As filed with the Securities and Exchange Commission on September 21, 1998
Registration No. 333-44315
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
(Amendment No. 3)
REGISTRATION STATEMENT
Under
The Securities Act of 1933
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
(Name of registrant as specified in its charter)
Colorado 84-1352529
(State or Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1315 Clearwater Street John S. McAvoy, President
Clearwater, Florida 33755 1315 Clearwater Street
(813) 446-2999 Clearwater, Florida 33755
(Address, including zip code, and telephone number, including area code
(813) 446-2999
of Registrant's principal executive offices) (Name, address, including zip code,
and telephone
number, including area code, of agent for service
COPY TO:
Jehu Hand, Esq.
Hand & Hand
24901 Dana Point Harbor Drive, Suite 200
Dana Point, California 92629
(949) 489-2400
Facsimile (949) 489-0034
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933 other than securities offered only in
connection with dividend or interest
reinvestment plan, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(C) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:[ ]
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CALCULATION OF REGISTRATION FEE
-
-
-
-
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Share(1) Offering Price Registration Fee
Common Stock issuable upon
conversion of Series A
<S> <C> <C> <C> <C>
Convertible Preferred Stock(2)....... 2,307,690 $1.75 $ 4,038,457.50 $ 1,191.34
Common Stock offered by
selling shareholders(3).............. 952,500 $1.625 $ 1,547,813 $ 456.60
Common Stock, issuable upon
exercise of warrants(4).............. 50,000 $3.50 $ 175,000 $ 51.63
Common Stock, issuable upon
exercise of options(5)............... 50,000 $4.20 $ 210,000 $ 61.95
Common Stock, issuable upon
exercise of options(6)............... 50,000 $4.70 $ 235,000 $ 69.33
Common Stock, issuable upon
exercise of options(7)............... 50,000 $5.60 $ 280,000 $ 82.60
Common Stock, issuable upon
exercise of options(8)............... 50,000 $7.00 $ 350,000 $ 103.25
Common Stock offered by
Selling shareholders (9)............ 1,000,000 $1.75 $ 1,750,000 $ 516.25
Common Stock issuable upon
exercise of options(10)............ 100,000 $1.75 $ 175,000 $ 51.03
Total(11).............................. 4,610,190 $ 8,761,270.50 $ 3,524.07
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 2,307,690 shares of Common Stock which may be resold by the
selling stockholders upon conversion of 2,500 shares ($2,500,000
aggregate principal amount) of Series A Convertible Preferred Stock. The
Convertible Preferred Stock is convertible at the lower of 65% of the
closing bid price of the Common Stock averaged over the five trading days
prior to the date of conversion, or $1.875. For purposes of the
calculation of the registration fee, the Registrant has registered the
maximum number of shares of Common Stock which it reasonably believes
that will be issued upon conversion of the Convertible Preferred Stock,
on the assumption that the conversion price of the Convertible Preferred
Stock will not be less than $1.1375 per share of Common Stock (65% of
$1.75). The maximum offering price per share is based upon the estimated
sales price of the Common Stock assuming they are resold at the time of
conversion by the holders (in accordance with Rule 457(g)). Also includes
5% additional shares of Common Stock per share of Preferred Stock)
issuable under penalty provisions of the Preferred Stock. See
"Description of Securities - Preferred Stock" in the Prospectus. The
Registrant makes no representations as to the price at which Series A
Convertible Preferred Stock will be converted. The offering price per
share is based upon the closing sales price of the Common Stock on July
23, 1998 of $1.75, based on Rule 457(g).
(3) Includes 952,500 shares already issued and outstanding. The maximum
offering price per share is based on the closing price of the Common
Stock on March 24, 1998 of $1.625 per share (these shares were added in
amendment 1).
(4) Includes 50,000 shares issuable upon exercise of options at $3.50 per share.
(5) Includes 50,000 shares issuable upon exercise of options at $4.20 per share.
(6) Includes 50,000 shares issuable upon exercise of options at $4.70 per share.
(7) Includes 50,000 shares issuable upon exercise of options at $5.60 per share.
(8) Includes 50,000 shares issuable upon exercise of options at $7.00 per share.
(9) Include 1,000,000 shares offered by selling shareholder. The maximum
offering price per share is based upon the closing sale price of the
Common stock of $1.75 per share on July 23, 1998.
(10) Includes 100,000 shares issuable upon exercise of options at $1.00 per
share. The offering price per share is based upon the closing selling
price of the Common stock of $1.75 per share on July 23, 1998 in
accordance with rule 457 (B).
(11) $1,718.78 previously paid; $1,237.41 paid with amendment 1; and $567.88
paid with amendment 2 (over paid by $20.43).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
4,610,190 Shares of Common Stock
(no par value)
The estimated 4,610,190 shares (the "Shares") of Common Stock, no par
value (the "Common Stock") of Aqua Clara Bottling and Distribution, Inc., a
Colorado corporation (the "Company") include 3,610,190 Shares offered by the
selling stockholders (the "Selling Shareholders"), including 2,307,690 shares
(assuming a market price at the time of conversion of $1.75 and conversion at a
rate of $1.0833 per share) issuable upon conversion of $2,500,000 in principal
amount of Series A Convertible Preferred Stock (the "Series A Preferred"),
350,000 shares issuable upon exercise of warrants and options and 952,500 shares
currently outstanding; and 1,000,000 Shares offered by the Company, as described
below. The eventual number of Shares issuable upon exercise of the Series A
Preferred will depend on market prices on the date of conversion. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Shareholders. See "Selling Shareholders" and "Description of Securities." The
expenses of the offering, estimated at $42,000, will be paid by the Company.
The Common Stock currently trades on the Electronic Bulletin Board under
the symbol "AQCB" On September 16, 1998, the last sale price of the Common Stock
as reported on the Electronic Bulletin Board was $1.031 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PURCHASE OF THESE SECURITIES INVOLVES RISKS. See "Risk Factors" on page 4.
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Price to Public Sales Commissions Proceeds to Company
<S> <C> <C>
Per Share $1.00 -- 1.00
Total(1) 1,000,000 -- $1,000,000
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(1) The Shares are being offered by the Company, through each of Dennis Zweig
and Thomas G. Vinton, who have subscribed for these Shares at a price of $1.00
per Share payable with secured installment promissory notes due in four monthly
installments of $125,000, the first in August 1998 and the remaining three each
month commencing 30 days after the date of this prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this Prospectus is September __, 1998
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No person has been authorized in connection with this offering to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such state
or jurisdiction. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act
with respect to the securities offered hereby with the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. This Prospectus, which is a part of the
Registration Statement, does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including all exhibits and schedules thereto, which may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at its Regional Offices
located at 7 World Trade Center, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 at
prescribed rates during regular business hours. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in its entirety by such reference. The Company
will provide, without charge upon oral or written request of any person, a copy
of any information incorporated by reference herein. Such request should be
directed to the Company at 1315 Clearwater Street, Clearwater, Florida, 33755,
telephone (813) 446-2999.
As of the date of this Prospectus, the Company became a reporting company
under the Exchange Act and in accordance therewith in the future will file
reports and other information with the Commission. All of such reports and other
information may be inspected and copied at the Commission's public reference
facilities described above. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of such site
is http://www.sec.gov. In addition, the Company intends to make available to its
shareholders annual reports, including audited financial statements, unaudited
semi-annual reports and such other reports as the Company may determine.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.
The Company
Aqua Clara Bottling & Distribution, Inc., a Colorado corporation (the
"Company") produces, bottles and sells non-sparkling purified drinking,
distilled and natural spring water products.
According to Beverage Marketing, published by Beverage Marketing Corp.,
located at 2670 Commercial Avenue, Mingo Junction, Ohio 43938, the total U.S.
market for bottled water has grown from 1.6 billion gallons sold in 1987 to over
3.1 billion gallons in 1996, and accounted for approximately $3.6 billion in
wholesale sales during 1996. Non-sparkling water comprises over 87% of the U.S.
bottled water market and generated $2.7 billion of wholesale sales in 1996, and
is expected to continue to grow in the future. PET (an acronym for polyethylene
terephthalate, a premium clear plastic) packaged products comprise approximately
39% of the domestically produced non-sparkling water market and have grown from
approximately 83 million gallons in 1987 to approximately 580 million gallons in
1996, representing a compounded annual growth rate of approximately 24%.
PET-packaged products accounted for approximately $921 million of wholesale
sales in 1996. According to Beverage Marketing, PET bottled water is among the
fastest growing beverage categories in the United States. Contributing to the
growth in consumption of non-sparkling water are consumer trends including
health and fitness awareness, municipal tap water quality concern and maturing
soft drink demand, as well as consumer demand for convenience and innovative
packaging. Since April 1997, the Company has generated revenues from its 5
gallon home and office delivery business, which was sold by the Company in March
1998, and the Company now intends to focus its growth in PET containers ranging
from .5 liter to 1.5 liters, and to specialize in oxygen enriched water; with 40
parts per million (ppm) of oxygen, compared to 7 ppm for tap water. Oxygen
richness imparts a light and crisp taste and management believes that oxygen
enriched water is healthier, although no studies have been made to underlie this
conclusion.
The corporate offices of the Company are located at 1315 Clearwater
Street, Clearwater, Florida 33755 and its telephone number is (813) 446-2999.
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<S> <C>
Securities Offered:.............................. 4,610,910 shares of Common Stock, no par value per share,
including 2,307,690 shares issuable upon conversion of 2,500
shares of Series A Preferred Stock at a conversion price per
share of Preferred Stock equal to $1,000 divided by the lower
of $1.875 or 65% of the average closing bid price of the
Common Stock on the five trading days prior to conversion;
350,000 shares issuable upon exercise of warrants and options;
and 1,952,500 shares currently outstanding.
Risk Factors.................................... The securities offered hereby involve a high degree of risk and
immediate substantial dilution and should not be purchased by
investors who cannot afford the loss of their entire investment.
See "Risk Factors."
Common Stock Outstanding(1) Before Offering:..... 7,271,622(1) shares
Common Stock Outstanding After Offering:......... 9,929,312(1) shares
NASD Electronic Bulletin Board Symbol............ AQCB
</TABLE>
(1) Based on shares outstanding as of September 16, 1998.
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Risk Factors
The securities offered hereby are highly speculative and involve a high
degree of risk, including, but not necessarily limited to the risk factors
described below. Prospective purchasers should carefully consider the following
risk factors, among others, as well as the remainder of this prospectus, prior
to making an investment in the Company.
RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information in this
Prospectus, the following factors should be considered carefully in evaluating
the Company and its business.
Limited History of Business Operations; Management of Growth
The Company has limited operating history, having commenced operations
in April 1997. The Company's operating history to date has been limited to the
5-gallon delivery market, which has been sold and the Company has no experience
in the PET market. The Company will be required to build a management
infrastructure as it devotes significant managerial resources to build its PET
business. As a result of the increase in operating expenses caused by this
expansion, operating results may be adversely affected if sales do not
materialize, whether due to increased competition or otherwise. The can be no
assurance that the Company will achieve significant sales or achieve
profitability. As a result, the Company believes that period to period
comparisons of its results of operation are not necessarily meaningful and
should not be relied upon as an indication of future performance.
Additional Financing Requirements of the Company
At July 4, 1998, the Company had working capital of approximately
$112,658. The Company's operations have been financed to date through a debt
offering and through sales of its common stock, most recently through the sale
of 2,500 shares of Series A Preferred Stock and the sale of 1,000,000 Shares of
Common Stock ffor installment notes. The Company requires significant capital
for the expansion of its operations. The Company believes that the net proceeds
from this Preferred Stock offering and the 1,000,000 Shares of Common Stock
offered by the Company should be sufficient to fund its operations until at
least until June 30, 1999. However, no assurance can be given that additional
funds will not be required prior to the expiration of such period or that any
funds which may be required will be available, if at all, on acceptable terms.
If additional funds are required, the inability of the Company to raise such
funds will have an adverse effect upon its operations. To the extent that
additional funds are obtained by the sale of equity securities, the stockholders
may sustain significant dilution. If adequate capital is not available the
Company will have to reduce or eliminate its planned expansion activities, which
could otherwise ultimately provide significant revenue to the Company. Even if
such additional financing is available on satisfactory terms, it, nonetheless,
could entail significant additional dilution of the equity ownership of the
Company to existing shareholders and the book value of their outstanding shares.
Competition
The bottled water industry is highly competitive. Nearly all of the
Company's competitors have more experience in the U.S. bottled water market,
have greater financial and management resources and have more established
proprietary trademarks and distribution networks than the Company. The Company
currently competes with respect to bottled water with established national
companies such as The Perrier Group of America, Inc. (whose brands include
Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Great Bear,
Deer Park, Ice Mountain and Zephyrhills Natural Spring Water) and Great Brands
of Europe (whose brands include Evian Natural Spring Water and Dannon Natural
Spring Water), as well as numerous regional bottled water companies located in
the United States and Canada. The Company competes not only with other bottled
water producers, but also with producers of other beverages, including, but not
limited to, soft drinks, coffee, juices, beer, liquor and wine. The bottled
water industry also competes for the same consumer who may, when choosing to
drink water, drink tap water or use a home filtration system to filter tap water
for drinking. There can be no assurance that the Company can compete
successfully. See "Business -- Competition."
4
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Ability to Manage Growth
In order to penetrate its bottled water business, the Company must meet
its strategic objectives to produce high quality oxygenated water products,
build its customer base, build its product line and add new distribution
channels. The Company's ability to meet these objectives depends upon (a) the
successful development and equipping of its Clearwater plant (b) the successful
marketing and distribution of its products, (C) the securing of sources of water
(d) the degree to which the Company loses sales to competing water suppliers,
(e) the availability of capital, (f) consumer acceptance of oxygenated water and
(g) general economic and other factors beyond the Company's control. The Company
has never produced and marketed PET packaged products. No assurance can be given
as to the future growth in the Company's business or as to its profitability.
Further growth of the Company will require employment and training of new
personnel, expansion of facilities and expansion of management information
systems. If the Company is unable to manage its growth effectively, the
Company's profitability and its ability to achieve its strategic objectives may
likely be materially adversely affected.
