	217,134	$	219,488
Audit-related fees		142,102		20,357
Tax fees		--		15,383
All other fees		--		150,085	(1)
Total	$	359,236	$	405,313

“Audit Fees” are the aggregate fees billed by KMPG LLP for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. This category comprises fees billed for independent accountant review of the interim financial statements, as well as advisory services associated with our financial reporting.

“Audit-Related Fees” are fees charged by KPMG LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”

“Tax Fees” are fees for professional services rendered by KPMG LLP for tax compliance, tax advice on actual or contemplated transactions.

(1) Represents fees billed by our former auditor, UHY LDMB Advisors Inc. These fees were billed in Canadian dollars.

65

Audit Committee’s Pre-Approval Policies and Procedures

The Audit Committee nominates and engages the independent auditors to audit the financial statements, and approves all audit, audit-related services, tax services and other services provided by KPMG LLP. Any services provided by KPMG LLP that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement. The audit committee is permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimis exception before the completion of the engagement. The audit committee pre-approves any non-audit services to be performed by the independent accountants under the de minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the Securities and Exchange Commission.

During the fiscal year ended December 31, 2007, no non-audit services were performed or approved by the audit committee to be performed by our independent accountants, other than certain tax compliance services which the audit committee believes that the independent accountants could provide without impairing their independence. There were no waivers of the audit committee pre-approval process in fiscal 2007.

ITEM 16D.            EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

ITEM 16E.            PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not Applicable.

PART III

ITEM 17.             FINANCIAL STATEMENTS

See “Item 18. Financial Statements”.

ITEM 18.             FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report:

66

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

CLEARLY CANADIAN BEVERAGE CORPORATION

Year ended December 31, 2007

KPMG LLP	Telephone	(604) 691-3000
Chartered Accountants	Fax	(604) 691-3031
PO Box 10426 777 Dunsmuir Street	Internet	www.kpmg.ca
Vancouver BC V7Y 1K3
Canada

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Clearly Canadian Beverage Corporation

We have audited the accompanying consolidated balance sheets of Clearly Canadian Beverage Corporation ("the Company") and subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2007 and 2006 and the results of their operations and their cash flows for the years then ended in conformity with Canadian generally accepted accounting principles.

The consolidated financial statements for the year ended December 31, 2005 were audited by other auditors who expressed an opinion without reservation in their report dated June 12, 2006.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2(a) to the consolidated financial statements, the Company has suffered recurring losses from operations and has insufficient working capital to meet its planned business objectives that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 2(a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Canadian generally accepted accounting principles vary in certain significant respects from US generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 19 to the consolidated financial statements.

Chartered Accountants

Vancouver, Canada
April 24, 2008, except as to note 19,
        which is as of June 18, 2008

KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.

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

December 31, 2007, with comparative figures for 2006

		2007			2006
Assets
Current assets:
Cash and cash equivalents	$	8,786		$	5,267
Accounts receivable (note 5)		1,038			634
Inventories (note 6)		1,436			427
Prepaid expenses and other current assets		723			533
		11,983			6,861
Property, plant and equipment (note 7)		1,640			1,153
Derivative (note 11)		1,436			-
Prepaid contracts (note 14(a))		-			1,079
Intangible assets (note 8)		5,426			-
Goodwill (note 8)		1,693
	$	22,178		$	9,093
Liabilities and Shareholders’ Equity
Current liabilities:
Bank indebtedness (note 4)	$	49		$	-
Accounts payable and accrued liabilities (note 9)		4,273			1,608
Capital lease obligation, current portion (note 10)		36			8
		4,358			1,616
Convertible note payable (note 11)		5,442			-
Capital lease obligation, net of current portion (note 10)		155			13
		9,955			1,629
Shareholders’ equity:
Capital stock (notes 12 and 13):
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 shares
Outstanding – nil (2006 – 1,600,000) class B preferred shares		-			1,600
Issued – 23,468,087 (2006 – 13,917,153) common shares without par
value		-			-
Outstanding – 23,430,787 (2006 – 13,879,853) common shares without par
value		84,047			75,730
Variable multiple voting shares – 1,600,000 (2006 – 320,000)
Contributed surplus		18,033			8,290
Accumulated other comprehensive income (loss)		56			(1,101	)
Deficit		(89,913	)		(77,055	)
		12,223			7,464
	$	22,178		$	9,093
Going concern (note 2(a))
Commitments and contingencies (note 14)
Subsequent events (note 18)

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

   Director

   Director

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Operation and Comprehensive Loss
(Expressed in thousands of United States dollars, except for share and per share amounts)

Year ended December 31, 2007

		2007			2006			2005
Sales	$	10,623		$	7,462		$	8,712
Cost of sales		9,212			5,677			6,349
Gross profit		1,411			1,785			2,363
Expenses:
Selling, general and administration expenses		14,528			9,177			6,872
Amortization of capital and intangible assets		875			16			122
Royalty revenue		-			(125	)		(76	)
Interest income		(319	)		(132	)		-
Other (income) expense		-			(35	)		231
Financing costs		-			132			-
Interest on short-term debt		37			148			172
Interest on long-term debt		-			6			49
Interest on convertible note		520			-			-
Write-down of property, plant and equipment		-			137			382
Gain on sale of investments		-			(201	)		-
Loss on settlement of lawsuit		-			797			-
Gain on financial instruments		(1,434	)		-			-
Restructuring		-			112			680
		14,207			10,032			8,432
Loss for the year		(12,796	)		(8,247	)		(6,069	)
Cumulative translation adjustment		1,157			-			-
Comprehensive loss for the year	$	(11,639	)	$	(8,247	)	$	(6,069	)
Loss per share, basic and diluted	$	(0.63	)	$	(0.82	)	$	(1.06	)
Weighted average number of shares outstanding		20,392,029			10,223,284			5,728,974

See accompanying notes to consolidated financial statements.

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

					Class A				Class B
	Common shares				preferred shares				preferred shares			Accumulated
				Share								other
				subscription								comprehensive				Shareholders’
	Number			receivable	Number				Number		Contributed	income				equity
	of shares	Amount		(payable)	of shares		Amount		of shares	Amount	surplus	(loss)		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

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

						Class A		Class B
	Common shares					preferred shares		preferred shares			Accumulated
				Share							other
				subscription							comprehensive				Shareholders’
	Number			receivable		Number		Number		Contributed	income				equity
	of shares	Amount		(payable)		of shares	Amount	of shares	Amount	surplus	(loss)		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

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

					Class A		Class B
	Common shares				preferred shares		preferred shares			Accumulated
				Share						other
				subscription						comprehensive				Shareholders’
	Number			receivable	Number		Number		Contributed	income				equity
	of shares	Amount		(payable)	of shares	Amount	of shares	Amount	surplus	(loss)		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

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

					Class A		Class B
	Common shares				preferred shares		preferred shares			Accumulated
				Share						other
				subscription						comprehensive				Shareholders’
	Number			receivable	Number		Number		Contributed	income				equity
	of shares	Amount		(payable)	of shares	Amount	of shares	Amount	surplus	(loss)		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

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

					Class A		Class B
	Common shares				preferred shares		preferred shares						Accumulated
				Share									other
				subscription									comprehensive				Shareholders’
	Number			receivable	Number		Number				Contributed		income				equity
	of shares	Amount		(payable)	of shares	Amount	of shares		Amount		surplus		(loss)		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,
carryforward	13,879,853	75,730		-	-	-	1,600,000		1,600		8,290		(1,101	)	(77,055	)	7,464

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

				Class A		Class B
	Common shares			preferred shares		preferred shares					Accumulated
			Share								other
			subscription								comprehensive				Shareholders’
	Number		receivable	Number		Number				Contributed	income				equity
	of shares	Amount	(payable)	of shares	Amount	of shares		Amount		surplus	(loss)		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 May 8,
2007 at US2.83 per share	8,444	26	-	-	-	-		-		-	-		-		26
Private placement issued on March
30, 2007 at US$3.00 per share	333,333	1,000	-	-	-	-		-		-	-		-		1,000
Shares issued for services on April 3,
2007 at US2.83 per share	9,078	26	-	-	-	-		-		-	-		-		26
Shares issued for services on May 8,
2007 at US2.83 per share	3,662	10	-	-	-	-		-		-	-		-		10
Shares issued for services on May 8,
2007 at US2.70 per share	9,465	26	-	-	-	-		-		-	-		-		26
Shares issued for services on May 8,
2007 at US3.00 per share	1,705	5	-	-	-	-		-		-	-		-		5
Carryforward	19,367,488	80,661	-	-	-	600,000		600		8,290	(1,101	)	(77,055	)	11,395

