As filed with the Securities and Exchange Commission on August 5, 1998
Registration No. 333-44315
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
(Amendment No. 2)
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
(714) 489-2400
Facsimile (714) 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:[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
-
<TABLE>
<CAPTION>
-
-
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 $1.78 $ 4,107,688.20 $ 1,211.77
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 shareholder (9)............. 1,000,000 $1.75 $ 1,750,000
Common Stock issuable upon
exercise of options................ 100,000 $1.75 $ 175,000 $ 51.03
Total(10).............................. 4,610,190 $ 8,830,501.30 $ 3,524.07
</TABLE>
(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
6, 1998 of $1.78, 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 100,000 shares already issued and outstanding.
(5) Includes 50,000 shares issuable upon exercise of options at $3.50 per share.
(6) Includes 50,000 shares issuable upon exercise of options at $4.20 per share.
(7) Includes 50,000 shares issuable upon exercise of options at $4.70 per share.
(8) Includes 50,000 shares issuable upon exercise of options at $5.60 per share.
(9) Includes 50,000 shares issuable upon exercise of options at $7.00 per share.
(10)Include 1,000,000 shares offered by selling shareholder.
The maxium offering price per share is based upon the closing sale price of the
Common stock of $1.75 per share on July 23, 1998.
(11) 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).
(12) $1,718.78 previously paid; $1,237.41 paid with amendment 1; and $567.88
paid included.
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.
<PAGE>
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") are being offered by the selling
stockholders (the "Selling Shareholders") and include 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 1,952,500 shares currently
outstanding. 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 July 28, 1998, the last sale price of the Common Stock as
reported on the Electronic Bulletin Board was $1.63 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.
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 August __, 1998
1
<PAGE>
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.
2
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
Securities Offered:.............................. 4,610,190 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:..... 6,271,622(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 April 4, 1998.
3
<PAGE>
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 March 31, 1998, the Company had working capital of approximately
$830,000. 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. The Company requires significant
capital for the expansion of its operations. The Company believes that the net
proceeds from this Preferred Stock offering should be sufficient to fund its
operations until at least until the end of calendar 1998. 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
<PAGE>
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 Officer
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
<PAGE>
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 -- Preferred
Stock."
6
<PAGE>
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 2,755,272 shares of Common
Stock (49% 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 (40,070,688) 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 July 28, 1998 the closing bid
price as reported by the Electronic Bulletin Board was $1.63.
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.
Quarter Ended High Low
September 30, 1997 4.50 1.8437
December 31, 1997 4.0625 2.00
March 31, 1998 3.125 3.1875
June 30, 1998 1.8125 1.8750
As of June 30, 1998, there were approximately 190 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. In the 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 to enter
the PET bottled water market.
General, administrative and sales expenses in the year ended April 4,
1998 increased to $1,784,099, approximately nine times the level of such
expenses in the year ended March 31, 1997. Such expenses in year ended April 4,
1998 include $488,700 for consulting services paid in stock, and $75,000 and
$57,000 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.
It is anticipated that sales of PET products did not commence until
June 1998. The Company has no 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 $1,570,524 in general and
administrative expenses and $1,581,903 in net losses in fiscal 1998, compared to
$1,784,099 and $3,380,283 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 expand approximately $300,000
over the next twelve months in advertising, marketing and distribution costs,
which amounts are expected to be expended prior to the
9
<PAGE>
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 March 31, 1998, the Company had working capital of approximately
$826,329, 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. Management believes that the cash
on hand, together with cash generated from operations, will be sufficient to
meet the Company's cash requirements until at least December 31, 1998. 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 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 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
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.
10
<PAGE>
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%).
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.
11
<PAGE>
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 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
12
<PAGE>
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.
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.
13
<PAGE>
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
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
14
<PAGE>
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
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
15
<PAGE>
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 25,000 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 50,000 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 and Gray. 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 29.3% 18.5%
1315 Clearwater Street
Clearwater, Florida 33755
John C. Plunkett 580,000 9.2% 5.8%
1315 Clearwater Street
Clearwater, Florida 33755
Rand L. Gray(2) 250,000 3.8% 2.5%
1315 Clearwater Street
Clearwater, Florida 33755
Robert Guthrie 25,000 .4% .3%
1315 Clearwater Street
Clearwater, Florida 33755
Corporate Relations Group, Inc.(3) 350,000 5.4% 3.5%
1801 Lee Road, Suite 301
Winter Park, Florida 32709
Thomas G. Vinton 500,000 5.0%
3558 Mill Road
Gainsville, Ga. 30504
Dennis J. Zweig 500,000 5.0%
7560 Bridgegate Court
Atlanta, Ga. 30350
All Directors and Executive 2,692,900 48.1% 40.6%
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 shares
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 nine months ended
December 31, 1997. 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 1,952,500 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.