Fluctuations in Quarterly Operating Results
The Company's revenues are subject to several factors which may result
in fluctuations in the Company's operating results. The bottled water business
is highly seasonal, with increased sales during warmer months. Inclement weather
may negatively impact the Company's business, particularly summers which are
unusually cool or rainy. Fluctuations in retail prices and raw material prices
may produce corresponding fluctuations in the Company's profits. In addition,
the Company expects to make significant investments from time to time in capital
improvements to, among other things, increase capacity. Costs associated with
such improvements may cause an immediate reduction in profit margins unless and
until sales volume increases. The Company's product and packaging mix may change
from time to time and, depending on certain factors, may negatively impact
profit margins. The Company is subject to competitive pricing pressures which
may affect its financial results. Due to all the foregoing factors, it is
possible that in some future quarter or quarters, the Company's operating
results would likely be below the expectations of securities analysts and
investors. In such event, the price of the Common Stock would likely be
materially adversely affected.
Dependence on Key Personnel
The continued success of the Company is largely dependent on the
personal efforts and abilities of
management, including Mr. John S. McAvoy, President and Chief Executive Officer
of the Company, John C. (Jack)
Plunkett, Chief Operating Officer, and Mr. Rand L. Gray, Chief Financial Office
of the Company. The Company
has entered into employment agreements with these persons but has no key man
life insurance in place. The loss
of any of these executive's services could have a material adverse effect on the
Company. See "Management."
Dependence on Key Suppliers
All of the Company's water products will be expected to be offered in
premium PET bottles. PET bottles are manufactured by a limited number of
suppliers. While the Company believes that it will be able to obtain bottles,
there can be no assurance that the Company will be able to obtain PET bottles
from its suppliers on commercially reasonable terms, particularly at periods of
peak demand. Failure to obtain the necessary packaging materials could have a
material adverse effect on the business of the Company. The Company has no
agreements in place securing a supply of PET bottles. In the event the Company's
requirements for PET bottles are not met, there may be a material adverse effect
on the Company until alternative supplies of PET bottles are found.
Raw Material Prices
Due to the wide range of beverages available to consumers, including
bottled water products, the Company has limited ability to raise prices for its
products. The Company could in the future be affected by higher prices for raw
materials including PET resin and corrugated boxes. The Company might be unable
to pass such higher costs to its customers. As a result, the Company's results
of operations may be adversely affected by future increases in raw material
prices.
Product Liability
The bottling and distribution of bottled water products entails a risk
of product liability, including liability due to the presence of contaminants in
its products. The Company maintains insurance coverage against the risk
5
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of product liability and product recall. However, the amount of the insurance
carried by the Company is limited, the insurance is subject to certain
exclusions and may or may not be adequate. In addition to direct losses
resulting from product liability and product recall, the Company may suffer
adverse publicity and damage to its reputation in the event of contamination
which could have a material adverse effect on sales and profitability.
Dependence on Trademarks
The Company has obtained a trademark on the Aqua Clara trademark, and
has applied for federal registrations for other proposed trademarks. The Company
believes that its registered and common law trademarks have significant value
and goodwill and that some of these trademarks are instrumental in its ability
to create demand for and to market its products. There can be no assurance that
the Company's trademarks do not or will not violate the proprietary rights of
others, that they would be upheld if challenged or that the Company would, in
such an event, not be prevented from using the trademarks, any of which could
have a material adverse effect on the Company.
Government Regulation
The Company's operations are subject to numerous federal, state and
local laws and regulations relating to its bottling operations, including the
identity, quality, packaging and labeling of its bottled water. These laws and
regulations and their interpretation and enforcement are subject to change.
There can be no assurance that additional or more stringent requirements will
not be imposed on the Company's operations in the future. Failure to comply with
such laws and regulations could result in fines against the Company, a temporary
shutdown of production, recalls of the product, loss of certification to market
the product or, even in the absence of governmental action, loss of revenue as a
result of adverse market reaction to negative publicity. Any such event could
have a material adverse effect on the Company. See "Business -- Regulation."
Lack of Inventory
The Company intends to maintain a limited amount of finished product
inventory. An event causing the Company's facilities to shut down, even for a
short period, would result in an inability to fill customer orders and
accordingly would have a material adverse effect on the Company's revenues and
customer relations.
Consumer Preferences
The Company believes that the most important factor in the growth of
natural water products has been a change in consumer preferences. Consumer
preferences may be influenced, however, by the availability and appeal of
alternative beverages or packaging as well as general economic conditions, among
other things. No assurance can be given that consumer demand for oxygen enriched
water will exist, grow or will not diminish in the future.
No Cash Dividends
The Company has not paid any cash dividends on its capital stock. The
Company anticipates that its future earnings, if any, will be retained for use
in the business, or for other corporate purposes, and it is not anticipated that
any cash dividends on the Common Stock will be paid in the foreseeable future.
See "Dividend Policy" and "Description of Securities."
Control by Current Shareholders; Anti-Takeover Devices
Upon the consummation of this Offering, and assuming the conversion of
all of the shares into the underlying Common Stock at the rate of $1.0833 per
share and the exercise of all outstanding options which are requested hereby,
(but not the sale of shares by management), management will own 27.1% of the
outstanding shares of Common Stock. Accordingly, such persons, acting in
concert, may be able to elect all of the Company's directors, increase the
Company's authorized capital, dissolve, merge or sell the assets of the Company
and generally direct the affairs of the Company. See "Principal Shareholders."
In addition, certain provisions in the Company's Articles of
Incorporation and certain provisions of
applicable Colorado law may, under certain circumstances, have the effect of
discouraging, delaying or preventing
a change in control of the Company. See "Description of Securities -- Preferre
Stock."
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No Prior Public Broad Market
Prior to this Offering, the Company's Common Stock has traded on the
NASDAQ OTC Bulletin Board under the symbol "AQCB." Although the Company intends
to apply at some future time to have the Common Stock included in the Nasdaq
SmallCap(R) Market, it does not currently meet the requirements for such listing
and there can be no assurance that the application will be successful nor that a
broad market in the Common Stock will develop, or, if such a market develops,
that it will be sustained. There can therefore be no assurance as to when, if at
all, investors will be able to liquidate their investment in the Company.
Nasdaq Stock Market and Market Illiquidity
The Company's Common Stock does not meet the current Nasdaq listing
requirements for the SmallCap(R) Market. If the Company is unable to satisfy
Nasdaq's requirements for listing, trading, if any, the Common Stock will
continue to be conducted on the NASD's OTC Bulletin Board, established for
securities that do not meet the Nasdaq SmallCap(R) Market listing requirements.
Consequently, the liquidity of the Company's securities could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analysts'
and the news media's coverage of the Company, and lower prices for the Company's
securities than might otherwise be attained.
Risks of Low-priced Stocks; Penny Stock Regulations
Until such time, if any, that the Company's securities are listed on
The Nasdaq SmallCap(R) Market or a registered U.S. securities exchange they will
continue to be subject to Rule 15g-9 under the 1934 Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's Common Stock and may affect the ability of purchasers in this Offering
to sell any of the Common Stock acquired pursuant to this Memorandum in the
secondary market. The Commission's regulations define a "penny stock" to be any
equity security that has a market price (as therein defined) less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Company's Common
Stock if the Common Stock is listed on The Nasdaq SmallCap(R) Market and has
certain price and volume information provided on a current and continuing basis,
or meets certain minimum net tangible assets and other criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. If the Company's Common Stock continues to be subject to the rules
on penny stocks, the market liquidity for the Common Stock could be severely
adversely affected.
Shares Eligible for Future Sale
All but 2,823,850 of the presently issued and outstanding shares of
Common Stock are "restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act. Rule 144 governs resales of such
restricted securities for the account of any person (other than an issuer), and
restricted and unrestricted securities for the account of an "affiliate" of the
issuer. Restricted securities generally include any securities acquired directly
or indirectly from an issuer of its affiliates which were not issued or sold in
connection with a public offering registered under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers and persons directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has been
held for one year from the later of its acquisition from the Company or an
affiliate of the Company. Thereafter, the remaining 4,447,772 shares of Common
Stock (39% of the current outstanding) may be resold without registration
subject to Rule 144's volume limitation, aggregation, broker transaction, notice
filing requirements, and requirements concerning publicly available information
about the Company (the "Applicable Requirements"). The majority of the
outstanding "restricted securities" have currently been held more than one year
and are immediately resalable under Rule 144 and the applicable Requirements.
Resales by the Company's affiliates of restricted and unrestricted Common Stock
are subject to the Applicable Requirements. The volume limitations provide that
a person (or persons who must aggregate their sales) cannot, within any
three-month period, sell more than the greater of (I) one percent of the then
outstanding shares, or (ii) the average weekly reported trading volume during
the four calendar weeks preceding each such sale. A person who is not deemed an
"affiliate" of the Company and who has beneficially owned shares for at least
one year would be entitled to sell such shares under Rule 144 without regard to
the Applicable Requirements.
7
<PAGE>
If a broad public market develops for the Company's Common Stock, sales made
under Rule 144, or other sales may have an adverse effect upon the then
prevailing market price of the Common Stock or the ability of purchasers in this
offering to resell their shares.
Potential Future Issuances of Securities
The Company's Board of Directors has the power, without the consent of
the shareholders, to issue additional shares of common stock or preferred stock
for such consideration as may be permitted under the Colorado Business
Corporation Act. Preferred stock may be issued with preferences or rights as to
dividends, voting or liquidation which are superior to those of holders of
common stock. In view of the large number authorized but unissued shares of
common stock (42,728,378 Shares as of the date of this Prospectus) current
shareholders are subject to significant potential dilution in their ownership
interest in the Company, see "Description of Securities."
Risks Associated with Forward-looking Statements
This Prospectus contains certain forward-looking statements regarding
the plans and objectives of management for future operations, including plans
and objectives relating to the Company's planned marketing efforts and future
economic performance of the Company. The forward-looking statements and
associated risks set forth in this Prospectus include or relate to: (I) the
ability of the Company to obtain a meaningful degree of consumer acceptance for
its products and future products, (ii) the ability of the Company to market its
products and future products on a national basis at competitive prices, (iii)
the ability of the Company to develop brand-name recognition for its products
and future products, (iv) the ability of the Company to develop and maintain an
effective sales network, (v) success of the Company in forecasting demand for
its products and future products, (vi) the ability of the Company to maintain
pricing and thereby maintain adequate profit margins, (vii) the ability of the
Company to achieve adequate intellectual property protection for the Company's
products and future products and (viii) the ability of the Company to obtain and
retain sufficient capital for its future operations.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will market and provide
products on a timely basis, that the Company will retain its customers, that
there will be no material adverse competitive or technological change in
conditions in the Company's business, that demand for the Company's products
will significantly increase, that the Company's President will remain employed
as such by the Company, that the Company's forecasts accurately anticipate
market demand, and that there will be no material adverse change in the
Company's operations or business or in governmental regulations affecting the
Company or its suppliers. The foregoing assumptions are based on judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in the "Risk Factors" section of this
Prospectus, there are a number of other risks inherent in the Company's business
and operations which could cause the Company's operating results to vary
markedly and adversely from prior results or the results contemplated by the
forward-looking statements. Growth in absolute and relative amounts of cost of
goods sold and selling, general and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause the Company to alter its marketing, capital investment and other
expenditures, which may also materially adversely affect the Company's results
of operations. In light of significant uncertainties inherent in the
forward-looking information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the Company's objectives or plans will be achieved.
See "Management's Discussion and Analysis" and "Business."
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying cash dividends in the foreseeable future.
8
<PAGE>
The Company is obligated to pay to holders of Series A Preferred Stock
an 8% annual dividend, equal to $80.00 per share, payable on each July 1
commencing on July 1, 1998. In the option of the Company it may pay such
dividend in shares of Common Stock valued at the Conversion Rate in effect on
July 1, 1998. No dividends may be paid on the Common Stock unless dividends have
been paid to the holders of Series A Preferred Stock.
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been listed on the NASD OTC Electronic
Bulletin Board sponsored by the National Association of Securities Dealers, Inc.
under the symbol "AQCB" since August 21, 1997. On September 11, 1998 the closing
bid price as reported by the Electronic Bulletin Board was $1.031.
The following table sets forth the high and low bid prices for the
Common Stock as reported on the Electronic Bulletin Board for each quarter since
August 21, 1997, for the periods indicated. Such information reflects inter
dealer prices without retail mark-up, mark down or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
September 30, 1997 4.50 1.8437
December 31, 1997 4.0625 2.00
March 31, 1998 3.1875 3.125
June 30, 1998 1.8750 1.8125
</TABLE>
As of September 16, 1998, there were approximately 200 record holders
of Company common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company's sales commenced in April 1997 with the introduction of
its 5 gallon bottled water service. The Company's fiscal year ends on March 31,
for 1997 and thereafter on the first Saturday in April, and its fiscal quarters
end on the first Saturday in July, October and January. In
the fiscal year ended April 4, 1998 the Company had $135,710 in sales from this
business. Revenues are comprised of cooler rentals and water sales, which
terminated in March 1998. The Company intends with the proceeds of its recent
offering of Series A Preferred Stock and its sale of 1,000,000 Shares of Common
Stock registered hereby to enter the PET bottled water market.
Three months ended July 4, 1998.
The Company commenced shipping PET products in mid June, 1998,
resulting in sales of $19,111 in the three months ended July 4, 1998, (interim
1998) compared to $14,785 in 5 gallon-water sales in the three months ended June
30, 1997 (interim 1997). Distribution is being made to Florida Albertsons, A&P
Stores, in Georgia and Walgreens and GNC Stores in Florida. The 5-gallon
business was sold by the Company in March 1998. Cost of sales in Interim 1998
were 156% of sales due to the start up costs and the low volume. Sales in
Interim 1998 were made to a limited number of distributors to establish markets.
General administration and sales expenses were $249,809 in Interim 1998,
compared to $523,603 in Interim 1997. The reduction was due to aggressive cost
control actions taken by management.
Year Ended April 4, 1998.