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

				Class A		Class B
	Common shares			preferred shares		preferred shares			Accumulated
			Share						other
			subscription						comprehensive				Shareholders’
	Number		receivable	Number		Number		Contributed	income				equity
	of shares	Amount	(payable)	of shares	Amount	of shares	Amount	surplus	(loss)		Deficit		(deficiency)
		$	$		$		$	$	$		$		$
Broughtforward	19,367,488	80,661	-	-	-	600,000	600	8,290	(1,101	)	(77,055	)	11,395
Brokers warrant exercised at
US$2.25 per share on May 14,
2007	79,025	178	-	-	-	-	-	-	-		-		178
Restricted shares issued for
purchase of My Organic Baby at
$2.76 per share on May 25, 2007	200,000	553	-	-	-	-	-	-	-		-		553
Non Lock Up restricted shares
issued for purchase of My Organic
Baby at $2.48 per share on May 25,
2007	215,000	533	-	-	-	-	-	-	-		-		533
Option exercised at US$1.00 per
share on May 25, 2007	100,000	100	-	-	-	-	-	-	-		-		100
Option exercised at US$1.18 per
share on June 1, 2007	9,872	12	-	-	-	-	-	-	-		-		12
Option exercised at US$1.00 per
share on June 7, 2007	50,000	50	-	-	-	-	-	-	-		-		50
Shares issued for services on June
7, 2007 at US2.64 per share	10,135	27	-	-	-	-	-	-	-		-		27
Option exercised at US$1.00 per
share on June 7, 2007	50,000	50	-	-	-	-	-	-	-		-		50
Finders fee issued – private
placement March 14 to 30, 2007 at
US$2.42 per share on June 7, 2007	90,000	218	-	-	-	-	-	-	-		-		218
Shares issued for consideration on
employment contract on June 8,
2007 at US2.48 per share	215,000	533	-	-	-	-	-	-	-		-		533
Option exercised at US$1.18 per
share on June18, 2007	7,922	9	-	-	-	-	-	-	-		-		9
Option exercised at US$1.00 per
share on June 20, 2007	10,000	10	-	-	-	-	-	-	-		-		10
Option exercised at US$1.00 per
share on June 20, 2007	25,000	50	-	-	-	-	-	-	-		-		50
Option exercised at US$1.75 per
share on June 20, 2007	117,500	206	-	-	-	-	-	-	-		-		206
Carryforward	20,546,942	83,190	-	-	-	600,000	600	8,290	(1,101	)	(77,055	)	13,924

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

						Class A		Class B
	Common shares					preferred shares		preferred shares				Accumulated
					Share							other
					subscription							comprehensive				Shareholders’
	Number				receivable	Number		Number		Contributed		income				equity
	of shares		Amount		(payable)	of shares	Amount	of shares	Amount	surplus		(loss)		Deficit		(deficiency)
			$		$		$		$	$		$		$		$
Broughtforward	20,546,942		83,190		-	-	-	600,000	600	8,290		(1,101	)	(77,055	)	13,924
Option exercised at US$1.00 per
share on June 20, 2007	10,000		10		-	-	-	-	-	-		-		-		10
Cash dividend on class B preferred
paid on June 20, 2007	-		-		-	-	-	-	-	-		-		(62	)	(62	)
Option exercised at US$2.12 per
share on June 21, 2007	3,460		7		-	-	-	-	-	-		-		-		7
Share issue cost – private placement
March 14 to 30, 2007	-		(70	)	-	-	-	-	-	-		-		-		(70	)
Share issue cost - Finders fees–
private placement March 14 to 30,
2007	-		(218	)	-	-	-	-	-	-		-		-		(218	)
Shares issued for services on July 4
and 5, 2007 at US2.85 per share	21,113		61		-	-	-	-	-	-		-		-		61
Option exercised at US$1.75 per
share on July 16, 2007	32,768		58		-	-	-	-	-	-		-		-		58
Shares issued for services on August
1, 2007 at US2.78 per share	9,635		28		-	-	-	-	-	-		-		-		28
Option exercised at US$1.75 per
share on August 16, 2007	116,399		204		-	-	-	-	-	-		-		-		204
Shares issued for settlement of
acquisition liability – DMR Food
Corporation at US$2.90 on August
13, 2007	155,279		428		-	-	-	-	-	-		-		-		428
Restricted shares cancelled for
purchase of My Organic Baby at
$2.76 per share on September,
2007	(200,000	)	(553	)	-	-	-	-	-	-		-		-		(553	)
Paid-in capital – exercise of stock
options for the 12 months ended
September 30, 2007	-		1,449		-	-	-	-	-	(1,449	)	-		-		-
Fair value of stock options issued for
the 12 months ended December
31, 2007	-		-		-	-	-	-	-	1,873		-		-		1,873
Fair value of warrants issued for 12
months ended December 31, 2007	-		(1,651	)	-	-	-	-	-	1,651		-		-		-
Fair value of warrant for consulting
agreement cancelled except for the
warrant	-		-		-	-	-	-	-	1,449		-		-		1,449
Fair value of warrant for convertible
note payable	-		-		-	-	-	-	-	2,454		-		-		2,454
Fair value of conversion option in
convertible note payable	-		-		-	-	-	-	-	2,419		-		-		2,419
Fair value of subordinated
convertible note payable	-		-		-	-	-	-	-	1,346		-		-		1,346
Carryforward	20,695,596		82,943		-	-	-	600,000	600	18,033		(1,101	)	(77,117	)	23,358

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

						Class A		Class B
	Common shares					preferred shares		preferred shares					Accumulated
					Share								other
					subscription								comprehensive				Shareholders’
	Number				receivable	Number		Number				Contributed	income				equity
	of shares		Amount		(payable)	of shares	Amount	of shares		Amount		surplus	(loss)		Deficit		(deficiency)
			$		$		$			$		$	$		$		$
Broughtforward	20,695,596		82,943		-	-	-	600,000		600		18,033	(1,101	)	(77,117	)	23,358
Shares issued for services on
September 10, 2007 at US$2.47
per share	10,862		27		-	-	-	-		-		-	-		-		27
Shares issued for consulting services
on September 27, 2007 at US$2.11
per share	228,310		482		-	-	-	-		-		-	-		-		482
Shares issued for consulting services
on October 31, 2007 at $2.11 per
share	8,657		18		-	-	-	-		-		-	-		-		18
Conversion of $600,000 preferred
shares to common shares on
October 15, 2007	2.460,000		600		-	-	-	(600,000	)	(600	)	-	-		-		-
Shares cancelled for consulting
services on November 15, 2007 at
USD$2.99 per share	(17,250	)	(52	)	-	-	-	-		-		-	-		-		(52	)
Shares issued for consulting services
on November 15, 2007 at $1.64 per
share	14,612		24		-	-	-	-		-		-	-		-		24
Shares issued for consulting services
on December 6, 2007 at $0.83 per
share	30,000		25		-	-	-	-		-		-	-		-		25
Loss for the 12 months ended
December 31, 2007	-		-		-	-	-	-		-		-	-		(12,796	)	(12,796	)
Cumulative translation adjustment	-		(20	)	-	-	-	-		-		-	1,157		-		1,137
Balance, December 31, 2007	23,430,787		84,047		-	-	-	-		-		18,033	56		(89,913	)	12,223

See accompanying notes to consolidated financial statements.

CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Cash Flows
(Expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

		2007			2006			2005
Cash flows from operating activities:
Loss for the year	$	(12,796	)	$	(8,247	)	$	(6,069	)
Items not involving cash (note 16 (a))		3,258			4,986			2,790
Changes in non-cash working capital balances
related to operations (note 16(b))		3,469			414			(2,376	)
		(6,069	)		(5,655	)		(5,655	)
Cash flows from financing activities:
Proceeds on issuance of short-term debt		-			-			1,277
Proceeds from issuance of capital stock and
warrants		4,690			7,731			6,516
Proceeds from convertible notes payable		9,000			-			-
Bank indebtedness		(120	)		(361	)		89
Dividend paid on class B preferred shares		(61	)		(94	)		-
Repayment of short-term debt		-			-			(446	)
Repayment of long-term debt		-			-			(1,660	)
		13,509			7,276			5,776
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment		-			358			-
Proceeds from sale of long-term investment		-			230			-
Acquisition of DMR Food Corporation (note 3)		(1,743	)		-			-
Acquisition of My Organic Baby Inc. (note 3)		(3,105	)		-			-
Purchase of property, plant and equipment		(66	)		(41	)		-
		(4,914	)		547			-
Effect of exchange rates on cash and cash
equivalents		993			(229	)		321
Increase in cash and cash equivalents		3,519			4,747			442
Cash and cash equivalents, beginning of year		5,267			520			78
Cash and cash equivalents, end of year	$	8,786		$	5,267		$	520
Interest paid	$	676		$	154		$	191

Supplementary cash flow information (note 16)

See accompanying notes to consolidated financial statements.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

1.	Nature of operations:
	The Company produces, distributes and markets beverage products, flavoured beverages, organic baby food and snack food products. The Company’s products are sold principally in the United States and Canada.
2.	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 $12,796,000 for the year ended December 31, 2007. At December 31, 2007 it has working capital of $7,625,000. Operations for the year ended December 31, 2007 have been funded primarily from cash reserves raised by the issuance of capital stock and convertible notes. Management is of the opinion that its cash and cash equivalents of $8.7 million at December 31, 2007 will provide sufficient working capital to meet the Company’s cash requirements until the fourth quarter of 2008.
		Management has continued to take steps to try to improve the Company’s financial results and cash flow which includes 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.
		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). .

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(c)	Basis of presentation:
		These consolidated financial statements include the accounts of Clearly Canadian Beverage Corporation (o/a Clearly Canadian Brands) and its wholly owned subsidiaries, Clearly Canadian Beverage (International) Corporation, CC Beverage (US) Corporation, Blue Mountain Springs Ltd., DMR Food Corporation (o/a Sweet Selections) and My Organic Baby Inc.
		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. Bill and hold revenue recognized must also meet the following criteria:

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2. Significant accounting policies (continued):

(e) Revenue recognition (continued):

(1)	The risk of ownership has passed to the customer
(2)	The customer has made a fixed commitment to purchase the goods in writing
(3)	The customer requests that the transaction be on a bill and hold basis
(4)	The customer has a fixed schedule for the delivery of product
(5)	The customer has retained specific performance obligations
(6)	The products have been segregated from the Company’s inventory and are not subject to being used to fill other orders
(7)	The products have been completed and ready for shipment
(8)	The company expects the customer to pay under its normal billing and credit terms
(9)	The Company does not expect risk of loss due to a decline in the market value of goods
(10)	The customer’s custodial risk is insurable and insured
(11)	There are no exceptions to the customer’s commitment to accept and pay for the products sold

	As of the year ended December 31, 2007 there are no bill and hold transactions.
	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.
	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.
(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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(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.
(i)	Goodwill:
	Goodwill is the excess of the cost of an acquired business over the net of the amounts 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 operations as impairment loss in the period.
(j)	Intangible assets:
	Intangible assets acquired are initially recognized and measured at cost. Intangible assets with finite useful lives are amortized over their estimated useful lives. The amortization methods and estimated useful lives of intangible assets are reviewed annually. Intangible Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(k)	Stock-based compensation plan:
		The Company has stock-compensation plans, which are described in note 13. 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.
	(l)	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.
	(m)	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 warrants, the allocation of proceeds to components of convertible debentures, valuation of derivatives and impairment testing of goodwill and intangible assets. Actual results could differ materially from those estimates.
	(n)	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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(n)	Financial instruments (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 December 31, 2007, four customers represented 74% (December 31, 2006 – three customers represented 64%) 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 Canadian dollar short term bank credit facility bears interest at Canadian 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.
	(o)	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 that the asset will not be realized.
	(p)	Advertising and marketing costs:
		The Company expenses all advertising and marketing costs as incurred. For the year ended December 31, 2007, the Company incurred marketing costs of $1,697,000 (2006 - $2,020,943). These costs are included in selling expenses.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(q)	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. Basic and diluted loss per share have been adjusted for $61,000 of preferred share dividends to reflect income available to shareholders.
		Diluted loss per share is the same as basic loss per share since the exercise of stock options and warrants would be anti-dilutive
	(r)	Other significant accounting policies:
		Effective January 1, 2007, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments – Recognition and Measurement; Section 3861 Financial Instruments – Disclosure and Presentation, and, Section 3865,
		Hedges, retroactively without restatement. These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide requirements for the recognition and measurement of financial instruments and on the use of hedge accounting. Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with generally accepted accounting principles. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated except to redefine amounts previously presented in shareholders’ equity as cumulative translation account to be accumulated other comprehensive loss. The adoption of these Handbook Sections had no impact on opening retained earnings.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

2.	Significant accounting policies (continued):
	(r)	Other significant accounting policies (continued):
		Under Section 3855, financial instruments must be classified into one of five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments, including derivatives, are measured in the balance sheet at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and recognition of changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts would be recorded in net income.
		Upon adoption of these new standards, the Company designated its cash, cash equivalents, and short-term investments as held-for-trading, which are measured at fair value. Accounts receivable and income taxes receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities. The Company does not have either available-for-sale, or held-to-maturity instruments during the twelve months ended December 31, 2007. The Company has not designated any financial liabilities as held-for-trading.
3.	Acquisitions:
	On February 7, 2007, the Company completed the acquisition of 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 US$380,000 (CA$450,000) 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. The DMR share purchase agreement provided that if a gain of CA$2,550,000 was not realized by the holder from the sale of the warrant shares by February 7, 2008, the Company would be required to pay any shortfall up to a maximum of US$2,167,000 (CA$2,550,000). The amount of this corporate guarantee was recorded by the Company as a current and long term liability, as applicable. The results of operations of DMR Food Corporation have been consolidated from February 7, 2007. On August 13, 2007, the Company issued 155,279 common shares at a market price of US$2.74 per share as partial payment for the debt guaranteed by the Company.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

3.	Acquisitions (continued):
	On September 25, 2007, the Company entered into a securities purchase agreement modifying the payment terms in the DMR share purchase agreement. The warrants to purchase 3,000,000 of the Company’s common shares were surrendered, cash consideration of CA$1,323,530 (US$1,317,177) was paid and the Company issued a Subordinated Convertible Note (note 11) of CA$725,689 (US$723,206) with a maturity date of September 25, 2027.
	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.

Purchase consideration
Cash paid	$	381
Purchase price guarantee		2,167
Business combination expenses		31
	$	2,579
Allocation of purchase consideration
Assets:
Cash	$	49
Accounts receivable		642
Inventory		378
Plant and equipment		284
Other current assets		33
		1,386
Liabilities:
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 and other intangibles		2,290
	$	2,579

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

3.	Acquisitions (continued):
	Excess of purchase consideration over net identifiable assets consists of acquired intangible assets, which are comprised of distribution relationships, supplier agreements, trademarks, copyrights and brands, proprietary trade secrets, non-compete covenant agreements and goodwill. On May 24th , 2007, the Company completed the acquisition of 100% of the shares of My Organic Baby Inc. (“MOB”), a leading seller of organic baby food in Canada. The Company acquired the shares of MOB for an initial payment of US$369,000 (CA$400,000) in cash, 415,000 common shares of the company and warrants to purchase 3,750,000 of the Company’s common shares at a purchase price of US$4.00 per share within 3 years. The MOB share purchase agreement provided that if a gain of CA$600,000 was not realized from the sale of the common shares within two years, the Company would pay any shortfall, and if CA$3,750,000 was not realized by the holder from the sale of the warrant shares by November 24, 2008, the Company would be required to pay any shortfall up to a maximum of CA$3,750,000 (US$3,459,000). The amount of this corporate guarantee was recorded by the Company as a current and long term liability, as applicable. The results of operations of My Organic Baby Inc. have been consolidated from May 24, 2007.
	On September 25th, 2007, the Company entered into a securities purchase agreement modifying the payment terms in the MOB share purchase agreement. The warrants to purchase 3,750,000 of the Company’s common shares and 200,000 restricted common shares were surrendered, cash consideration of CA$2,676,470 (US$2,663,623) was paid and the Company issued a subordinated Convertible Note (note 12) of CA$1,564,082 (US$1,556,574) with a maturity date of September 25, 2027. The Company also guaranteed that if a gain of CA$600,000 is not realized by March 18, 2009, from the sale of 215,000 common shares not surrendered in the transaction, the Company will pay any shortfall.
	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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

3. Acquisitions (continued):

Purchase consideration
Cash paid	$	369
Non lock up shares – 215,000 common shares		553
Restricted shares – 200,000 common shares		533
Purchase price guarantee		3,458
	$	4,913
Allocation of purchase consideration
Assets:
Cash	$	21
Accounts receivable		445
Inventory		142
Plant and equipment		21
Other current assets		131
		760
Liabilities:
Accounts payable		(686	)
Net identifiable assets		74
Excess of purchase consideration over net identifiable
assets - goodwill and other intangibles		4,839
	$	4,913

Excess of purchase consideration over net identifiable assets consists of acquired intangible assets, which are comprised of distribution relationships, supplier agreements, trademarks, copyrights and brands, proprietary trade secrets, non-compete covenant agreements and goodwill.