General, administrative and sales expenses in the year ended April 4,
1998 increased to $2,084,099, approximately nine times the level of such
expenses in the year ended March 31, 1997. Such expenses in year ended April 4,
1998 include $1,401,250 for consulting services paid in stock, and $132,000 in
other non-recurring expense. The increased level of these expenses in the year
ended April 4, 1998 reflects the commitment of the delivery of bottled water
business and expenses related to establishing the PET water business.
9
<PAGE>
Sales of PET products commenced in June 1998. The Company has few
agreements in place with distributors for its PET bottled water products and
there can be no assurance as to future operating revenues from this business.
The Company sold its 5 gallon water business in March 1998 to Clearidge, Inc., a
Tennessee corporation located in Nashville Tennessee and a competitor to the
Company. Neither the Company nor any of its officer or directors is affiliated
with Clearidge. The purchase price of approximately $352,394 was paid $186,400
in cash and $148,782 by the assumption of installment notes payable, and
includes accounts receivable, inventory, equipment and deposits. See notes 1 and
5 of the notes to Consolidated Financial Statements. If the 5-gallon water
business had not been in existence for the years ended April 4, 1998 and March
31, 1997, the Company would have had no sales in either year, and would have had
$1,870,524 in general and administrative expenses and $1,881,903 in net losses
in fiscal 1998, compared to $2,084,099 and $2,203,714 in general and
administrative expenses and net loss, respectively, and the Company's need for
cash to supplement cash from operations would have been accordingly reduced.
General and administrative expenses related to the expansion of the
Company's business are expected to be less than $10,000 per month. The Company
does not intend to manufacture PET water products without firm orders in hand
for its products. However, the Company intends to expend approximately $300,000
over the next twelve months in advertising, marketing and distribution costs,
which amounts are expected to be expended prior to the receipt of significant
revenues. There can be no assurance as to when, if ever, the Company will
realize significant operating revenues nor attain profitability, if ever.
Liquidity and Capital Resources
As of July 4, 1998, the Company had working capital of approximately
$112,658, most of which was comprised of cash. In December 1997 the Company
completed a private offering of Series A Convertible Preferred Stock. The
proceeds of the offering were used to refurbish its Clearwater facility
($500,000), acquire water treatment and processing equipment, and oxygen
enhancement and bottling equipment ($800,000) and marketing and general and
administrative expenses and working capital. In August 1998 the Company received
$250,000 from the first installment payment on its 1,000,000 share offering of
$1.00 per share. See "Plan of Distribution". The Company's need for cash over
the 12 months ended July 3, 1998 is estimated to be $750,000, including the
$250,000 already received. The monthly cost deficit until commencement of
significant sales is $62,500. Management estimates that the minimum monthly
sales required to meet its operating cash flow requirement is $210,000, which is
estimated to be attained in February 1999. If this internal projection is met
the Company would require only $550,000 in cash with the remaining $200,000 to
be allocated to reserve. However, there can be no assurance that management's
projections will materialize nor that other underlying assumptions will remain
constant. The realization of management's projections is based upon many factors
outside the control of management, including consumer and retailer acceptance of
its products, competitive pressures, and weather (more bottled water is consumed
during warmer temperatures). The Company anticipates meeting its remaining
$500,000 cash requirement from the payment of the installment notes related to
the 1,000,000 share offering, potential financing secured by a mortgage on its
facilities, or additional debt or equity placements. However, since the purchase
price per share of the 1,000,000 share offering is $1.00 per share, the
collectibility of the remaining $750,000 subscription is dependent upon the
market price of the Common Stock being maintained at or above $1.00 per share.
However, in the event the Company's business expands beyond the Company's
internal projections, or in the event the Company encounters unforeseen
difficulties occasioned by increased competition, inability to obtain
distribution contracts, or other factors, the Company may be required to obtain
additional capital on terms which cannot be foreseen at this time. The Company
has no other plans or arrangements with respect to additional capital sources.
The Company has no lines of credit available to it at this time.
Inflation has not had a significant impact on the Company's results of
operations.
Prepaid expenses as of April 4, 1998 and July 4, 1998 include $400,800
in public relations expenses for a contract to be performed over twelve months
commencing January 1998. This contract was paid out of the Company's preferred
stock offering.
BUSINESS AND PLAN OF OPERATION
General
10
<PAGE>
Aqua Clara Bottling & Distributors, Inc., a Colorado corporation (the
"Company") organized on July 29, 1996 is the successor to Pocotopaug Investment,
Inc., a Florida corporation and the Company's operating subsidiary
("Pocotopaug"). Pocotopaug was organized in August 1995 by John S. McAvoy to
investigate the feasibility of producing and marketing non-sparkling drinking
water products. The Company produces and sells non-sparkling purified drinking
and distilled and natural water products.
Since April 1997, the Company has generated revenues from its 5 gallon
home and office delivery business, which was sold in March 1998, and the Company
now intends to focus its future operations in the sale of oxygen enriched water
packaged in PET containers ranging from .5 liter to 1.5 liters, and to
specialize in oxygen enriched water; with 40 parts per million (ppm) of oxygen,
compared to 7 ppm for tap water. Oxygen richness imparts a light and crisp taste
and management believes that oxygen enriched water is healthier, although no
studies have been made to underlie this conclusion.
According to Beverage Marketing (published by Beverage Marketing
Corp., located at 2670 Commercial Avenue, Mingo Junction, Ohio 43938), the total
U.S. market for bottled water has grown from 1.6 billion gallons sold in 1987 to
over 3.1 billion gallons in 1996, and accounted for approximately $3.6 billion
in wholesale sales during 1996 and non-sparkling water comprises over 87% of the
U.S. bottled water market and generated $2.7 billion of wholesale sales in 1996,
and is expected to continue to grow in the future (Beverage Marketing has no
affiliation with the Company or any of its affiliates). PET (an acronym for
polyethylene terephthalate, a premium clear plastic) packaged products comprise
approximately 39% of the domestically produced non-sparkling water market and
have grown from approximately 83 million gallons in 1987 to approximately 580
million gallons in 1996, representing a compounded annual growth rate of
approximately 24%. PET-packaged products accounted for approximately $921
million of wholesale sales in 1996. According to Beverage Marketing, PET bottled
water is among the fastest growing beverage categories in the United States.
Contributing to the growth in consumption of non-sparkling water are consumer
trends including health and fitness awareness, municipal tap water quality
concern and maturing soft drink demand, as well as consumer demand for
convenience and innovative packaging.
Industry Overview
The U.S. bottled water market is comprised of three segments:
domestically produced non-sparkling water, domestically produced sparkling water
and imported water, which constituted approximately 65%, 21% and 14%,
respectively, of 1996 U.S. bottled water wholesale sales, according to Beverage
Marketing. The domestically produced non-sparkling water category includes
natural spring water obtained from naturally occurring springs, well water,
distilled water and purified water. Unlike other beverages, bottled water serves
both as a tap water substitute and a refreshment beverage.
Consumer Trends. Contributing to the growth in consumption of
non-sparkling water are consumer trends including health and fitness awareness,
municipal tap water quality concern and maturing soft drink demand, as well as
consumer demand for convenience and innovative packaging. Bottled water,
particularly when packaged in premium PET bottles with sport caps, appeals to
consumers who are sports enthusiasts or whose lifestyles are oriented to health
and fitness. According to Beverage Marketing, consumers' concern over the
quality of municipal water supplies has contributed to an increase in bottled
water consumption. Bottled water has also become an alternative to other
beverages, including soft drinks. According to Information Resources, Inc.
("IRI"), total U.S. gallons sold of soft drinks through food store channels has
increased approximately 10% from 1994 through 1996. (Information Resources Inc.,
is located at 150 Clinton Street, Chicago, Illinois 60661 and has no affiliation
with the Company or any affiliate thereof.) Over the same time period, gallons
sold of ready-to-drink juices have increased approximately 1%. In contrast,
non-sparkling bottled water gallons sold have increased approximately 21% from
1994 to 1996, according to Beverage Marketing. Bottled spring water is natural
and caffeine and additive free. These attributes and the increased availability
of convenient packaging for natural spring water have contributed to the
increase in bottled water consumption.
Distribution Channels. Non-sparkling bottled water is generally sold
to end users through four channels. According to Beverage Marketing, the total
share of the bottled water market for each channel is as follows: (I)
off-premise retail, which consists of supermarket, convenience store and drug
store chains and other similar retail outlets (44.9%); (ii) home and office
delivery which primarily consists of 5 gallon containers (39.0%); (iii)
on-premise retail, which includes restaurants, delicatessens and other similar
sites (8.3%); and (iv) vending (7.8%).
11
<PAGE>
Non-sparkling bottled water is generally delivered to customer
locations through direct-store-delivery ("DSD") or warehouse distribution
systems. DSD involves delivery of the product directly to the store's location
where consumers may purchase the product. Warehouse distribution systems involve
the delivery of truckloads of palletized products to the warehouses of regional
customers which, in turn, deliver the product directly to the customer's retail
sales locations.
Private Label. Private label products have become increasingly popular
among retailers and other customers. For example, supermarket sales of private
label products grew 8.5% in 1996 versus 1.4% growth among branded products,
according to IRI. Retailers benefit from having a range of private label and
branded products as well as from the customer affinity developed from the
reinforcement of the retailer's own brand. Other non-retailing customers find it
more efficient to source products from a private label manufacturer than to
produce the products themselves. Both types of customers often choose private
label bottled water producers on the basis of price, consistent product quality,
packaging capability, distribution capability and customer service.
Consolidation. The trend toward consolidation in the bottled water
industry is evidenced by the reduction in the number of bottled water filling
locations and the corresponding increase in volume produced at most locations
over the past ten years. According to Beverage Marketing, in 1996 there were
approximately 350 filling locations in the United States versus approximately
425 in 1986, a decrease of 17.6%. The number of filling locations with sales
over $75 million doubled to eight from 1995 to 1996. Larger companies are
seeking to expand their share within a market, obtain broader distribution and
achieve economies of scale with larger volume production.
Products
Five Gallon Home and Office Delivery. Although the focus of the
Company's business will be the production and distribution of oxygen enriched
water, the Company had an active 5 gallon home and office delivery business. The
Company delivered spring, purified drinking and distilled waters to Pinellas
County businesses and homeowners. Pinellas County is located approximately six
miles west of Tampa, Florida on the west central coast of Florida. The Company
owned and rented state-of-the art water coolers, which it rented to its 5 gallon
customers. The Company began its 5 gallon distribution business in April, 1997.
The Company sold this business in March 1998.
Oxygen Enriched Bottled Water. The Company's primary focus will be the
production/distribution of oxygen enriched bottled water in small package, PET,
containers ranging in size from .5 liter to 1.5 liters. The points of purchase
will include grocery stores, convenience stores, gas station markets, health
spas and vitamin/health food stores.
The Company's oxygen enriched bottled water will be made by combining
super purified water and oxygen. Through water purification processing the
source water will be reduced to 1-2 parts per million of total dissolved solids
and then oxygen will be introduced through a unique, proprietary process. As a
point of reference, the Food and Drug Administration's (FDA) definition of
distilled water is 5 parts per million or less of total dissolved solids. As
such, the base water will be of distilled quality, although the distillation
process will not be used.
The Company's market research, undertaken by a non-affiliated research
firm, has indicated that no specific medical claims have to be made to consumers
with regard to its product. According to this market research the public will
readily accept the necessity and benefits of both highly purified water and
oxygen.
There are no significant competitors producing oxygen enriched bottled
water. The Company knows of two other entities that are attempting to produce
and distribute oxygen enriched bottled water. None of the well-established
traditional bottled water distributors has an oxygen enriched bottled water
product.
The Company's oxygen enriched water will contain approximately 40
parts per million of oxygen. Normal water contains approximately 7 parts per
million of oxygen. As such, the Company's oxygen enriched bottled water will
contain approximately 500 - 600% more oxygen. Oxygen is literally the breath of
life; oxygen is a natural energizer and body purifier. Oxygen is odorless and
tasteless, as well as non-carbonated. As such, the Company's
12
<PAGE>
water tastes like a fine premium bottled water - light and crisp. Oxygen does
not produce the unhealthy "jolt" associated with caffeine products. Rather, it
is believed to create a feeling of physical well-being and mental clarity. There
can be no assurance, however, that the Company's products will achieve consumer
acceptance. Consumer preferences are inherently subjective and subject to
change.
Oxygen is currently in the public view as an "additive" to a range of
consumer products. There are currently oxygen bars in Toronto, New York City and
the Los Angeles area. Oxygen in beverages has received recent widespread media
coverage through television, radio and print media.
Initially, the Company will not carbonate or flavor its water. After
the introductions of Company's oxygen enriched bottled water product, the
introduction of a new product with natural flavoring or carbonation will be
considered. Likewise, the Company will consider the infusion of beneficial
herbs. The Company will also consider the production of super oxygen enriched
sports drinks, providing even higher levels of oxygen, to be marketed at a
higher price. The Company will utilize a distinctive bottle and label for its
water products.
Strategy
The Company's objective is to build a product enriched water in
Florida, concentrating on the Tampa area, and then expand nationally. Aspects of
the Company's strategy include the following.
The Company intends to enter into distribution agreements with 2-4
non-affiliated partners. No distribution agreements have been entered into as of
the date of this prospectus. The Company intends to use these distributors, as
well as its own production/distribution facility, as operational models. The
Company then intends to expand into multiple markets.
The Company's oxygen enriched small packaged bottled water product
will primarily be sold through retail outlets, including convenience stores, gas
station markets, grocery stores, health food stores, and health spas. However,
secondary distribution will be effected through vending and private labeling.
Neither vending nor private labeling have the attendant costs of direct
retailing, while they do have the benefit of increasing the production volume
and thereby increasing the production margins.
Although the Company will distribute its own product in certain areas,
primarily the Company will sell to qualified third party distributors. These
third party distributors will have the right to distribute to retail outlets in
defined geographic areas. A large number of potential distributors have already
contacted the Company regarding potential distribution of its oxygen enriched
bottled water. The Company is discussing distribution possibilities at this time
but has no contracts for distribution.
Production
The three components of production are the building, the water
processing and bottling equipment, and the labor force.
Building. The Company currently owns a 10,800 sq. foot building
located on 2.1 acres in Clearwater. The Company has already obtained the
necessary permitting and exemptions to remodel and use its building as a
bottling and distribution facility. The demolition and the insignificant amount
of asbestos abatement required to be performed have been completed.
Architectural renderings are completed and paid for. Major Building Company, a
regional building contractor, has been hired to remodel the Company's bottling
facility.
Equipment. The Company has investigated and inspected various
equipment to comprise various sized plants. The equipment can be divided into
two general categories - water processing and bottling. The water processing
equipment will not vary significantly from plant to plant, while the bottling
equipment will vary depending on the size of the plant to be constructed. A
medium size plant is capable of producing 3,200 cases per 8 hour shift, while
running at 80% capacity. The Company is under contract for delivery of all of
the equipment.
13
<PAGE>
Water processing and bottling equipment for a medium size plant costs
approximately $750,000. These costs include shipping, installation and initial
technical training. The equipment, including material handling equipment,
bottling and labeling equipment, conveyor systems and water treatment systems,
was received and installed in April, 1998.
Labor Force
The larger and faster the bottling line, the less manpower is required
due to increased automation. In general, the bottling facility will require four
employees per shift.
Water Sources
Under FDA guidelines, bottled water must contain fewer than 500 parts
per million ("ppm") in total dissolved solids. Varying amounts of solids provide
different tastes to water. The Company uses FDA and International Bottled Water
Association approved water sources.
Upon delivery to the Company's facilities, water is filtered through 0.2
micron filters and then ozonated during storage in stainless steel storage
tanks. Ozone is an unbalanced form of oxygen which, unlike regular oxygen, kills
bacteria and micro-organisms 3,000 times faster than chlorine. Unlike chlorine,
ozone naturally breaks down to simple oxygen in a few hours and leaves no traces
or residues. At the Clearwater facility, the source water runs through a number
of filtration, ion exchange, and reverse osmosis processes by which it is
reduced to a very pure 1-2 parts per million of total dissolved solids. Water is
oxygenated by first removing dissolved gasses from the water following which
medical grade oxygen is infused through a proprietary process. The water is then
piped to the clean room bottling area where the various products are filled and
capped. The residual ozone in the bottled products sanitizes the containers as
well as the water, making certain the water is pure. The clean room is filled
and pressurized with air from two high-volume HEPA (High-Efficiency Particulate
Air) air handlers that filter 99.97% of particulates out of the air.
The manufacturing process is designed to be highly automated. Bottles are
mechanically de-palletized, cleaned, rinsed, filled and capped. The bottles are
automatically labeled, tamper banded, assembled and packed in cases. After
palletizing and stretch wrapping, the product is either loaded directly onto a
truck for immediate shipment or is stored in a warehouse for future shipment.
Most products are shipped within 48 to 72 hours after production via outside
carriers.
The Company will maintain exacting internal quality control standards.
Each batch of water will be tested according to FDA and International Bottled
Water Association standards.
Competition
The bottled water industry is highly competitive. According to "Beverage
Marketing", there are approximately 350 bottled water filling locations in the
United States with sales increasingly concentrated among the larger firms.
According to "Beverage Marketing", the ten largest bottled water companies
accounted for approximately 58.4% of wholesale dollar sales in 1996. Nearly all
of the Company's competitors are more experienced, have greater financial and
management resources and have more established proprietary trademarks and
distribution networks than the Company. On a national basis, the Company
competes with bottled water companies such as The Perrier Group of America, Inc.
(which includes Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring
Water, Zephyrhills Natural Spring Water, Deer Park, Great Bear and Ice Mountain)
and Great Brands of Europe (which includes Evian Natural Spring Water and Dannon
Natural Spring Water). The Company also competes with numerous regional bottled
water companies located in the United States and Canada. Aqua Clara has chosen
to compete by focusing on innovative packaging, customer service and pricing.
Seasonality
14
<PAGE>
The market for bottled water is seasonal, with approximately 70% of sales
taking place in the seven months of April through October inclusive. As a result
of seasonality, the Company's staffing and working capital requirements will
vary during the year.
Trademarks
The Company has registrations in the U.S. Patent and Trademark Office for
the trademarks that it uses, including Aqua Clara. The Company believes that its
common law and registered trademarks have significant value and goodwill and
that some of these trademarks are instrumental in its ability to create demand
for and market its products. There can be no assurance that the Company's common
law or registered trademarks do not or will not violate the proprietary rights
of others, that they would be upheld if challenged or that the Company would, in
such an event, not be prevented from using the trademarks, any of which could
have an adverse effect on the Company.
Regulation
The Company's operations are subject to numerous federal, state and local
laws and regulations relating to its bottling operations, including the
identity, quality, packaging and labeling of its bottled water. The Company's
bottled water must satisfy FDA standards, which may be periodically revised, for
chemical and biological purity. The Company's bottling operations must meet FDA
"good manufacturing practices," and the labels affixed to the Company's products
are subject to FDA restrictions on health and nutritional claims. In addition,
bottled water must originate from an "approved source" in accordance with
federal and state standards.
State health and environmental agencies, such as the Florida Department
of Agriculture and consumer services, also regulate water quality and the
manufacturing practices of producers.
The Company's current products satisfy Florida and Federal requirements
and its proposed products will satisfy all applicable state and federal
requirements in all 50 states. These laws and regulations are subject to change,
however, and there can be no assurance that additional or more stringent
requirements will not be imposed on the Company's operations in the future.
Although the Company believes that its water supply, products and bottling
facilities are and will be in substantial compliance with all applicable
governmental regulations, failure to comply with such laws and regulations could
have a material adverse effect on the Company.
Legal Proceedings
The Company is not a party to any material legal proceedings, except as
set forth below. On November 5, 1997 Life International Products, Inc., a
competitor of the Company, filed a complaint in the Circuit Court of Collier
County Florida against the Company and Corporate Relations Group alleging false
and unfair competition under the Lanham Act, false and misleading advertising
under Florida law and common law unfair competition. The Complaint seeks
unspecified monetary damages and injunctive relief. In summary, the complaint
alleges that the Company has made claims about its current and future business
plans. The Company believes that the lawsuit is wholly without merit, and is
procedurally defective in that the plaintiffs lack standing to file suit, among
other defects. The company filed a motion to dismiss, which was granted on
February 17, 1998. The motion was granted without prejudice so Life
International may refile in the future. They have not refiled as of this date.
Employees
The Company currently employs approximately 11 full-time employees, none
of whom are covered by collective bargaining agreements. During peak production
periods, the Company supplements its full-time work force with part-time
employees. The Company believes that its relations with its employees are good.
MANAGEMENT
15
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The following table sets forth certain information with respect to the
executive officers and directors of the Company. Each director holds such
position until the next annual meeting of the Company's shareholders and until
his respective successor has been elected and qualifies. All officers devote
full time to the Company. Any of the Company's officers may be removed with or
without cause at any time by the Company's Board of Directors.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the next
annual meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. The following are the
directors and executive officers of the Company.
John S. McAvoy, 48, has served as President and CEO of the Company since
its inception in August 1995 and
has been an integral part of the development of this project. Mr. McAvoy had
been a practicing attorney for 20
years. Mr. McAvoy formerly ran a 2,000 acre farm in California which employed
25 to 150 employees, depending
on the season. Mr. McAvoy is a former owner of Property Management, Inc. in San
Francisco, which was
responsible for the operation and maintenance of a ten-story San Francisco
office building.
John C. (Jack) Plunkett, 49, has been a Director and the Vice
President/Chief Operating Officer and Secretary
of the Company since November 1, 1996. Mr. Plunkett is a graduate of the U. S.
Naval Academy where he received
a degree in naval engineering in 1970. Since 1984 Mr. Plunkett has served as a
consulting engineer with Science
Applications International Corporation, a two-billion dollar per year
employee-owned consulting firm in the defense,
space, energy, medical and transportation fields. Mr. Plunkett was responsible
for business development and project
management of multi-million dollar contracts. Additionally, Mr. Plunkett is the
principal in Sea Trails Shoppes, Inc.,
a commercial real estate development consisting of retail, office and restaurant
space and since 1995 has served as
President and Managing Partner of this entity.
Rand L. Gray, 50, has been Chief Financial Officer since July 1997. Mr.
Gray is a graduate of Western Michigan University and attended Notre Dame
University Graduate School. Mr. Gray served as Chief Financial Officer/Senior
Vice President with Felicione International, a wholesale fish distributor, from
1990 to 1996, and was Executive Vice President/Chief Financial Officer with
Behstev Inc., International, a modified asphalt manufacturer and distributor,
from 1985 to 1989. From 1979 to 1985 he was a Divisional Vice
President/Controller for Diamond International (Fortune 500), a printed products
manufacturer and distributor; and Litton Industries (Fortune 400), a printed
products manufacturer and distributor and as Vice President of Finance/CFO for
D.H.C., Inc., a manufacturer and distributor of modular homes. Mr. Gray has been
an accountant and business manager for over twenty-five years.
Robert Guthrie, 74, has served as Director of the Company since May,
1997. Mr. Guthrie is an attorney
licensed to practice in Florida with affairs in Seminole, Florida. Mr. Guthrie
also serves as a Director of the Rivellas
Community Bank.
The Company also retains consultants with experience in the bottled water
industry experience on the issues of processing and bottling. All consulting
contracts are oral and at will and the total amount incurred the consulting fees
is less than $20,000.
The Company has entered into one-year employment agreements with each of
Messrs. McAvoy, Plunkett and Gray as amended, providing for salaries of $77,000
each. Mr. McAvoy and Mr. Plunkett have orally agreed and Mr. Gray has agreed in
his written employment contracts to defer $25,000 of such compensation until
such time as the Company's cash flow permits. The Company also agreed to grant
stock options to Mr. Plunkett and Mr. Gray equivalent to those granted to Mr.
McAvoy. In addition the Company has issued to Messrs. Plunkett and Gray, 500,000
and 250,000 shares, respectively, in connection with a prior consulting
agreements approved by the Board of Directors in December, 1996.
16
<PAGE>
Executive Compensation
The following table sets forth the cash compensation of the Company's
executive officers and directors during each of the last three fiscal years. The
remuneration described in the table does not include the cost to the Company of
benefits furnished to the named executive officers, including premiums for
health insurance and other benefits provided to such individual that are
extended in connection with the conduct of the Company's business. The value of
such benefits cannot be precisely determined, but the executive officers named
below did not receive other compensation in excess of the lesser of $25,000 or
10% of such officer's cash compensation.
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL COMPENSATION LONG TERM COMPENSATION
-
Name and Other Annual Awards Payouts All
Principal Position Year Salary Bonus Compensation Other
Restricted Options/ LTIP
Stock ($)SARs(#) Payouts ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John S. McAvoy 1998 $31,875 0 0 0 0 0 0
President and CEO 1997 0 0 0 0 0 0
1996 0 0 0 0 0 0 0
Rand Gray 1998 $18,000 0 0 125,000 0 0 0
Chief Financial Officer 1997 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0
John C. Plunkett 1998 $31,875 0 0 250,000 0 0 0
Vice President 1997 0 0 0 0 0 0
Chief Operating Officer 1996 0 0 0 0 0 0 0
</TABLE>
17
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information relating to the beneficial
ownership of Company Common Stock as of the date of this Prospectus by (I) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock (ii) each of the Company's directors and
executive officers, and (iii) all of the Company's directors and executive
officers as a group. The Percentage After Offering assumes the conversion of all
shares of Series A Preferred into 2,307,690 shares of common stock and the
exercise of all warrants and options, but not the sale of shares by Messrs.
Plunkett, Gray, Vinton or Zweig. See "Selling Shareholders".
<TABLE>
<CAPTION>
Percentage Percentage
Name and Address(1) Common Stock Before Offering After Offering
<S> <C> <C> <C>
John S. McAvoy 1,837,900 25.3% 18.5%
1315 Clearwater Street
Clearwater, Florida 33755
John C. Plunkett 580,000 8.0% 5.8%
1315 Clearwater Street
Clearwater, Florida 33755
Rand L. Gray(2) 250,000 3.4% 2.5%
1315 Clearwater Street
Clearwater, Florida 33755
Robert Guthrie 25,000 .3% .3%
1315 Clearwater Street
Clearwater, Florida 33755
Corporate Relations Group, Inc.(3) 350,000 4.8% 3.5%
1801 Lee Road, Suite 301
Winter Park, Florida 32709
Thomas G. Vinton 500,000 6.9% 5.0%
3558 Mill Road
Gainsville, Ga. 30504
Dennis J. Zweig 500,000 6.9% 5.0%
7560 Bridgegate Court
Atlanta, Ga. 30350
All Directors and Executive 2,692,900 37.0% 27.1%
Officers as a Group (4 persons)
</TABLE>
(1) Unless otherwise noted below, the Company believes that all persons
named in the table have sole voting and investment power with respect
to all shares of Common Stock beneficially owned by them. For purposes
hereof, a person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date hereof
upon the exercise of warrants or options or the conversion of
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that any such warrants, options or convertible
securities that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date
hereof, have been exercised.
(2) Includes 230,000 shares held jointly with his spouse and 20,000 share
held by the children of Mr. and Mrs.
Gray.
(3) Includes options to purchase 250,000 shares.
18
<PAGE>
CERTAIN TRANSACTIONS
Mr. McAvoy founded Pocotopaug Investment, Inc. ("Pocotopaug") as a
Florida Corporation in August 1995.
(Pocotopaug means "Clearwater" in a local Indian dialect). Pocotopaug was
capitalized in 1996 by $323,500 in
bridge loans. Jack C. Plunkett, an officer and director, invested $20,000 in
bridge loans.
Aqua Clara Bottling and Distribution, Inc., was incorporated on July
29, 1996 in the State of Colorado and issued 835,000 shares of common stock
(including 192,650 shares to Mr. McAvoy) and 27,500 shares of preferred stock to
various investors for total consideration of $3,167.50. The preferred stock has
since been retired. The offering was made under Rule 504 as an offering exempt
from registration under the Securities Act of 1933.
On November 1, 1996, the director and officer of Aqua Clara, Danny L.