The net impact of the securities purchase agreements which modified the DMR and MOB share purchase agreements, was the cancellation of the warrants issued under the DMR and MOB share purchase agreements, and the related guarantees by the Company and the cancellation of 200,000 common shares, collectively for consideration of cash and convertible debt. The net difference between the instruments cancelled and the consideration given is $158,000 which was credited to the Company’s income statement. The securities purchase agreements did not affect the purchase price of DMR and MOB.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

4.	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 December 31, 2007 - $303,839, December 31, 2006 - $403,593). The weighted average interest rate for the year ended December 31, 2007 was 12.04% (December 31, 2006 – 11.96%). As at December 31, 2007 nil (December 31, 2006 - nil) had been drawn on this line of credit. This operating line of credit is also secured by a guarantee from the Company. As of February 29, 2008, the line of credit expired and the Company’s did not renew the operating line of credit.
	The Company’s subsidiary, DMR, has a demand operating loan facility of CA$250,000, 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 DMR as well as guarantee and postponement of claims in the amount of CA$455,000 by the Company. The weighted average interest rate from February 7, 2007 to December 31, 2007 was 5.86%. As of December 31, 2007 $49,407 had been drawn on this line of credit.
	The Company’s subsidiary, MOB, has a demand operating loan facility of CA$250,000, 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 MOB, as well as guarantee and postponement of claims in the amount of CA$250,000 by a former shareholder of MOB and a collateral mortgage in the amount of $211,000 on property owned by the former shareholder. The weighted average interest rate from February 7, 2007 to December 31, 2007 was 5.90%. As of December 31, 2007 nil had been drawn on this line of credit. As of December 31, 2007, the line of credit expired and the Company’s did not renew the operating line of credit.
5.	Accounts receivable:

		2007		2006
Trade accounts receivable, net of allowance of $210,000
(2006 - $53,000)	$	863	$	597
Other receivables		175		37
	$	1,038	$	634

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

6. Inventories:

		2007		2006
Finished goods	$	1,226	$	280
Raw materials		210		147
	$	1,436	$	427

7. Property, plant and equipment and assets:

				Accumulated				2007
		2007		amortization		Write-down		Net
Land and water sources	$	1,192	$	-	$	-	$	1,192
Buildings		1,206		1,147		-		59
Equipment		1,632		1,250		-		382
Leasehold improvements		79		77		-		2
Vehicle		5		-		-		5
	$	4,114	$	2,474	$	-	$	1,640

				Accumulated				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 equipment are assets under capital lease having a value of $222,643 and accumulated amortization of $38,206 with a net book value of $184,437 at 2007 (2006 - nil).

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

8. Goodwill and other intangible assets:

(a) Intangible assets as at December 31, 2007 are as follows:

		DMR Food		My Organic
		Corp.		Baby Inc.		Accumulated		2007
		2007		2007		amortization		Net
Distributor relationships	$	559	$	715	$	144	$	1,130
Trademarks, copyright		489		834		147		1,176
and brands
Other intangible assets		1,291		2,341		512		3,120
	$	2,339	$	3,890	$	803	$	5,426

	Propriety trade secrets, distribution relationship, supplier agreements, trademarks, copyright and brands are amortized over a period of 3 to 6 years based on third party valuation. The amortization expense for the year ended December 31, 2007 was $803,000 (2006 – nil).
(b)	Goodwill as at December 31, 2007 is as follows:

		DMR Food		My Organic
		Corp.		Baby Inc.
		2007		2007		Total
Goodwill	$	364	$	1,329	$	1,693

The company performs annual impairment test for goodwill. As of December 31, 2007, the company completed its impairment tests and determined that goodwill was not impaired.

9. Accounts payable and accrued liabilities:

		2007		2006
Trade accounts payable	$	2,896	$	1,062
Marketing fees		350		304
Other accrued liabilities		1,027		242
	$	4,273	$	1,608

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

10.	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 represents 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 Company’s obligations under the capital leases consist of:

		2007			2006
Minimum lease payments payable	$	228		$	26
Portion representing interest to be recorded over the
remaining term of the lease		(37	)		(5	)
		191			21
Current portion		(36	)		(8	)
	$	155		$	13

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

2008	$	57
2009		57
2010		57
2011		57
	$	228

11. Convertible note payable:

		2007			2006
Senior convertible notes payable	$	9,360		$	-
Subordinated convertible note payable		2,421			-
Discount on senior and subordinated convertible note		(6,339	)
payable
	$	5,442		$	-

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

11.	Convertible note payable (continued):
	On September 26, 2007, the Company entered into a securities purchase agreement with institutional investors to sell senior convertible notes for $9.36 million maturing on September 26th , 2027 and to issue five year share purchase warrants to purchase 4,017,162 common shares of the Company (The “Series E Warrants” and the “Series F Warrants”). The 2,008,581 Series E Warrants are exercisable at an initial exercise price of $2.33 per shares (subject to future adjustment) and the 2,008,581 Series F Warrants are exercisable at an initial exercise price of $2.56 per share (subject to future adjustment). The Company paid an approximate 4% financing fee to the placement agent in the financing. The company received net proceeds from the financing of approximately $9 million after the payment of the financing fee. The Company also issued to the placement agent 500,000 share purchase warrants exercisable at an initial price of $2.33 per share on the same terms as the Series E Warrants.
	The primary features of the Senior Convertible Notes are: (i) interest at 9% per annum for year 1 to 3 and at 18% per annum for year 4 to maturity, payable monthly in cash, or, subject to volume and ownership limitations and in the Company’s discretion, common shares based on a 10% discount to the then market price, (ii) convertible at any time by the holders at the conversion price (initially $2.33 per share, subject to future adjustment), (iii) during year 1 to 2, provided the market price of the company’s common share is double the conversion price, the Company can, subject to volume and ownership limitations, call the Senior Convertible Notes, (iv) in year 3 and beyond, the Company can, subject to volume and ownership limitation, force conversion of the Senior Convertible Note at the lower of the initial conversion price or at a 15% discount of the then market price and so long as the Company is converting the Senior Convertible Notes, the interest rate remains at 9%; and (v) in year 4 and to maturity the Senior Convertible Notes can be called by the note holders.
	The Company used the relative fair value approach to value the Senior Convertible Notes based on their value (i) without the conversion feature (ii) with the conversion option and (iii) with the warrants. Based on this volatility assumption (52%) and credit spread assumption (12%), the Company calculated the fair value of the convertible notes, the straight note value, conversion option value and call option value.
	The fair value of the Senior Convertible Notes based on the above approach was $4,365,000 ($9,360,000 less discount on Senior Convertible Notes of $4,995,000). The fair value of the call option (embedded derivative) was $2,000 and $1,436,000 at September 26 and December 31, 2007, respectively. The company amortized the discount over 3 year, and as of December 31, 2007 the company accreted $237,000.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