Wey, resigned and was replaced by Messrs. McAvoy and Plunkett. On November 23,
1996, Aqua Clara issued 1,645,250 shares of common stock to Mr. McAvoy in
exchange for all of the outstanding shares of Pocotopaug and issued 44,872
shares to Danny L. Wey. Mr. Wey subsequently has sold all of his unrestricted
shares on the public market and continues to hold the remaining 104,706
restricted shares held by him pursuant to Rule 144. Unless otherwise noted, all
references to the Company in this Prospectus include the consolidated entity of
Aqua Clara and Pocotopaug.
On March, 1997, the Pocotopaug bridge investors exchanged their
$323,500 in convertible debt into 796,500 shares of Company common stock under
Rule 504, including Mr. Plunkett who received 80,000 shares. In December 1996,
the Company issued 1,029,500 shares to 7 persons for services rendered valued at
$100,950. From December 27, 1996 to March 1997, the Company issued 1,283,000
shares of common stock in an offering under Rule 504 for $.50 per share, to 35
persons.
In December, 1997, the Company issued 20,000 restricted shares of
common stock to Olympus Capital for consulting services rendered prior to
September 30, 1997. In October 1997, the Company paid $375,000 and agreed to
issue 75,000 restricted shares to Olympus Capital, Inc. for the purpose of
assisting the Company in identifying investors willing to invest capital into
the Company in connection with the $2,500,000 private placement Management has
netted theses costs against the proceeds and has allocated a portion of the net
proceeds as a cost of the 75,000 shares issued.
In September, 1997, the Company issued 200,000 shares of restricted
common stock to each of Gulf Atlantic Publishing and Arrow Marketing for
advertising services and creative design of marketing materials respectively,
and issued 25,000 shares for services to each of Robert Guthrie (a director) and
Richard Trnouski.
Gulf Atlantic Publishing and Arrow Marketing purchased these 400,000
shares of $.25 per share pursuant to an option agreement.
On November 17, 1997 the Company entered into a Lead
Generation/Corporate Relations Agreement with Corporate Relations Group ("CRG")
pursuant to which the Company has paid CRG $400,000 and by which the Company has
agreed to pay CRG an additional $400,000 upon the Company raising its next
tranche of $2,500,000. Additionally, the Company agreed to issue options to
purchase 250,000 shares of common stock under the following terms:
<TABLE>
<CAPTION>
Number of Shares Exercise Price Expiration Date
<S> <C> <C>
50,000 $ 3.50 11/17/98
50,000 4.20 11/17/99
50,000 4.70 11/17/00
50,000 5.60 11/17/01
50,000 7.00 11/17/02
</TABLE>
19
<PAGE>
Subsequent to year-end the Company entered into two subscription
agreements to issue 1,000,000 shares for $1,000,000. Under the terms of these
agreements, the $1,000,000 is due in four monthly installments beginning in
August 1998. The remaining three monthly installments begin the latter of
September 1, 1998 or 30 days subsequent to the effective date of the Company's
registration statement filed with the SEC.
At this time the Company does not anticipate requiring any additional
financing, and under the terms of the agreement the Company would therefore have
no further monetary obligations to CRG.
The Company agreed to issue 100,000 restricted shares to CRG, such
shares to be returned should the Company file and cause to be effective a
registration statement for the shares underlying the options within 120 days of
the date of the agreement. CRG was also granted piggyback rights for these
shares which have been escrowed with the Company's legal counsel. Under its
agreement with the Company, CRG has agreed to perform financial public relations
services for the Company, consisting of disseminating information about the
Company to the investing public, for $400,000 paid in cash in December 1997.
Under the Core Broker program undertaken by CRG, agreement, the Company will be
required to host a due diligence trip for up to ten retail brokers who
demonstrate an interest in the Company's Common Stock.
Mr. John McAvoy has loaned the Company amounts for working capital. The
loans are represented by promissory notes due on demand and bearing interest of
6%. None of the loans have been repaid. The total owed is $15,000 with $1,500
loaned on March 15, 1996, $9,000 loaned on April 17,1996, $4,000 loaned on July
19, 1996, and $500 loaned without a formal promissory note.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's former independent accountant BDO Seidman, LLP ("BDO
Seidman") resigned from that capacity on December 29, 1997. The report by BDO
Seidman on the financial statements of the Company dated November 10, 1997,
including a balance sheet as of March 31, 1997 and the statements of operations,
cash flows and statement of stockholders' equity for the eight months ended
March 31, 1997 and the period inception (August 17, 1995) through March 31, 1997
did not contain an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope or accounting principles, except as
to the uncertainty as to whether the Company would continue as a going concern.
During the period covered by the financial statements through the date of
resignation of the former accountant, there were no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. However, subsequent to the
issuance of BDO Seidman's audit report, the Company included the audit report,
together with unaudited financial statements of the Company as of and for the
six months ended October 4, 1997, in a private placement memorandum relating to
the offering of the Series A Preferred Stock. BDO Seidman did not consent to the
use of the audit report in the private placement memorandum, and did not have
the opportunity to review the private placement memorandum or the unaudited
financial statements until after the close of the offering, at which time BDO
Seidman indicated for the Company's President that certain prepaid expenses were
incorrectly capitalized as of October 4, 1997. The Board of Directors did not
itself discuss this issue of the capitalization of expenses with BDO Seidman.
BDO Seidman resigned as a result of what it considered to be an unauthorized
dissemination of its audit report coupled with the inaccuracies in the unaudited
financial statements. The Company did not disagree with BDO Seidman as to the
inaccuracies and expensed the prepaid expenses in question, which were included
in the $488,700 expensed for consulting services in the year ended April 4,
1998. BDO Seidman has been advised of the restatement. A letter from the former
independent accountant for the Company is attached as an exhibit to the
Registration Statement of which this Prospectus is a part. There have been no
other transactions similar to the above transaction in disagreement. On December
30, 1997 the Company engaged Pender Newkirk & Company as its new independent
accountants. Pender Newkirk & Company had no discussions with BDO Seidman on the
classification of expenses.
20
<PAGE>
SELLING SHAREHOLDERS
The shares of Common Stock of the Company offered by the Selling
Shareholders (the "Shares") will be offered at market prices, as reflected on
the Electronic Bulletin Board, or on the Nasdaq Small Cap Market if the Common
Stock is then traded on Nasdaq. The shares include 952,500 shares currently
outstanding as well as shares being offered by the holders upon conversion of
the Series A Preferred and 350,000 shares issuable upon exercise of warrants or
options. The aggregate number of shares offered for resale upon conversion of
the Series A Preferred will be based on the conversion rate in effect at the
time of conversion. It is anticipated that registered broker-dealers will be
allowed the commissions which are usual and customary in open market
transactions. There are no other arrangements or understandings with respect to
the distribution of the Common Stock.
The number of shares of Common Stock issuable upon conversion of each
of the 2,500 shares of Series A Preferred, and the consequent number of shares
of Common Stock available for resale under this Prospectus, is based upon a
conversion ratio which is $1,000 divided by the lower of (a) 65% of the closing
bid price of the Common Stock on the electronic Bulletin Board NASDAQ averaged
over the five trading days immediately prior to the date of conversion, or (b)
$1.875. Based upon a market price of $1.75 and an assumed conversion price of
$1.1375 per share, 879.12087 shares of Common Stock would be issuable per share
of Series A Preferred, plus 5% additional shares issuable since the Registration
Statement of which this Prospectus is a part was not declared effective by April
15, 1998. See "Description of Securities - Preferred Stock." Except as noted,
the Selling Shareholders do not own any Common Stock except as registered hereby
and will own no shares after the completion of the offering. The relationship,
if any, between the Company and any Selling Stockholder is set forth below. The
Percent Before offering with respect to Shares issuable upon exercise of the
Preferred Stock held by each holder in accordance with Rule 13d-3 of the
Securities and Exchange Act of 1934.
21
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Number of Percent
Series A Common Shares Before
Shareholder Preferred Offered Offering
<S> <C> <C> <C>
Olympus Capital, Inc.(1) 200 279,615 3.8%
Barry Seidman 500 461,538 6.0%
Arnold Zousmer 500 461,538 6.0%
James W. Spratt II(1) 25 23,077 *
Hassan Abdul SA(2) 250 230,769 3.1%
C.A. Opportunidad SA(2) 250 230,769 3.1%
Joseph Sloves 25 23,077 *
Philip Holstein, Jr.(3) 20 18,461 *
Castle Creek Valley Ranch
Defined Benefit Pension Plan(3) 20 18,461 *
Peak Financial, Inc. 30 27,693 *
Lee & Rick's Oyster Bar #2, Inc. 50 46,154 *
Bruce R. Knox 75 69,231 *
Frederic A. Lenz 75 69,231 *
Tom Richardson 15 13,846 *
Charles Kerr 15 13,846 *
Passy Holding 150 138,461 1.8%
James Skalko 200 184,615 2.5%
Ed Leinster 100 92,308 1.3%
Corporate Relations Group, Inc.(4) 350,000 4.6%
Edward Foster 5,000 *
Richard Foster 2,500 *
David M. Smith(7) 100,000 1.4%
Jack C. Plunkett(5) 500,000 6.4%
Rand L. Gray(6) 250,000 3.3%
TOTAL 2,500 3,610,190 34.1%
</TABLE>
* Less than 1%
(1) The controlling shareholder of Olympus Capital, Inc. is James W. Spratt
III, the son of James W. Spratt II. Includes 95,000 shares of Common
Stock already held by Olympus Capital, Inc.
(2) Jose Antonio Gomez is the principal shareholder of Hassan Abdul SA and C.A.
Opportunidad, S.A. (3) Mr. Holstein is the trustee of the Castle Creek Valley
Ranch Defined Benefit Pension Plan. (4) Messrs. Joe H. Landis and Paul Serluco
are the officers of Corporate Relations Group, Inc. Includes 100,000
shares held in escrow (see "Certain Transactions") and options to
purchase 250,000 shares.
(5) Mr. Plunkett owns 80,000 shares not offered hereby.
(6) Includes 230,000 shares held by Mr. Gray and his spouse and 20,000
shares held by their minor children.
(7) Includes 100,000 shares issuable upon excerise of options.
PLAN OF DISTRIBUTION
Two individuals Thomas G. Vinton and Dennis Zweig, have each agreed to
purchase 500,000 Shares of Common Stock at a price of $1.00 per Share, payable
$125,000 in August, 1998 (which has been paid) and $125,000 monthly commencing
30 days after the date of this Prospectus. The proceeds from the sale of these
Shares will inure to the benefit of the Company. These persons have indicated
they intend to sell the Shares in open market transactions through registered
broker dealers at customary commissions.
22
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, no par value per share, of which 7,271,622
shares were outstanding as of September 16, 1998, including 100,000 shares held
in escrow. See "Certain Transactions." The Company has no plans to sell
additional shares of common stock at this time, but reserves the right to do so
to meet future operating requirements. Holders of shares of Common Stock are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of Common Stock have no cumulative voting rights. Holders
of shares of Common Stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities and the liquidation preference to holders of Series A Preferred
Stock. Holders of Common Stock have no preemptive rights to purchase the
Company's common stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the common stock. Except for 1,000,000 Shares of
Common Stock described under "Plan of Distribution" which are not fully paid and
non-assessable until they are paid for, all of the outstanding shares of Common
Stock are, and the shares of Common Stock will be, when issued and delivered,
fully paid and non-assessable, including Shares issuable upon conversion of the
Preferred Stock.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
5,000,000 shares of preferred stock, no par value, of which 2,500 shares of
Series A Preferred Stock are outstanding. The Series A Preferred Stock is
convertible, at the option of the holder, into shares of common stock at an
initial Conversion Rate, subject to adjustments, at a number of shares of Common
Stock equal to $1,000 divided by the lower of (I) Sixty-Five Percent (65%) of
the average Market Price of the Common Stock for the five trading days
immediately prior to the Conversion Date (defined below) or (ii) $1.875,
increased proportionally for any reverse stock split and decreased
proportionally for any forward stock split or stock dividend. Market Price for
any date shall be the closing bid price of the Common Stock on such date, as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or the closing bid price in the over-the-counter market if
other than Nasdaq. The holders of Series A Preferred have no voting rights, and
have a liquidation preference of $1,300 per share over the Common Stock.
Dividends on the Series A Preferred are payable at the rate of 8% per annum ($80
per share of Series A Preferred Stock) payable on each July 1, in either cash,
or in the option of the Company, Common Stock valued at the Conversion Rate. The
initial closing for the sale of the Series of Preferred Stock was on November
11, 1997. The holders of the Series A Preferred Stock have the right to receive,
at the time of conversion, additional penalty shares equal to (a) 5% if the
Company did not file a registration statement to register the underlying common
stock by January 15, 1998, (b) an additional 5% if the registration statement is
not declared effective by April 15, 1998, and (c) an additional 5% of the
Company does not deliver certificates representing the Common Stock within 5
days of the date of conversion. Since the registration statement of which this
Prospectus is a part was filed by January 15, 1998 but not declared effective by
April 15, 1998, the holders of Series A Preferred Stock are entitled to 5%
additional shares upon conversion.
The Company's Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series. The Company considers it desirable to have preferred stock
available to provide increased flexibility in structuring possible future
acquisitions and financings and in meeting corporate needs which may arise. If
opportunities arise that would make desirable the issuance of preferred stock
through either public offering or private placements, the provisions for
preferred stock in the Company's Articles of Incorporation would avoid the
possible delay and expense of a shareholder's meeting, except as may be required
by law or regulatory authorities. Issuance of the preferred stock could result,
however, in a series of securities outstanding that will have certain
preferences with respect to dividends and liquidation over the Common Stock
which would result in dilution of the income per share and net book value of the
Common Stock. Issuance of additional Common Stock pursuant to any conversion
right which may be
23
<PAGE>
attached to the terms of any series of preferred stock may also result in
dilution of the net income per share and the net book value of the Common Stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. Therefore, it is not possible at this
time to determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings, but has no current plans to do so at this
time.
The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
The Company intends to furnish holders of its common stock annual
reports containing audited financial statements and to make public quarterly
reports containing unaudited financial information.
Transfer Agent
The transfer agent for the Common Stock is Jersey Transfer and Trust
Company, 201 Bloomfield Avenue, Verona, New Jersey 07044 and its telephone
number is (973) 239-2712.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Hand & Hand, a law corporation, Dana Point, California.
EXPERTS
The audited financial statements included in this Prospectus as of
April 4, 1998 and for the years ended April 4, 1998, March 31, 1997 and the
period Inception (August 17, 1995) to April 4, 1998 have been audited by Pender
Newkirk & Company, independent certified public accountants, to the extent and
for the periods set forth in their report thereon and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
INDEMNIFICATION
The Company has adopted provisions in its articles of incorporation
and bylaws that limit the liability of its directors and provide for
indemnification of its directors and officers to the full extent permitted under
the Colorado General Business Act. Under the Company's articles of
incorporation, and as permitted under the Colorado General Business Act,
directors are not liable to the Company or its stockholders for monetary damages
arising from a breach of their fiduciary duty of care as directors. Such
provisions do not, however, relieve liability for breach of a director's duty of
loyalty to the Company or its stockholders, liability for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of law,
liability for transactions in which the director derived as improper personal
benefit or liability for the payment of a dividend in violation of Colorado law.
Further, the provisions do not relieve a director's liability for violation of,
or otherwise relieve the Company or its directors from the necessity of
complying with, federal or state securities laws or affect the availability of
equitable remedies such as injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for indemnification by any director or
officer.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
24
<PAGE>
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
25
<PAGE>
Consolidated Financial Statements
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Periods August 17, 1995 (Date of Inception) through July 4, 1998
Independent Auditors' Report
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
<TABLE>
<CAPTION>
Contents
<S> <C>
Independent Auditors' Report on Consolidated Financial Statements...............................................1-2
Consolidated Financial Statements:
Consolidated Balance Sheet....................................................................................3
Consolidated Statements of Operations.........................................................................4
Consolidated Statements of Changes in Stockholders' Equity....................................................5
Consolidated Statements of Cash Flows.......................................................................6-7
Notes to Consolidated Financial Statements.................................................................8-19
</TABLE>
<PAGE>
<PAGE>
Independent Auditors' Report
Board of Directors
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary (A Development Stage Enterprise)
Largo, Florida
We have audited the accompanying consolidated balance sheet of Aqua Clara
Bottling & Distribution, Inc. and Subsidiary (a development stage enterprise) as
of April 4, 1998 and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for the years ended April 4, 1998 and
March 31, 1997. These consolidated financial statements are the responsibility
of the management of Aqua Clara Bottling & Distribution, Inc. and Subsidiary.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Aqua Clara Bottling
& Distribution, Inc. and Subsidiary as of April 4, 1998 and the results of its
operations and its cash flows for the years ended April 4, 1998 and March 31,
1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has been in the development stage
since its inception on August 17, 1995. Realization of a major portion of the
assets is dependent on the Company's ability to meet
<PAGE>
<PAGE>
its future financing requirements, and the success of future operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note 1 to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
May 27, 1998, except for Note 11 as to which
the date is July 22, 1998
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheet
July 4,
April 4, July 4, 1998
1998 1998 Pro Forma(1)
(Unaudited) (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 723,618 $ 108,991 $ 108,991
Accounts receivable, trade 18,192 18,192
Employee advances 17,691 777 777
Inventory 26,948 71,949 71,949
Prepaid assets 400,800 404,318 404,318
Total current assets 1,169,057 604,227 604,227
---------------------------------------------------------
Property, plant, and equipment, net of
accumulated depreciation 1,408,002 1,868,126 1,868,126
---------------------------------------------------------
Other assets:
Organizational costs, net of accumulated
amortization 23,194 21,753 21,753
Deposits and other assets 17,383 4,278 4,278
---------------------------------------------------------
Total other assets 40,577 26,031 26,031
---------------------------------------------------------
$ 2,617,636 $ 2,498,384 $ 2,498,384
=========================================================
</TABLE>
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
July 4,
April 4, July 4, 1998
1998 1998 Pro Forma(1)
(Unaudited) (Unaudited)
Liabilities and Stockholders' Equity Current liabilities:
<S> <C> <C> <C>
Accounts payable, trade $ 209,481 $ 337,005 $ 337,005
Accrued expenses 99,112 120,429 120,429
Note payable and current maturities of
long-term debt 34,135 34,135 34,135
Total current liabilities 342,728 491,569 491,569
---------------------------------------------------------
Long-term debt, less current maturities 279,514 275,344 275,344
---------------------------------------------------------
Stockholders' equity:
Preferred stock; no par value; 5,000,000
shares authorized; 2,500 shares issued
and outstanding 1,864,988 1,864,988 1,864,988
Common stock; no par value; 50,000,000
shares authorized; 6,271,622 shares
issued and outstanding (7,271,622
pro forma) 2,781,166 2,781,166 4,531,166
Additional paid-in capital 1,417,391 1,417,391 1,417,391
Deficit accumulated during development
stage (4,068,151) (4,332,074) (5,082,074)
---------------------------------------------------------
1,995,394 1,731,471 2,731,471
Subscriptions receivable (1,000,000)
---------------------------------------------------------
Total stockholders' equity 1,995,394 1,731,471 1,731,471
---------------------------------------------------------
$ 2,617,636 $ 2,498,384 $ 2,498,384
=========================================================
</TABLE>
(1) The pro forma reflects the effect of the subsequent event in which the
Company entered into a subscription agreement to issue 1,000,000 shares of
common stock for $1,000,000. These shares were subscribed to in an amount
below their fair value resulting in an effective dividend of $750,000.
3
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statement of Operations
Period
August 17,
1995
Year Ended Three Months Ended (Inception)
April 4, March 31, July 4, June 30, through
1998 1997 1998 1997 July 4, 1998
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 135,710 $ $ 19,111 $ 14,875 $ 154,821
Cost of sales 227,146 29,864 81,303 307,010
Gross profit (141,436) (10,753) (66,518) (152,189)
General, administrative, and sales expenses 2,084,099 $ 315,985 249,809 523,603 2,721,538
Operating loss (2,225,535) (315,985) (260,562) (590,121) (2,873,727)
Interest expense (38,968) (50,542) (6,617) (22,165) (105,001)
Interest and other income 27,589 3,256 5,228 30,845
Gain on sale of assets 33,200 33,200
Net loss (2,203,714) (366,527) (263,923) (607,058) (2,914,683)
Dividends on preferred stock:
Amortization of intrinsic value of
conversion rights 1,417,391 1,417,391
Unpaid 8.0% cumulative dividend 59,178 49,863 109,041
Net loss applicable to common stock $ (3,680,283) $ (366,527) $ (313,786) $ (607,058) $ (4,441,115)
Net loss per common share $ (.62) $ (.13) $ (.05) $ (.11) $ (1.07)
Weighted average common shares outstanding 5,962,307 2,787,931 6,271,622 5,669,836 4,140,623
</TABLE>
Read independent auditor's report. The accompanying notes
are an integral part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
Periods August 17, 1995 (Date of Inception) through July 4, 1998
Deficit
Accumulated
Additional During
Preferred Stock Common Stock Paid-In DevelopmentSubscription
Shares Amount Shares Amount Capital Stage Receivable
Issuance of common stock,
<S> <C> <C> <C> <C> <C> <C> <C>
August 1995 500,000 $ 5,000 $ 15,250
Issuance of common stock
for services, August 1995 500,000 5,000 15,250
Net loss for period $ (80,519)
Balance,
March 31, 1996 1,000,000 10,000 30,500 (80,519)
Adjustment for recapitalization,
December 1996 1,525,122 33,668 (30,500)
Issuance of common stock for
services, December 1996 279,500 139,750
Common stock issued for conversion
of notes payable, March 1997 796,500 323,500
Common stock issued through Regulation
D offering, March 1997 1,283,000 525,498 $ (50,000)
Net loss for period (366,527)
Balance,
March 31, 1997 4,884,122 1,032,416 0 (447,046) (50,000)
Collection of subscription receivable,
April 1997 50,000
Issuance of common stock for
services and $100,000 1,312,500 1,501,250
Stock issued through Regulation
D offering, December 1997 2,500 $ 447,597 75,000 247,500 1,417,391
Amortization of the intrinsic
value of the conversion rights
of the preferred stock 1,417,391 (1,417,391)
Net loss for period
Balance, April 4, 1998 2,500 $ 1,864,988 6,271,622 $ 2,781,166 $ 1,417,391 $(4,068,151) $0
Net loss for period (unaudited) (263,923)
Balance, July 4, 1998 (unaudited) 2,500 1,864,988 6,271,622 2,781,166 1,417,391 (4,332,074) 0
Pro forma effect of $1,000,000
subscription agreement (unaudited) 1,000,000 1,750,000 (750,000) (1,000,000)
Pro forma balance, July 4, 1998 (unaudited) 2,500 $ 1,864,988 7,271,622 $ 4,531,166 $ 1,417,391 $(5,082,074$(1,000,000)
</TABLE>
Read independent auditors' report. The accompanying notes
are an integral part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Period
August 17,
1995
Year Ended Three Months Ended (Inception)
April 4, March 31, July 4, June 30, through
1998 1997 1998 1997 July 4, 1998
(Unaudited) (Unaudited) (Unaudited)
Operating Activities
<S> <C> <C> <C> <C> <C>
Net loss $ (2,203,714) $ (366,527) $ (263,923) $ (607,058) $ (2,914,683)
Adjustments to reconcile net loss to net
cash and cash equivalents used in
operating activities:
Gain on sale of assets (33,200) (33,200)
Depreciation and amortization 56,200 5,950 62,150
Issuance of common stock for services 1,326,250 139,750 300,000 1,486,250
(Increase) decrease in:
Accounts receivable (18,192) (11,673) (18,192)
Prepaid assets (399,709) 2,427 (3,518) (11,293) (400,800)
Inventory (26,948) (45,001) (3,000) (71,949)
Increase in:
Accounts payable 51,436 4,917 61,964 927 118,317
Accrued expenses 98,209 69,533 21,317 18,597 195,429
Total adjustments 1,072,238 216,627 22,520 293,558 1,338,005
Net cash and cash equivalents used by
operating activities (1,131,476) (149,900) (241,403) (313,500) (1,576,678)
Investing activities
Proceeds from sale of assets 133,925 133,925
Purchase of investments (51,004)
Proceeds from sale of investments 50,004 50,004
Purchase of property, plant, and equipment (942,892) (43,978) (399,073) (30,013) (1,495,442)
Decrease (increase) in other assets 7,930 (65,977) 30,019 21,225 (35,167)
Net cash and cash equivalents used by
investing activities (801,037) (59,951) (369,054) (8,788) (1,397,684)
Financing Activities
Proceeds from notes payable
and incurrence of convertible debt 55,475 136,000 393,975
Payments of long-term debt and obligations
under capital lease (53,113) (10,396) (4,170) (18,552) (68,508)
Net proceeds from issuance of stock 2,262,488 475,148 50,000 2,757,886
Net cash and cash equivalents provided
(used) by financing activities 2,264,850 600,752 (4,170) 31,448 3,083,353
</TABLE>
Read independent auditors' report. The accompanying notes
are an integral part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
Period
August 17,
1995
Year Ended Three Months Ended (Inception)
April 4, March 31, July 4, June 30, through
1998 1997 1998 1997 July 4, 1998
(Unaudited) (Unaudited) (Unaudited)
Net increase (decrease) in
<S> <C> <C> <C> <C> <C>
cash and cash equivalents 332,337 390,901 (614,627) (290,840) 108,991
Cash and cash equivalents,
beginning of period 391,281 380 723,618 391,281
Cash and cash equivalents,
end of period $ 723,618 $ 391,281 $ 108,991 $ 100,441 $ 108,991
Supplemental disclosures of cash flow
information and noncash investing
and financing activities:
Cash paid for interest $ 38,967 $ 56,010 $ 6,617 $ 22,165 $ 105,001
</TABLE>
During the year ended March 31, 1997, $323,500 of convertible debt was
converted to 796,500 shares of
common stock.
During the period August 17, 1995 (date of inception) through April 4, 1998,
the Company entered into a purchase money mortgage of $300,000 in connection
with the acquisition of property, plant, and equipment.
The Company owed $146,378 and $6,750 on property, plant, and equipment as
of April 4, 1998 and March 31,
1997, respectively.
During the year ended March 31, 1997, 100,000 shares of common stock were
issued for a $50,000 subscription receivable. During the period ended April
4, 1998, $1,401,250 of common stock was issued in exchange for services to
be performed.
During the period ended April 4, 1998, the Company incurred a capital lease
obligation of $49,731 and debt of $107,563 when it acquired new equipment.
During the year ended April 4, 1998, the Company sold its five-gallon water
business. As part of the terms of the sale, debt of $149,782 was assumed by
the purchaser.
<PAGE>
The Company owed $218,688 on property, plant, and equipment at July 4, 1998
(unaudited).
Read independent auditors' report. The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Period August 17, 1995 (Date of Inception) through July 4, 1998
1. Organization, Background, Sale of Assets, and Going Concern
On August 17, 1995, Pocotopaug Investment, Inc. (hereinafter referred to as
"Pocotopaug") was incorporated under the laws of Florida for the purpose of
raising capital to fund the development of products for subsequent entry into
the bottled water industry. Pocotopaug has been in the development stage since
its formation.
On July 29, 1996, Aqua Clara Bottling & Distribution, Inc. (hereinafter referred
to as "Aqua Clara") was incorporated under the laws of Colorado for the purpose
of raising capital to fund the development of products for subsequent entry into
the bottled water industry. Aqua Clara has been in the development stage since
its formation and was virtually inactive until the time of its combination with
Pocotopaug, as described below.
In December 1996, the stockholders of Pocotopaug gained control of Aqua Clara
and Aqua Clara acquired Pocotopaug in a business combination accounted for as a
reorganization of Pocotopaug. Pocotopaug became a wholly owned subsidiary of
Aqua Clara through the exchange of 1,690,122 shares of Aqua Clara's common stock
for all 1,000,000 shares of the outstanding stock of Pocotopaug. Upon the
execution of this transaction, Aqua Clara had 2,525,122 shares outstanding. The
accompanying consolidated financial statements have been based on the assumption
that the Companies were combined for all periods presented.