11.	Convertible note payable (continued):
	The Company is required to pay liquidated damages in cash to the Senior Convertible Note holders if (i) a registration statement registering the common shares underlying the Senior Convertible Notes is not declared effective by the Securities and Exchange Commission on or before January 23, 2008 (an “Effectiveness Failure”) or (ii) after a registration statement has been declared effective by the Securities and Exchange Commission, sales of “registrable securities” cannot be made by a note holder (a “Maintenance Failure”).
	The amount of liquidated damages is calculated as follows: (A) 2% of the aggregate purchase price paid for the Senior Convertible Notes, the Series E Warrants and the Series F Warrants on each of the following dates: (i) the day of an Effectiveness Failure; (ii) the initial day of a Maintenance Failure; (iii) on the 30th day after the day of an Effectiveness Failure (pro rated for periods totaling less than 30 days); and (vi) on the 30th day after the initial day of a Maintenance Failure (pro rated for periods totaling less than 30 days) and (B) 1% of the aggregate purchase price paid for the Senior Convertible Notes, the Series E Warrants and the Series F Warrants on each of the following dates: (i) on every 30th day following the 31st first day following such Effectiveness Failure (pro rated for periods totaling less than 30 days) until such Effectiveness Failure is cured; and (ii) on every 30th day following the 31st day following such Maintenance Failure (pro rated for periods totaling less than 30 days) until such Maintenance Failure is cured. In the event we fail to timely make these liquidated damages payments, these amounts will bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full.
	As of January 23, 2008, the registration statement relating to the Senior Convertible Notes is still not effective by the Securities and Exchange Commission and the company will be required to pay liquidated damage. The actual amount of liquidated damages payments, if any, will depend on the actual effective date of the registration statement and may be more or less than our estimated amount.
	On September 26, 2007, the company also entered into a securities purchase agreement with former shareholders of DMR and MOB to modify the share purchase agreements dated February 7, 2007 and May 24, 2007 in which the company purchased DMR and MOB respectively. Details of this modification are provided in note 3. The primary features of the subordinated convertible notes issued to those persons are the same as the Senior Convertible Notes with the exception that the interest is at 9% from year 1 to maturity and there are provisions for liquidated damages in the event of the registration statement being filed late.
	The Company valued the subordinated convertible notes based on using the Black-Scholes method, volatility assumption of 52%, and credit spread of 12% over 20 years. Based on these factors the fair value is $1,077,000 ($2,421,000 less discount on subordinated convertible notes of $1,344,000).

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

12.	Capital stock:
	Authorized:

Common shares-limited voting shares, unlimited number authorized, 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:
	The Class B Preferred Shares includes 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 installments. Each Class B Preferred Share has the right to five votes on any vote of the common shareholders. The Class B Preferred Shares are 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 Share.

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 December 31, 2007, the 1,600,000 issued and outstanding Variable Multiple Voting Shares entitles the holder to 39,232,759 votes at a meeting of shareholders.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

12.	Capital stock (continued):
	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 thereof, 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. In September 2007, the expiration date of the Series A warrants was extended to December 2010.
	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.
	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.
	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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

12.	Capital stock (continued):
	In October 2006, the Company paid $94,246 to BG Capital in respect of dividends payable on the 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 Variable 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 Variable Multiple Voting Shares.
	In March, 2007, the Company completed a brokered private placement of 1,166,333 common shares issued at $3.00 per share, together with a warrant to purchase 1,166,333 common shares at $3.25 per share, vesting on July, 2007 and expiring in March, 2009, raising a total of $3,499,000. 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. The Company also paid a finders fees by issuing 90,000 common shares at $2.42 per share.
	In May, 2007, the Company completed the acquisition of 100% of the shares of My Organic Baby Inc. and in connection therewith, the Company issued 415,000 common shares of which 200,000 were surrendered when the Company entered into a securities purchase agreement with the former shareholders of My Organic Baby Inc. (see note 3). The Company also issued 215,000 common shares in connection with employment agreements with the former officers and shareholders of My Organic Baby Inc. (see note 14(a)).
	In June, 2007, the Company paid $61,150 to BG Capital in respect of dividends payable on the Class B Preferred Shares from November 1, 2006 to June 30, 2007.
13.	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 Company’s board of directors.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

13.	Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):
	(a)	Stock options (continued):
		A summary of stock options granted by the Company is as follows:

				Weighted
	Number of			average
	options			exercise price
	(000’s	)		US$
Options outstanding at December 31, 2004	169		$	8.70
Granted	1,709			1.21
Expired	(56	)		7.24
Exercised	(105	)		1.17
Surrendered	(100	)		1.17
Options outstanding at December 31, 2005	1,617			1.77
Granted	2,216			1.79
Expired	(18	)		3.77
Exercised	(1,307	)		1.82
Options outstanding at December 31, 2006	2,508			1.96
Granted	1,869			2.51
Expired	(10	)		2.35
Exercised	(653	)		1.54
Surrendered	(10	)		2.75
Options outstanding at December 31, 2007	3,704		$	2.34
Options exercisable at December 31, 2007	1,815		$	2.31

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

13.	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.
		The following table summarizes information about options outstanding:

2007			Weighted		Weighted	Weighted			Weighted
	Number		average		average	average			average
	of options		remaining		exercise	number			exercise
	outstanding		contractual		price	exercisable			price
Exercises prices US$	(000’s	)	life (years)		US$	(000’s	)		US$
$ 13.34	2		3.6	$	13.34	2		$	13.34
12.35	27		4.1		12.35	27			12.35
11.36	17		3.2		11.36	17			11.36
9.88	4		4.7		9.88	4			9.88
6.42 - 6.92	49		3.95		6.56	49			6.56
2.55 - 2.9	1,593		2.13		2.75	422			2.39
2.00 – 2.44	523		2.83		2.08	523			2.08
1.50-1.75	1,059		3.7		1.69	341			1.57
1.00 – 1.25	430		2.80		1.15	430			1.15
$ 1.00 – 13.34	3,704		3.0	$	2.34	1,816		$	2.31

The total intrinsic value of options exercised during the year ended December 31, 2007 was $795,823. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2007 is nil respectively.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

13.	Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):
	(a)	Stock options (continued):
		For the year ended December 31, 2007, the Company granted 1,869,000 options (December 31, 2006 – 2,216,000) under its stock option plans, of which options to acquire 704,658 shares (December 31, 2006 – 2,146,000) were granted to members of its Advisory Board, board of directors and management. Stock based compensation expense of $1,780,000 has been recorded for the year ended December 31, 2007. (December 31, 2006 - $2,426,000). Stock based compensation of an additional $1,471,000 (December 31, 2006 - $88,331) 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 and based on the following assumptions:

	2007	2006	2005
Risk-free interest rate	3.34% to 4.92%	4.38% to 5.06%	2.77% to 3.30%
Expected life of options	1 to 5 years	1 to 5 years	5 years
Expected volatility in the market
price of the shares	48% to 95%	107% to 185%	234% to 236%
Expected dividend yield	0.0%	0.0%	0.0%
Weighted average grant date fair
value	$0.95	$1.09	$0.94

(b) Stock based compensation:

		2007		2006			2005
Stock based compensation
(note 12 (a))	$	1,685	$	2,426		$	1,612
Stock based compensation – warrant
(note 14 (a))		1,449		-			-
Stock based compensation – option		188		907
(note 14 (a))							-
Reversal of stock based
compensation on warrant issued in
December 2005		-		(23	)		-
	$	3,322	$	3,310		$	1,612

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

13.	Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):
	(c)	Warrants:
		The following table summarizes information about common share purchase warrants granted in equity financings and acquisitions to date which remain outstanding at December 31, 2007. Each warrant entitles the holder to purchase one common share at the exercise price indicated.

Exercise	Balance,								Balance,
price	December 31,								December 31,	Expiry
per share	2006	Granted	Cancelled		Expired		Exercised		2007	date
US$2.25 (CA$2.25)	91,525	-	-		-		(91,525	)	-	May 2007
US$3.00 (CA$3.01)	84,350	-	-		(84,350	)	-		-	July 2007
US$3.25 (CA$3.26)	356,667	-	-		-		-		356,667	September 2008
US$3.25 (CA$3.26)	-	856,333	-		-		-		856,333	July, 2009
US$3.25 (CA$3.26)	-	333,333	-		-		-		333,333	April, 2009
US$4.00 (CA$4.01)	-	3,000,000	(3,000,000	)	-		-		-	February 2010
US$4.00 (CA$4.01)	-	3,750,000	(3,750,000	)	-		-		-	May, 2010
US$2.00 (CA$2.00)	1,000,000	-	-		-		-		1,000,000	October 2010
US$1.25 (CA$1.25)	4,090,000	-	-		-		(60,000	)	4,030,000	December 2010
US$2.00 (CA$2.00)	100,000	-	-		-		-		100,000	July 2011
US$2.33 (CA$2.33)	-	2,508,581	-		-		-		2,508,581	September 2012
US$2.56 (CA$2.57)	-	2,008,581	-		-		-		2,008,581	September 2012
	5,722,542	12,456,828	(6,750,000	)	(96,850	)	(139,025	)	11,193,495

Warrants activity during the years ended December 31, 2006 and 2005 is as follows:

	Number of
	warrants
Balance, January 1, 2005	81,500
Granted	21,000,000
Expired	(56,500	)
Balance, December 31, 2005	21,025,000
Granted	4,752,542
Expired	(25,000	)
Cancelled	(20,000,000	)
Exercised	(30,000	)
Balance, December 31, 2006	5,722,542
Granted	12,456,828
Expired	(96,850	)
Cancelled	(6,750,000	)
Exercised	(139,025	)
Balance, December 31, 2007	11,193,495

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

13.	Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):
	(c)	Warrants (continued):
		In the year ended December 31, 2007, the Company granted warrants to acquire 1,189,666 shares in a private placement described in note 12. These warrants had a fair value of $1,651,000, which amount has been charged as a cost of the share capital raised. The Company also granted warrants to acquire 3,000,000 shares and 3,750,000 at a price of $4.00 per share, having a fair value of $5,625,000 due to the Company’s guarantee of the acquisition price, in connection with its acquisitions of DMR Food Corporation and My Organic Baby Inc. These warrants were all surrendered in September, 2007 when the Company entered into a share purchase agreement with the former shareholders of DMR Food Corporation and My Organic Baby Inc. as described in note 3. The Company granted warrants to institutional investors to acquire 4,017,162 shares and to the placement agent in the financing to acquire 500,000 shares at a price as described in note 11. In September, 2007, the Company also extended the warrant to acquire 4,030,000 at a price of $1.25 from December, 2007 to December, 2010.
	(d)	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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

14.	Commitments and contingencies:
	(a)	Consulting contracts:
		On November 1, 2005, the Company entered into a consulting agreement with a five-year term and recognized the expense related to the consulting agreement over the five-year term. As partial consideration under the consulting agreement, we issued warrants to purchase 1,000,000 of our common shares at an exercise price of $2.00 per share. The fair value of these warrants was $1,904,000, as determined using the Black-Scholes valuation method.
		On May 24, 2007, both parties terminated the consulting agreement and as result of the termination of agreement, the Company expensed $1,459,800. However, the cancellation of the consulting agreement did not cancel the warrants issued in connection with the consulting agreement. These warrants remain outstanding until October 31, 2010. We determined that the fair value of the outstanding warrants was $1,449,000, as determined using the Black- Scholes valuation method. We expensed the fair value of the warrants, and recorded the corresponding amount in equity.
		On June 5, 2006, the Company entered into marketing and consulting agreement with a term of three years. As partial consideration under this agreement, the Company issued options to purchase 1,075,000 common shares at $1.75 per share. The Company has recognized the expense related to this agreement over the three year term of the agreement. During the year ended December 31, 2007, the Company revalued the options and had a gain of $188,000 (2006 – expensed $907,000) with respect to these options.
		On May 24, 2007, the Company entered into employment agreements with former officers and shareholders of My Organic Baby Inc. for a term of three years. As partial consideration under these agreements, the Company issued 215,000 common shares at $2.48 per share as consideration. The Company expensed $533,200 relating to these agreements.
	(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.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

14.	Commitments and contingencies (continued):
	(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.
15.	Corporate income taxes payable:
	(a)	The following table reconciles income taxes calculated at a combined Canadian federal/provincial tax rate with the income tax recovery in the consolidated financial statements:

		2007			2006			2005
Combined statutory rate		35%			35%			35%
Income taxes at statutory rate	$	(4,480	)	$	(2,867	)	$	(2,124	)
Tax effect of future tax asset not
recognized		4,480			2,867			2,124
Income taxes	$	-		$	-		$	-

The Company has non-capital losses totalling approximately $44,497,000 that may be applied against future taxable income. The potential tax benefits arising from these losses have not been recorded in the financial statements as the Company believes the probability of realization of the future tax benefit does not meet a more likely than not criterion. The availability of these losses may be limited due to the change in control of the Company. The right to claim these losses expire annually from 2008 to 2026.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

15. Corporate income taxes payable (continued):

(b) The net future income tax balance comprises the following:

		2007			2006
Future income tax assets:
Non-capital losses	$	14,800		$	10,065
Distribution rights		940			842
Share issue costs		417			135
Property, plant and equipment		212			145
Interest accretions on debts		2,079			-
Total future income tax assets		18,448			11,187
Valuation allowance		(16,262	)		(11,187	)
Net future income tax asset		2,186			-
Future income tax liabilities:
Intangible assets		1,683			-
Derivative		503			-
		2,186			-
Net future tax	$	-		$	-

16. Supplementary cash flow information:

			2007			2006			2005
(a)	Items not involving cash:
	Investment written down	$	-		$	-		$	28
	Property, plant and equipment written down		-			137			382
	Amortization of property, plant and equipment
	and intangibles		875			16			122
	Gain on sale of investment		-			(201	)		-
	Services paid in stock		269			772			-
	Stock-based compensation (note 13 (b))		3,310			3,310			1,709
	Stock issued on restructuring		-			-			448
	Loss on settlement of lawsuit		-			797			-
	Loss on settlement of debt		-			35			-
	Gain on financial instruments		(1,434	)
	Interest accretion on convertible debenture and
	short-term debt		238			120			101
		$	3,258		$	4,986		$	2,790

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

16. Supplementary cash flow information (continued):

			2007			2006			2005
(b)	Changes in non-cash working capital balances
	related to operations:
	Accounts receivable, net of lawsuit settlement	$	518		$	(131	)	$	(73	)
	Inventories		(355	)		354			(257	)
	Prepaid expenses and other current assets		(946	)		270			(156	)
	Prepaid contracts		3,007			398			(69	)
	Accounts payable and accrued liabilities		1,245			(477	)		(1,821	)
	Customer deposits		-			-			-
		$	3,469		$	414		$	(2,376	)

			2007			2006			2005
(c)	Non-cash investing and financing activities:
	Conversion of class B preferred shares to
	common shares	$	(1,600	)	$	(600	)	$	-
	Equipment acquired under capital lease		-			15			13
	Fair value of warrants issued for consulting
	services		-			-			1,904
	Fair value of common shares issued for finders
	fees		-			-			639
	Fair value of common shares issued for
	restructuring		-			-			448
	Debt converted to preferred shares		-			-			(1,000	)
	Fair value of warrants issued for private
	placements		1,651			1,173			-
	Long-term debt extinguished on lawsuit
	settlement		-			(1,547	)		-
	Fair value of common shares issued for
	payment of acquisition liability – DMR Food
	Corp.		427			-			-
	Fair value of common shares issued as partial
	consideration of employment agreements with
	former officers and shareholders of My
	Organic Baby Inc,		533			-			-
	Mortgage assigned on lawsuit settlement		-			(155	)		-
	Book value of land transferred on lawsuit
	settlement		-			594			-
	Ascribed value of warrants granted in lawsuit
	settlement		-			303			-
	Common shares issued for settlement of lawsuit		-			1,573			-
	Settlement of debt paid in stock		-			573			-
	Repayment of short-term debt from issuance of
	stock		-			(584	)		-
		$	1,011		$	1,345		$	2,004

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 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, snack food and organic baby food business, selling flavoured water, carbonated beverages, natural and organic snack foods and organic baby foods products. 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.

		2007			2006			2005
Sales:
Canada:
Total sales	$	6,545		$	1,310		$	1,658
United States:
Total sales		4,078			6,152			7,054
Sales to other segments		(110	)		(192	)		(326	)
Sales to external customers		3,968			5,960			6,728
Other:
Sales to external customers		110			192			326
Total sales to external customers	$	10,623		$	7,462		$	8,712
Sales to external customers by product line:
Beverage	$	5,603		$	7,462		$	8,712
Snack products		3,896			-			-
Organic baby products		1,124			-			-
	$	10,623		$	7,462		$	8,712
Interest and financing cost on short-term and
long-term debt:
Canada	$	549		$	129		$	177
United States		8			25			44
	$	557		$	154		$	221
Amortization:
Canada	$	875		$	16		$	122
United States		-			-			-
	$	875		$	16		$	122

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

17. Segmented information (continued):

		2007			2006			2005
Loss before income taxes, write-down of
property, plant and equipment and settlement
of lawsuits:
Canada	$	(12,659	)	$	(6,254	)	$	(3,773	)
United States		(137	)		(1,059	)		(1,912	)
		(12,796	)		(7,313	)		(5,685	)
Write-down of property, plant and equipment		-			(137	)		(382	)
Write-down of distribution rights		-			-			-
Settlement of lawsuits		-			(797	)		-
Loss for the year before income taxes	$	(12,796	)	$	(8,247	)	$	(6,067	)

		2007		2006
Assets:
Canada	$	21,051	$	8,366
United States		1,099		699
Other		28		28
Total assets	$	22,178	$	9,093
Property, plant and equipment additions:
Canada	$	66	$	41
Goodwill:
Canada	$	1,693	$	-

With respect to third parties, the Company has four customers (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.