In December 1997, the Company issued 2,500 shares of convertible cumulative
preferred stock through a private placement memorandum. The Company raised
$2,500,000 and incurred offering costs of $387,512. The Company issued 75,000
shares of common stock as compensation to a promoter of this offering. These
<PAGE>
shares were valued at their trading price of other common stock and amounted to
$247,500.
During the year ended April 4, 1998, the Company began its five-gallon water
business. In February 1998, the Company sold this portion of the business. The
assets disposed of consist of certain receivables, a vehicle, and various
equipment used in the Company's bottled water business. The total sales price
was approximately $352,394 which included the assumption of installment notes
payable of approximately $149,782 by the acquiring company. The Company
recognized a gain of approximately $33,000 on this sale.
Read independent auditors' report. 8
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
1. Organization, Background, Sale of Assets, and Going Concern (continued)
The following is a pro forma statement of the operations (unaudited) as if the
five-gallon water business was not in existence for the years ended April 4,
1998 and March 31, 1997.
<TABLE>
<CAPTION>
Year Ended
April 4, March 31
1998 1997
-----------------------------
<S> <C> <C>
General and administrative expenses $ (1,870,524) $ (315,985)
Interest expense (38,968) (50,542)
Other income 27,589
--------------
Net loss $ (1,881,903) $ (366,527)
=================================
</TABLE>
As shown in the consolidated financial statements, the Company has been a
development stage enterprise since its inception. The majority of the revenues
reflected in the consolidated financial statements are from initial operations
of a five-gallon water business which was discontinued in March 1998. The
<PAGE>
Company is devoting its efforts to establishing its oxygenated water business
and there have been no significant sales from these operations to date. The
Company will need to generate sales or continue to obtain additional financing
to fund its developmental stage operations. These factors, combined with the
fact that the Company has not generated any positive cash flows from operations
since its inception, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or amounts and classifications of liabilities that might be
necessary in the event the Company cannot continue in existence.
Management of the Company is currently negotiating with various banks to obtain
additional funds for a new mortgage on the Company's building. In addition,
management is currently working on raising an additional $2,500,000 from the
private placement of additional common stock of the Company. Although management
believes the above actions will result in additional funds, no assurance can be
given that they will be successful.
Read independent auditors' report. 9
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
2. Significant Accounting Policies
The significant accounting policies followed are:
The consolidated financial statements include the accounts of Aqua Clara
Bottling & Distribution, Inc. and its wholly owned subsidiary,
Pocotopaug Investments, Inc. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
<PAGE>
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company maintains cash balances in excess of the Federal Deposit
Insurance Corporation's insured limit of $100,000.
Cash equivalents consist of all highly liquid debt instruments purchased
with a maturity of three months or less.
Inventory is stated at the lower of cost (first-in, first-out) or
market.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
consolidated financial statements carrying amounts of existing assets
and liabilities and their respective income tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that included the enactment date.
Organizational costs are amortized over a period of six years.
Read independent auditors' report. 10
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
2. Significant Accounting Policies (continued)
Shares of common stock issued for other than cash have been assigned
amounts equivalent to the estimated fair value of the service received
until the time the Company's stock began trading. At that time, the
<PAGE>
Company valued the transactions based on quoted prices. The Company
records shares as outstanding at the time the Company becomes
contractually obligated to issue shares.
Property, plant, and equipment are recorded at cost. Depreciation is
calculated by the declining-balance and straight-line methods over the
estimated useful lives of the assets. Maintenance and repairs are
charged to operations when incurred. Betterments and renewals are
capitalized. When property, plant, and equipment are sold or otherwise
disposed of, the asset account and related accumulated depreciation
account are relieved and any gain or loss is included in operations. No
significant depreciation has been taken as of April 4, 1998 since the
property, plant, and equipment have not yet been placed in service.
The Company applies APB Opinion 25 in accounting for its stock options.
The exercise price of these options exceeded the fair value of the
underlying common stock on the grant date and, therefore, there are no
compensation costs included in the accompanying consolidated financial
statements.
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management. The
respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash, investment securities, accounts payable, and accrued
expenses. Fair values were assumed to approximate carrying values for
these financial instruments since they are short-term in nature and
their carrying amounts approximate fair values or they are receivable or
payable on demand. The fair value of the Company's long-term debt is
estimated based upon the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities.
The Company charges to retained earnings and credits its additional
paid-in capital for the amortization of the intrinsic value of the
conversion feature of its preferred stock in accordance with the
statements issued by the Securities and Exchange Commission.
Read independent auditors' report. 11
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
<PAGE>
2. Significant Accounting Policies (continued)
Loss per share is based on the weighted average number of common shares
outstanding during each period after giving effect to the
recapitalization described in Note 1. The Company has implemented SFAS
No. 128. There is no effect on the prior loss per share amounts based on
this statement. In computing diluted earnings per share, the following
were excluded because their effects were antidilutive: options on
250,000 shares; preferred shares convertible into common shares; and
600,000 contingently issuable shares.
Advertising costs are expensed as incurred and amounted to approximately
$849,176 and $1,700 for the year ended April 4, 1998 and the year ended
March 31, 1997, respectively. There was no advertising expense incurred
during the three-month periods ended July 4, 1998 and June 30, 1997.
The Company changed its fiscal year-end to the first Saturday in April
beginning with the fiscal year ended April 4, 1998.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results
of operations for the three-month periods ended July 4, 1998 and June
30, 1997, (b) the financial position at July 4, 1998, and (c) cash flows
for the three-month periods ended July 4, 1998 and June 30, 1997, have
been made.
3. Prepaid Assets
Prepaid assets consist principally of a lead generation/corporate relations
agreement entered into by the Company. The terms of this agreement are for 12
months at a cost of $400,000. The Company will amortize these costs when
services under the contract are rendered.
Read independent auditors' report. 12
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
<PAGE>
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
4. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
April 4, July 4,
1998 1998
(Unaudited)
<S> <C> <C>
Land $ 90,000 $ 90,000
Building 528,707 955,583
Machinery and equipment 763,951 801,708
Vehicles 30,392 30,392
---------------------------------
1,413,050 1,877,683
Less accumulated depreciation 5,048 9,557
---------------------------------
$ 1,408,002 $ 1,868,126
=================================
</TABLE>
5. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
April 4, July 4,
1998 1998
(Unaudited)
Mortgage payable; interest adjustable annually to prime (8.5% at March
31, 1998); payable $2,954 per month including interest; unpaid
principal of approximately $238,000 due January 15, 2001;
<S> <C> <C>
collateralized by property and plant $ 277,409 $ 274,419
Stockholder notes payable; 6.0%; due on demand;
unsecured 15,000 15,000
Installment notes payable; interest ranging from 10.5%
to 11.5%; payments aggregating $6,340 per month
including interest; collateralized by vehicles 21,240 20,059
-----------------------------
313,649 309,478
Less amounts currently due 34,135 34,135
-----------------------------
$ 279,514 $ 275,343
=============================
</TABLE>
Read independent auditors' report. 13
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
5. Notes Payable and Long-Term Debt (continued)
The following is a schedule by year of the principal payments required on these
notes payable and long-term debt (excluding the obligations under capital lease)
as of July 4, 1998 (unaudited):
1999 $34,135
=======
2000 $18,284
=======
2001 $256,512
========
2002 $547
====
During the year ended July 4, 1998, the Company sold the assets of their
five-gallon water business. The purchaser of these assets assumed the notes
payable and obligations under capital leases used by the Company to finance
these assets. The purchaser is responsible for making the payments on these
notes payable and obligations under capital leases; however, the Company remains
contingently liable for any nonpayments on behalf of the purchaser. The
principal payments required on these notes payable and obligations under capital
leases are $149,782 at April 4, 1998.
6. Lease Commitments
The Company rents its operating facility and various vehicles under operating
leases that expire at various dates from 1998 through 2002. The following is a
schedule by year of future minimum rental payments required under operating
leases that have an initial or remaining noncancelable lease term in excess of
one year as of July 4, 1998 (unaudited).
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $ 11,545
2000 11,592
2001 6,760
----------
$ 29,897
</TABLE>
Rent expense amounted to approximately $83,269 and $5,000 for the years ended
April 4, 1998 and March 31, 1997, respectively. For the periods ended July 4,
<PAGE>
1998, June 30, 1997, and the period from inception through July 4, 1998, rent
expense amounted to $20,361, $15,840, and $108,630, respectively.
Read independent auditors' report. 14
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
7. Income Taxes
No provision for income taxes is recorded due to the amount of tax losses
incurred since inception. The Company had unused net operating loss
carryforwards to carry forward against future years' taxable income of
approximately $624,000, which begin to expire in years after 2011. Temporary
differences giving rise to the deferred tax assets consist primarily of the
deferral and amortization of start-up costs for tax reporting purposes.
Management has established a valuation allowance equal to the amount of the
deferred tax assets due to the uncertainty of the Company's realization of this
benefit.
The components of deferred tax assets consist of the following:
<TABLE>
<CAPTION>
April 4, July 4,
1998 1998
(Unaudited)
Deferred tax assets:
<S> <C> <C>
Start up costs $ 663,000 $ 663,000
Net operating loss carryforwards 120,000 240,000
-----------------------------
Gross deferred tax assets 783,000 903,000
Valuation allowance 783,000 903,000
-----------------------------
Total deferred tax assets $ 0 $ 0
=============================
</TABLE>
Since inception, substantial changes of ownership of the Company have occurred.
Under federal tax law, this change in ownership of the Company will
significantly restrict future utilization of the net operating loss
carryforwards. Other than the net operating losses which have been limited
<PAGE>
because of the change in ownership as described above, any other net operating
losses will expire if not utilized within 15 years of the year they were
incurred.
8. Commitments and Contingencies
The Company has employment agreements with terms ranging from one to five years
with its officers which provide for minimum annual salaries. These one-year
agreements have automatic renewal provisions. The total salary commitment under
these agreements amounts to approximately $231,000 per year. At April 4, 1998
and July 4, 1998, the Company accrued $80,710 and $90,906 (unaudited),
respectively, in deferred salaries related to these agreements.
Read independent auditors' report. 15
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
8. Commitments and Contingencies (continued)
During the year ended April 4, 1998, the Company entered into a lead
generation/corporate relations agreement with a term of one year which required
the Company to pay $400,000 on execution of the agreement and an additional
$400,000 contingent on the Company raising an additional $2,500,000 in a future
common stock offering. The initial $400,000 payment is reflected as a prepaid
asset as of April 4, 1998 and July 4, 1998 (unaudited) and will be expensed at
the time services are received.
9. Stock
In December 1996, the Company issued 259,500 shares to individuals for
consulting services performed. These shares were valued at $.50 per share. In
addition, in April 1997, the Board of Directors approved the issuance of 750,000
shares to two of its officers for services rendered. These shares were also
valued at $.50 per share, management's estimate of the fair market value of the
stock at that time.
<PAGE>
The Company entered into two agreements for services to be performed during the
year ended April 4, 1998. Each agreement contained options to acquire 200,000
shares of common stock at $.25 per share. These services were valued at the
difference between the fair market value of the underlying common stock of the
options on the date of grant and the $.25 per share exercise price. These
options were exercised and resulted in a total cash consideration paid to the
Company of $100,000. The cost of these agreements was expensed because the
services were performed.
In April 1997, the Company issued 62,500 shares of common stock to directors and
employees for services rendered. These shares were valued at $.50 per share, the
fair market value of the common stock.
Read independent auditors' report. 16
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
9. Stock (continued)
The following is a summary of options, common stock issued for services, and
$100,000 received on exercise of the options during the year ended April 4,
1998:
<TABLE>
<CAPTION>
Number
Month of Shares Amount
------------------------------- -------------------
<S> <C> <C>
April 1997 812,500 $ 406,250
September 1997 (including
$100,000 received) 400,000 920,000
March 1998 100,000 175,000
--------------------------------
1,312,500 $ 1,501,250
================================
</TABLE>
<PAGE>
During the year ended April 4, 1998, the Company issued 2,500 shares of Series A
convertible preferred stock. These shares are nonvoting, and the holders are
entitled to receive an eight percent annual dividend and have a liquidation
preference of $1,300 per share. These preferred shares are convertible at any
time at the option of the holder into common shares equal to $1,000 divided by
the lower of (i) 65 percent of the average market price of the common stock for
the five trading days prior to the conversion date, or (ii) $1.875. The Series A
preferred shares contain a provision that the Company shall increase the
conversion rate by five percent for each of the following occurrences:
1. Failure to file a registration statement under the Securities Act of
1933 covering the common stock within 30 days of closing date;
2. Failure of the registration to become effective within 120 days of closing
date; and 3. Failure to issue the common shares within the time limits set forth
in the amended articles
of incorporation.
These shares, if converted using the aforementioned 65 percent of the average
market price of the common stock as of April 4, 1998, would convert to a maximum
of 2,197,802 common shares. Subsequent to April 4, 1998, the Company failed to
register the shares within the 120-day time frame and the maximum amount of
shares increased to five percent as a result.
Considering the beneficial conversion feature of the 2,500 Series A convertible
preferred shares, the Company allocated $1,417,391 of the proceeds raised from
the issuance of these shares, which represents the intrinsic value of the
conversion feature to additional paid-in capital. The amortization of this
discount is charged against retained earnings and increases preferred stock
analogous to a dividend distribution based on the demand conversion.
Read independent auditors' report. 17
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
10. Stock Options
As part of a "lead generation/corporate relations agreement," the Company issued
250,000 options to acquire common stock. These options are exercisable at prices
ranging from $3.50 to $7.00 and the latter of 50,000 annually over the next five
years or upon the Company's raising its next tranche of $2,500,000.
<PAGE>
As indicated in Note 2, the Company applies APB Opinion 25 in accounting for its
stock options. The exercise price of these options exceeded the fair value of
the underlying common stock on the grant date and, therefore, there are no
compensation costs recognized under APB Opinion 25.
The options issued were for future services. Had compensation cost for the
options granted been determined based on the fair value at the grant date under
methods prescribed by FASB Statement No. 123, the Company would have recorded a
prepaid asset of approximately $359,000. This would be amortized as compensation
cost over the next five years as the services are provided to the Company.