	2007	2006
Customer A	24%	30%
Customer B	-	19%
Customer C	15%	-
Customer D	12%	-
Customer E	23%	-

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

18.	Subsequent events:
	(a)	During the year end, the Company became aware that certain baby cereal products were damaged as a result of the supplier’s packaging. The company appointed a third party lab to test the products on December 21, 2007; and the tests were not completed until late January, 2008, at which time the company recalled product relating to sales of $409,878 during the year ended December 31, 2007. The Company accrued the product recall as of the year ended December 31, 2007.
	(b)	The Company entered into a senior convertible note (see note 11) with conversion price of at $2.33 per share. The number of shares to be issued upon conversion of the Notes will depend on the actual dollar amount of principal and interest being converted. The company also issued 4,017,162 Series E and Series F Warrants and 500,000 Lane Warrants to purchase our common shares. The Series E Warrants and Lane Warrants are exercisable at an initial exercise price of $2.33 per common share and the Series F Warrants are exercisable at an initial exercise price of $2.56 per common share. The conversion of the Notes and the exercise of the Series E and Series F Warrants and Lane Warrants will dilute our shareholders. Each Note and Warrant carries a full ratchet anti-dilution provision. If we issue any convertible or equity securities at any time in the future (subject to certain exceptions including stock option grants and issuances in connection with certain acquisition transactions) at a price less than the applicable conversion price or exercise price, then the conversion price and exercise price will be automatically adjusted down to that lesser price. Any such adjustment will further dilute our shareholders.
		The Company is currently involved in a dispute with the institutional investor as to whether the full-ratchet anti-dilution provision has been triggered and whether the company is obligated to adjust the conversion price of the Notes and the exercise price of the Series E Warrants, Series F Warrants and Lane Warrants to $0.46 per share. If the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Notes and upon exercise of the Warrants, which will significantly dilute our shareholders.
	(c)	The Company may be required to pay cash penalties to the institutional investors in connection with the senior convertible notes if the securities underlying such notes are not filed in a registration statement with the SEC and such registration is not declared effective by the SEC within certain time periods. Up to February 1, 2008, the Company has paid the investors $187,200 on account of these penalties The potential penalties thereafter are in an amount equal to 1% of the aggregate purchase price of such notes ($9,360,000) for every 30 day period in which the registration statement is not declared effective or the securities otherwise become unrestricted. As of April 24, 2008, the registration statement has not been declared effective.
	(d)	The Company, on April 14, 2008, announced it had signed a letter of intent to acquire Baldwin Street Kosher, a company in the business of producing gourmet hot dogs, sausages, salami’s and other Kosher/Gluten free meat products.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19.	Reconciliation to accounting principles generally accepted in the United States of America:
	As disclosed in the summary of significant accounting policies, these consolidated financial statements are prepared in accordance with Canadian GAAP which differs in certain respects from those principles and practices the Company would have followed had its consolidated financial statements been prepared in accordance with US GAAP.
	Under US GAAP, the Company would report its consolidated financial statements as follows:

	December 31, 2007				December 31, 2006
	Canadian		US		Canadian		US
	GAAP		GAAP		GAAP		GAAP
Consolidated balance sheets	$		$		$		$
Assets:
Current assets	11,983		11,983		6,861		6,861
Non-current assets (note a)	10,195		9,336		2,232		2,232
	22,178		21,319		9,093		9,093
Liabilities:
Bank indebtedness	49		49		-		-
Accounts payable and accrued
liabilities	4,273		4,273		1,608		1,608
Capital lease obligation	36		36		8		8
	4,358		4,358		1,616		1,616
Convertible note payable (note b)	5,442		8,656		-		-
Capital lease obligation	155		155		13		13
	9,955		13,169		1,629		1,629
Shareholder’s equity (deficiency):
Capital stock	84,047		84,047		77,330		77,330
Share subscription receivable	-		-		-		-
Contributed surplus (note b)	18,033		15,676		8,290		8,574
Cumulative translation account	56		56		(1,101	)	(1,101	)
Deficit	(89,913	)	(91,629	)	(77,055	)	(77,339	)
	12,223		8,150		7,464		7,464
	22,178		21,319		9,093		9,093

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19. Reconciliation to accounting principles generally accepted in the United States of America (continued):

		2007			2006			2005
Loss for the year under Canadian GAAP	$	(12,796	)	$	(8,247	)	$	(6,069	)
Difference in fair value of call option
under Canadian GAAP (note a)		(1,436	)		-			-
Difference in interest accretion under US
GAAP (note b)		3			-			62
Loss for the year under US GAAP		(14,229	)		(8,247	)		(6,007	)
Unrealized gain on long-term investment
(note c)		-			(195	)		195
Currency translation adjustments		1,157			(4	)		(467	)
Comprehensive loss under US GAAP	$	(13,072	)	$	(8,446	)	$	(6,279	)
Basic and diluted loss per share under
US GAAP	$	(0.70	)	$	(0.81	)	$	(1.05	)
Weighted average number of shares
outstanding		20,392,029			10,223,284			5,728,974

No differences arise between US and Canadian GAAP in the presentation of the cash flow statement.

(a)	Fair value of call option:
	Under Canadian GAAP, the fair value of the call option feature (embedded derivative) of the $9,360,000 convertible debt is separately recorded as an asset or liability. Under US GAAP, the fair value of the call option feature does not need to be recorded. The value of the call option feature was $1,436,000 at December 31, 2007 (2006 – (nil); 2005 – (nil)).

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19.	Reconciliation to accounting principles generally accepted in the United States of America (continued):
	(b)	Convertible debentures:
		During 2002, under US GAAP, the proceeds of $424,000 for the convertible debenture issued by the Company at that time were allocated between the debt and detachable warrants based upon fair value using the Black-Scholes model. The fair value of the warrants issued in connection with the convertible debenture was $155,000, and the balance of $269,000 was allocated between the liability component and the beneficial conversion feature. Under Canadian GAAP, such value was $26,000. Based upon the allocated proceeds, the intrinsic conversion price was less than the commitment price. As a result, $155,000 was attributed to the beneficial conversion feature and the balance of $114,000, at the date of issuance of the convertible debenture, was recorded as the liability component. The amount was fully accreted in prior years. The conversion feature expired December 2004 and $155,000 has been reclassified to contributed surplus as a result.
		Under Canadian GAAP, the proceeds from the sale of senior convertible notes with warrants of $9,360,000 were allocated based on relative fair values (see note 11) as follows: $2,454,000 to the warrants (recorded in equity), $2,419,000 to the conversion feature (recorded in equity), $(2,000) to the call option and the remainder of $4,129,000 to the debt. Cash transaction costs of $360,000 and warrants transaction costs of $430,000 have been allocated to the debt and the conversion option based on their relative fair values. The portions allocated to the debt are being amortized over the period of the debt based on an effective interest method. The call option is measured at fair value with the mark to market being recorded in the income statement. For the year ended December 31, 2007, the Company recorded a mark to market adjustment of $1,434,000 relating to the call option.
		Under US GAAP, the proceeds of $9,360,000 were allocated based on the relative fair values of the convertible debt and the warrants issued (based on the Black-Scholes model) as $2,283,000 to the warrants and $7,077,000 to the convertible debt. Of the $7,077,000 allocated to the convertible debt, $1,301,000 has been allocated to the beneficial conversion feature (based on the intrinsic value of the conversion option), cash transaction costs of $360,000 and warrants transaction costs of $430,000 have been allocated to assets and the warrants based on relative fair values between the debt and the warrants, leaving $5,416,000 recorded as a liability for the debt. The portion allocated as assets are being amortized over the period of the debt on an effective interest method. The warrants of $2,283,000 and the beneficial conversion feature of $1,301,000 have been recorded as contributed surplus under US GAAP.
		During the year ended 2007, under US GAAP, the Company recorded interest accretion of $193,000 and amortization of $43,000 based on an effective interest rate of approximately 26%.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19.	Reconciliation to accounting principles generally accepted in the United States of America (continued):
	(b)	Convertible debentures (continued):
		Under Canadian GAAP, the amount ascribed to sale of convertible subordinated debentures of $2,421,000 was allocated based on relative fair values (see note 11) as follows: CA$1,352,000 to the conversion feature (recorded in equity) and CA$1,098,000 to the debt. Under US GAAP, there was no beneficial conversion feature. As a result, $2,421,000 was recorded as debt.
	(c)	Unrealized holding gains (losses):
		Under US GAAP, the long-term investments in publicly traded companies would be shown at fair market value. Unrealized holding gains or losses are recorded in other comprehensive income. Under Canadian GAAP, such long-term investments are recorded at cost less any impairment in value that is other than temporary. The difference between the carrying value and the fair market value of these investments was nil at December 31, 2007 (2006 - nil; 2005 - $195,000), as the gain was realized during the year ended December 31, 2006.
	(d)	Acquisitions:
		On February 7, 2007 and May 24, 2007, Clearly Canadian Beverage Corporation (Clearly Canadian) completed its acquisitions of DMR Food Corporation, (Sweet Selections) and My Organic Baby Inc. (MOB) respectively. Sweet Selection and MOB are both Ontario, Canada incorporated companies.
		The following represent the unaudited pro forma amounts relating to the acquisition of Sweet Selections and MOB.