Following is a summary of stock option activity from inception through July 4,
1998:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
<S> <C> <C>
Outstanding at August 17, 1995 0
Granted during the year ended
April 4, 1998 650,000 $ 2.08
======
Exercised 400,000 $ .25
----------- ======
Outstanding at April 4, 1998 250,000 $ 5.00
=========== ======
Outstanding at July 4, 1998 (unaudited) 250,000 $ 5.00
=========== ======
</TABLE>
The following is a summary of options outstanding at July 4, 1998:
<TABLE>
<CAPTION>
Weighted
Exercise Number Average Remaining
Price of Shares Contractual Life Exercise Date
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.50 50,000 1 November 17, 1998
$4.20 50,000 2 November 17, 1999
$4.70 50,000 3 November 17, 2000
$5.60 50,000 4 November 17, 2001
$7.00 50,000 5 November 17, 2002
</TABLE>
Read independent auditors' report. 18
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Periods August 17, 1995 (Date of Inception) through July 4, 1998
<PAGE>
10. Stock Options (continued)
The exercise date of the above options is the latter of the above dates or the
Company's raising its next tranche of $2,500,000.
The weighted average fair value of the options at their grant date during the
year ended April 4, 1998 was $4.14. The estimated fair value of each option
granted is calculated using the Black-Scholes option-pricing model. The
following summarizes the weighted average of the assumptions used in the model:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate 5.79%
Expected years until exercise 3
</TABLE>
11. Subsequent Event and Pro Forma Information
Subsequent to year-end, the Company entered into two subscription agreements
with unrelated third parties to issue 1,000,000 shares for $1,000,000. Under the
terms of these agreements, the $1,000,000 is due in four monthly installments
beginning in August 1998. The remaining three monthly installments begin the
latter of September 1, 1998 or 30 days subsequent to the effective date of the
Company's registration statement filed with the SEC. At the time the Company
entered into these agreements, the fair value of the Company's stock was $1.75;
consequently, the Company effectively recorded a $750,000 dividend to these
unrelated third parties.
Included in the accompanying consolidated financial statements is pro forma
information disclosing the effects of this transaction as though it had occurred
on July 4, 1998.
Read independent auditors' report. 19
<PAGE>
No dealer, salesman or other person is authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
to an offer to buy the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Additional Information...................... 2
Prospectus Summary.......................... 3
Risk Factors................................ 4
Dividend Policy............................. 8
Market Price of Common Stock................ 9
Management's Discussion and Analysis........ 9
Business and Plan of Operation.............. 10
Management.................................. 15
Principal Shareholders...................... 16
Certain Transactions........................ 16
Selling Shareholders........................ 18
Description of Securities................... 19
Legal Matters............................... 20
Experts..................................... 20
Financial Statements........................ 21
AQUA CLARA BOTTLING AND
DISTRIBUTION, INC.
4,610,190 SHARES
PROSPECTUS
September __, 1998
26
<PAGE>
AQUA CLARA BOTTLING AND DISTRIBUTION, INC. PART II
Item 24. Indemnification of Directors and Officers.
The Company has adopted provisions in its articles of incorporation
and bylaws that limit the liability of its directors and provide for
indemnification of its directors and officers to the full extent permitted under
the Colorado General Business Act. Under the Company's articles of
incorporation, and as permitted under the Colorado General Business Act,
directors are not liable to the Company or its stockholders for monetary damages
arising from a breach of their fiduciary duty of care as directors. Such
provisions do not, however, relieve liability for breach of a director's duty of
loyalty to the Company or its stockholders, liability for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of law,
liability for transactions in which the director derived as improper personal
benefit or liability for the payment of a dividend in violation of Colorado law.
Further, the provisions do not relieve a director's liability for violation of,
or otherwise relieve the Company or its directors from the necessity of
complying with, federal or state securities laws or affect the availability of
equitable remedies such as injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for indemnification by any director or
officer.
Item 25. Other Expenses of Issuance and Distribution.
Filing fee under the Securities Act of 1933
Printing and engraving(1) $ 1,000.00
Legal Fees(1) $ 12,000.00
Auditing Fees(1) $ 26,000.00
Miscellaneous(1) $ 43.81
TOTAL $ 42,000.00
(1) Estimates
Item 26. Recent Sales of Unregistered Securities.
Aqua Clara Bottling and Distribution, Inc., was incorporated on July
29, 1996 in the State of Colorado and issued 835,000 shares of common stock and
27,500 shares of preferred stock to the following investors for total
consideration of $3,167.50. The preferred stock has since been retired. The
offering was made under Rule 504 as an offering exempt from registration under
the Securities Act of 1933.
1
<PAGE>
<TABLE>
<CAPTION>
NAME SHARES
<S> <C>
Deborah J. Bouer 250
Clark Burch 250
Walter B. Conley 250
Corporate Relations Group, Inc. 16,700
Michael Cruse 250
EDR Financial, Inc. 37,250
Edward D. Hawkins 250
John R. Hawkins 250
Susan Lawrence 250
John McAvoy 192,650
Dan Wey 192,650
David R. Reitsema 250
PRS Consultants, Inc. 16,250
David R. Reitsema Trustee 250
James D. Reitsema 250
Jeremy Reitsema 250
Matthew Reitsema 250
Shanon/Rosenblom Marketing, Inc. 375,000
Michael V. Sicola 250
Linda Sliva 250
Carol Spykstra 250
Don L. Swickard 250
Sharon Swickard 250
Robert R. Turner 250
Total 835,000
</TABLE>
On November 1, 1996, the directors and officers of Aqua Clara resigned
and were replaced by Messrs. McAvoy and Plunkett. On November 23, 1996, Aqua
Clara issued 1,645,250 shares of common stock to Mr. McAvoy in exchange for all
of the outstanding shares of Pocotopaug and issued 44,872 shares to Danny L.
Wey. This offering was made under the exemption offered by Section 4(2).
2
<PAGE>
On March, 1997, the following Pocotopaug bridge investors exchanged
their $323,500 in convertible debt into 796,500 shares of Company common stock
under Rule 504.
<TABLE>
<CAPTION>
NAME SHARES
<S> <C>
Foster Hayes 20,000
Genevieve Carriere- 24,000
Diane Bordner 40,000
Alex Avramis 12,000
Madeline Goudos 160,000
Pierre & Anna Morin 10,000
Larry Plunkett 50,000
Tom and Adele Richoll 20,000
George Kickliter/
Charles McArthur Dairy 120,000
Don Plunkett 10,000
John C. Plunkett* 80,000
Phil Manquen 10,000
Dwight and Deborah Mason 20,000
Bob & Suzanne Carrol 6,000
Mina Morgan 2,500
John O'Donnell 20,000
Bill Smith 2,000
Robert Adams 10,000
Joan and Bernard Herman 20,000
Michael Wiza 20,000
Millennium Investment, Inc. 140,000
796,500
</TABLE>
* Restricted as John C. Plunkett is an officer and director.
3
<PAGE>
In December 1996, the Company issued 259,500 shares to the following
persons for services rendered valued at $25,950.
<TABLE>
<CAPTION>
NAME SHARES
<S> <C>
Kenneth L. Solzer 10,000
Marijo A. Beck 10,000
Cypress Log Homes, Inc. 142,500
Harry Edward Dougherty 17,000
Patricia L. Nolen 45,000
Madeline M. Goudos 10,000
Gregory G. Schultz 25,000
259,500
</TABLE>
From December 27, 1996 to March 1997, the Company issued 1,283,000
shares of common stock in an offering under Rule 504 for $.50 per share to 35
persons.
In December 1996 the Board of Directors agreed to issue to two
consultants, issue to John C. Plunkett and Rand L. Gray, 500,000 and 250,000
shares of common stock under Rule 701 as compensation for services. These
individuals subsequently became officers and directors.
In December, 1997, the Company issued 20,000 restricted shares of
common stock to Olympus Capital for consulting services rendered prior to
September 30, 1997. In December, 1997, the Company issued 75,000 restricted
shares of common stock to Olympus Capital for consulting services rendered
pursuant to a one-year consulting contract dated October 30, 1997. These shares
were offered under the exemption provided by Section 4(2).
In September, 1997, the Company issued 200,000 shares of restricted
common stock to each of Gulf Atlantic Publishing and Arrow Marketing for
advertising services and creative design of marketing materials respectively,
and issued 25,000 shares to each of Robert Guthrie, a director, and Richard
Trnouski for services. These shares were offered under the exemption provided by
Section 4(2).
Gulf Atlantic Publishing and Arrow Marketing purchased these 400,000
shares of $.25 per share pursuant to an option agreement. These shares were
offered under the exemption provided by Section 4(2).
On November 17, 1997 the Company entered into a Lead
Generation/Corporate Relations Agreement with Corporate Relations Group ("CRG")
pursuant to which the Company has paid CRG $400,000 and by which the Company has
agreed to pay CRG an additional $400,000 upon the Company raising its next
tranche of $2,500,000. Additionally, the Company agreed to issue options to CRG
to purchase 250,000 shares of common stock. These shares were offered under the
exemption provided by Section 4(2). This option is exercisable the later of
certain existable dates or when such tranche is raised.
4
<PAGE>
The Company agreed to issue 100,000 restricted shares to CRG, such
shares to be returned should the Company file and cause to be effective a
registration statement for the shares underlying the options within 120 days of
the date of the agreement. CRG was also granted piggyback rights for these
shares, which have been escrowed with the Company's legal counsel.
In December, 1997 the Company issued 2,500 shares of Series A
Convertible Preferred Stock for $2,500,000 in gross proceeds to twenty-two
purchasers in an offering made under Section 4(2). Each purchaser executed a
subscription agreement and consented to the imprinting of a restrictive legend
on the stock certificate. The identity of the purchasers is set forth in the
prospectus under the caption "Selling Shareholders."
Except as to offerings under Rule 504, all of the transactions
referred to above are exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof covering
transactions not involving any public offering or involve no "offer" or "sale."
No underwriter was involved. As a condition precedent to each sale, the
respective purchaser was required to execute an investment letter and consent to
the imprinting of a restrictive legend on each stock certificate received from
the Company.
In July 1998 the Company sold 500,000 shares at a price of $1.00 per
share to each of Thomas G. Vinton and Dennis J. Zweig, payable with promissory
notes. These individuals represented, and the Company believes it resonably
relied on the representation, to be accredited investors' as such term is
defined om Regulation D and a restrictive legend was placed pm tje Share
Certificates. The offering was exempt under Section 4(G) of the Securities Act
of 1933.
Item 27. Exhibits
3. Certificate of Incorporation and Bylaws
3.1. Articles of Incorporation(1)
3.2 Articles of Amendment for Series A Preferred Stock(1)
3.3 Bylaws(1)
5. Opinion of Hand & Hand as to legality of securities being registered.(3)
10. Material Contracts
10.1 Amended Employment Agreement with John McAvoy(1)
10.2 Amended Employment Agreement with John C. Plunkett(2)
10.3 Amended Employment Agreement with Rand L. Gray(2)
10.4 Lead Generation/Corporate Relations Agreement dated
November 17, 1997 with
Corporate Relations Group, Inc.(1)
10.5 Extract of Board Resolutions dated April 3, 1997 and
letter agreement with respect to Plunkett and Gray
consulting agreements(3).
10.6 Installment secured promissary note(3).
5
<PAGE>
16.1 Letter from BDO Seidman(3)
21. Subsidiaries of the small business issuer-Pocotopaug
Investment, a Florida Corporation, is the only subsidiary.
It does business under the same trade name as the
Registrant.
23. Consents of Experts and Counsel
23.1 Consent of Pender Newkirk & Company(4) 23.2 Consent
of Hand & Hand included in Exhibit 5 hereto
24. Powers of Attorney
24.1 Powers of Attorney are included on signature page(1)
(1) Included in original filing.
(2) Included with Amendment Number 1.
(3) Included with Amendment Number 2.
(4) Filed herewith.
All other Exhibits called for by Rule 601 of Regulation S-B are not
applicable to this
filing.
Item 28. Undertakings.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this
registration statement to:
(I) Include any prospectus required by Section
10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts
or events which, individually or
together represent a fundamental
change in the information in the
registration statement;
(iii) Include any material or changed
information the plan of
distribution.
(2) or determining liability under the Securities Act,
treat each post-effective amendment as a new
registration statement of the securities offered, and
the offering of the securities as at that time to be
the initial bona fide offering thereof.
6
<PAGE>
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold
at the end of the offering.
(d) To provide to the underwriter at the Closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as may be required by the underwriter
to permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933
(the "Act") may be permitted to directors, officers and
controlling persons of the
small business issuer pursuant to the foregoing provisions,
or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act
and is, therefore, unenforceable. In the event that a claim
for indemnification
against such liabilities (other than the payment by the small
business issuer in the
successful defense of any action, suit or proceeding) is
asserted by such director,
officer or controlling person in connection with the
securities being registered, the
small business issuer will, unless in the opinion of its
counsel that matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed
in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned small business issuer hereby undertakes that it
will:
(1) For purposes of determining any liability under the
Securities Act that the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be a part of this
registration statement as of the time the Commission
declared it effective.
(2) For the purpose of determining any liability under
the Securities Act, that each post-effective
amendment that contains a form of prospectus as a new
registration statement for the securities offered in
the registration statement, and that offering of the
securities at that time as the initial bona fide
offering of those securities.
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Clearwater, State of Florida on September 15, 1998.
AQUA CLARA BOTTLING AND
DISTRIBUTION, INC.
By: /s/ John S. McAvoy
John S. McAvoy
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 15, 1998.
By: /s/ John S. McAvoy President, CEO and Director
John S. McAvoy (principal executive officer)
By: * Treasurer, CFO and Director
Rand L. Gray (principal accounting and financial
officer)
By: * Secretary, COO and Director
John C. Plunkett
By: *
/s/ John S. McAvoy, attorney in fact
8
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2, and any amendments thereto, to be filed by
Aqua Clara Bottling & Distributing, Inc. of our Auditors' Opinion dated May 27,
1998, except for Note 11 as to which the date is July 22, 1998, accompanying the
Financial Statements of Aqua Clara Bottling & Distributing, Inc. and Subsidiary
as of April 4, 1998, and to the use of our name under the caption "Experts" in
the Prospectus.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
September 18, 1998