		2007			2006
Sales	$	12,834		$	12,007
Loss for the year	$	13,374		$	(10,611	)
Loss per share, basic and diluted	$	(0.66	)	$	(0.98	)

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19.	Reconciliation to accounting principles generally accepted in the United States of America (continued):
	(e)	Other disclosures:
		The total expense related to rentals paid under operating leases for the year ended December 31, 2007, 2006 and 2005 was $143,500, $68,750 and $215,400 respectively.
		The amount of bad debt expense for the year ended December 31, 2007, 2006 and 2005 was $173,000, $42,000 and $26,000 respectively.
		Amortization expense of intangible assets for each of the next five years and thereafter is as follows:

2008	$	1,207
2009		1,207
2010		980
2011		870
2012		870
	$	5,134

(f)	Recent accounting pronouncements:
	Effective January 1, 2006, the Company adopted FAS 123(R), Share-Based Payment. FAS 123(R) requires the Company to estimate forfeitures of stock-based awards at the time the award is issued. Under Canadian GAAP, the Company accounts for forfeitures as they occur. For the year ended December 31, 2007, this difference did not have a material impact on recognized compensation expense.
	Cash received during the year ended December 31, 2007 related to the exercise of stock options was $1,008,000.
	In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions including whether to file or not to file a return in a particular jurisdiction. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The company has adopted FIN 48 effective January 1, 2007. As a result of the implementation of FIN 48, the Company evaluated all the tax positions in accordance with FIN 48 and determined that no adjustment to the liability for unrecognized tax benefits; consequently no cumulative effect adjustment to the January 1, 2007 balance of retained earnings was required. The amount of liability for unrecognized tax benefits as of January 1, 2007 and December 31, 2007 is nil.

CLEARLY CANADIAN BEVERAGE CORPORATION

Notes to Consolidated Financial Statements

(Tabular amounts expressed in thousands of United States dollars, except where indicated)

Year ended December 31, 2007

19.	Reconciliation to accounting principles generally accepted in the United States of America (continued):
	(f)	Recent accounting pronouncements (continued):
		The Company recognizes interest and penalties related to income taxes in other expense. To date, the Company has not incurred any significant interest and penalties.
		The Company is subject to taxes in Canada, and the United States. The tax years which remain subject to examination as of December 31, 2007 for Canada, and the United States include 2003 to present and 2004 to present, respectively.
		In September 2006, the FASB issued FAS 157, Fair Value Measurements, effective for financial statements for fiscal years beginning after November 15, 2007. FAS 157 defines value, establish a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosure about fair value measurement. This Statement applies under other accounting pronouncements that require or permit fair value measurements. The Company does not believe the adoption of FAS 157 will have a material effect on its consolidated financial position or results of operations.
		On February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115, effective for financial statements for fiscal years beginning after November 15, 2007. FASB 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company does not believe the adoption of FAS 159 will have a material effect on its consolidated financial position or results of operations.

ITEM 19.             EXHIBITS

The following Exhibits are included in this annual report:

EXHIBIT		DESCRIPTION
1.1	(5)	Articles of Clearly Canadian Beverage Corporation, as amended
1.2	(5)	Notice of Articles dated May 31, 2006
4.1	(2)	1997 Stock Option Plan
4.2	(1)	2005 Stock Option Plan
4.3	(3)	2006 Equity Incentive Plan
4.4	(6)	Share Purchase Agreement dated May 24, 2007 in connection with the acquisition of My Organic Baby Inc.
4.5	(6)	Share Purchase Agreement dated February 7, 2007 in connection with the acquisition of DMR Food Corporation.
4.6	(7)	Securities Purchase Agreement dated September 25, 2007 in connection with our Senior Convertible Note financing
4.7	(7)	Form of Senior Convertible Note dated September 26, 2007 in connection with our Senior Convertible Note financing
4.8	(7)	Registration Rights Agreement dated September 25, 2007 in connection with our Senior Convertible Note financing.
4.9	(7)	Securities Purchase Agreement dated September 25, 2007 with the sellers of My Organic Baby, Inc. and DMR Food Corporation.
4.10	(7)	Form of Senior Convertible Note issued to the sellers of My Organic Baby, Inc. and DMR Food Corporation.
8.1	(6)	List of Subsidiaries
11.1	(4)	Code of Conduct for Chief Executive and Senior Financial Officers
12.1	**	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	**	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	**	Independent Auditors’ Consent of KPMG LLP
15.2	**	Independent Auditors’ Consent of UHY LDMB Advisors Inc.

_________________

**	Filed herewith
(1)	Previously filed as an exhibit to and incorporated by reference from our Annual Report on Form 20-F for the year ended December 31, 2004, filed on June 30, 2005.
(2)	Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form S-8 (SEC No. 333-100743).
(3)	Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form S-8 (SEC No. 333-131713), filed on February 9, 2006.
(4)	Previously filed as an exhibit to and incorporated by reference from our Annual Report on Form 20-F for the year ended December 31, 2003, filed on June 18, 2004.
(5)	Previously filed as an exhibit to and incorporated by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 30, 2006.

(6)	Previously filed as an exhibit to and incorporated by reference from our original Annual Report on Form 20-F for the year ended December 31, 2006, filed on July 2, 2007.
(7)	Previously filed as an exhibit to and incorporated by references from our Current Report on Form 6-K, filed on September 28. 2007.

67

SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

CLEARLY CANADIAN BEVERAGE CORPORATION

/s/ “Bobby Genovese”                                            
Name:    Bobby Genovese
Title:      Chief Executive Officer
Date:      June 27, 2008

EX-12.1

EXHIBIT 12.1

CERTIFICATION

I, Bobby Genovese, acting as principal executive officer and principal financial officer for Clearly Canadian Beverage Corporation, certify that:

1.	I have reviewed this annual report on Form 20-F of Clearly Canadian Beverage Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: June 27, 2008

/s/ “Bobby Genovese”                                            
Name:    Bobby Genovese
Title:      Chief Executive Officer

EX-13.1

EXHIBIT 13.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

            In connection with the Annual Report of Clearly Canadian Beverage Corporation (the “Company”) on Form 20-F for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bobby Genovese, acting as principal executive officer and principal financial officer for the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 27, 2008

/s/ “Bobby Genovese”                                            
Name:    Bobby Genovese
Title:      Chief Executive Officer

EX-15.1

EXHIBIT 15.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in registration statements No. 333-100743 and No. 333-131713 on Form S-8 of Clearly Canadian Beverage Corporation of our report dated April 24, 2008 except as to note 19 which is as of June 18, 2008, with respect to the consolidated balance sheet of Clearly Canadian Beverage Corporation as of December 31, 2007, and the related consolidated statements of operation and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended, which report appears in the December 31, 2007 annual report on Form 20-F of Clearly Canadian Beverage Corporation.

Our report dated April 24, 2008 except as to note 19, which is as of June 18, 2008 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations, has an accumulated deficit and a working capital deficit, which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.

/s/ KPMG LLP

KPMG LLP
Chartered Accountants
Vancouver, British Columbia
June 26, 2008

EX-15.2

EXHIBIT 15.2

INDEPENDENT AUDITORS’ CONSENT

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-100743 and 333-131713) and Form F-3 (Registration No. 333-136245) of our report dated March 6, 2006 relating to the consolidated financial statements of Clearly Canadian Beverage Corporation for the year ended December 31, 2005 and our report dated June 12, 2006 relating to the consolidated financial statements of Clearly Canadian Beverage Corporation for the year ended December 31, 2004, which appear in the Company’s Annual Report on Form 20-F/A for the year ended December 31, 2005.

/s/ UHY LDMB Advisors Inc.

UHY LDMB Advisors Inc.
Chartered Accountants
Surrey, British Columbia
June 26, 2008