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 4.3%
Barry Seidman 500 461,538 6.9%
Arnold Zousmer 500 461,538 6.9%
James W. Spratt II(1) 25 23,077 *
Hassan Abdul SA(2) 250 230,769 3.6%
C.A. Opportunidad SA(2) 250 230,769 3.6%
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 1.1%
Frederic A. Lenz 75 69,231 1.1%
Tom Richardson 15 13,846 *
Charles Kerr 15 13,846 *
Passy Holding 150 138,401 2.2%
James Skalko 200 184,615 2.9%
Ed Leinster 100 92,308 1.4%
Corporate Relations Group, Inc.(4) 350,000 5.9%
Thomas G. Vinton(8) 500,000 *
Dennis J. Zweig(8) 500,000 *
Edward Foster 5,000 *
Richard Foster 2,500 *
David M. Smith(7) 100,000 *
Jack C. Plunkett(5) 500,000 7.4%
Rand L. Gray(6) 250,000 3.8%
TOTAL 2,500 4,610,190 36.7%
</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 issuable upon excerise of options.
(8) Mr. Vinton's and Mr. Zweig's issuable upon purchase per agreement.
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 6,271,622
shares were outstanding as of April 4, 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. 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 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 attached to the terms of any series of preferred stock may
also result in dilution of the net income per share and the
23
<PAGE>
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
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.
24
<PAGE>
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)
Years ended April 4, 1998 and March 31, 1997
and Period August 17, 1995 (Date of
Inception)
Through April 4, 1998
<TABLE>
<CAPTION>
Contents
<S> <C>
Independent Auditors' Report on Consolidated Financial Statements F-2
Consolidated Financial Statements:
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-18
</TABLE>
<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 and for the period August 17, 1995 (date of inception) through
April 4, 1998. 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 and for the period August 17, 1995 (date of inception) through April 4,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has been in the development stage since its inception on
August 12, 1995. Realization of a major portion of the assets is dependent on
the Company's ability to meet 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 plan regarding these
matters are also described in Note 1 to the financial statements. The 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
F-2
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheet
April 4, 1998
Assets
Current assets:
<S> <C>
Cash and cash equivilants $ 723,618
Employee advance 17,691
Inventory 26,948
Prepaid assets 400,800
Total current assets $ 1,169,057
Property, plant, and equipment, net of accumulated
depreciation 1,408,002
Other assets:
Organizational costs, net of accumulated amortization 23,194
Deposits and other assets 17,383
Total other assets 40,577
$ 2,617,636
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable, trade $ 209,481
Accrued expenses 99,112
Note payable and current maturities of long-term debt 34,135
Total current liabilities 342,728
Long-term debt, less current maturities 279,514
Stockholders' equity:
Preferred stock; no par value; 5,000,000 shares
authorized; 2,500 shares issued and outstanding 1,864,988
Common stock; no par value; 50,000,000 shares
authorized; 6,271,622 shares issued
and outstanding at 2,367,366
Additional paid-in capital 1,417,391
Deficit accumulated during development stage (3,654,351)
Total stockholders' equity 1,995,394
$ 2,617,636
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Operations
Period August 17,
Year Ended 1995 (Date of
April 4, March 31, Inception) through
1998 1997 April 4, 1998
<S> <C> <C>
Sales $ 135,710 $ 135,710
Cost of Sales 277,146 277,146
Gross profit (141,436) (141,436)
General, administrative, and sales
expenses 1,784,099 $ 202,185 2,057,929
Operating loss (1,925,535) (202,185) (2,199,365)
Interest expense (38,968) (50,542) (98,384)
Interest and other income 27,589 27,589
Gain on sale of assets 33,200 33,200
Net loss (1,903,714) (252,727) (2,236,960)
Dividends on preferred stock:
Amortization of intrinsic value
of conversion rights 1,417,391 1,417,391
Unpaid 8.0% cumulative
dividend 59,178 59,178
Net loss applicable to common stock $ (3,380,283) $ (252,727) $ (3,713,529)
Net loss per common share $ (.57) $ (.08) $ (.92)
Weighted average common shares
outstanding 5,962,307 3,034,506 4,031,918
</TABLE>
Read independent auditors' report. The accompanying
notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
Years Ended April 4, 1998 and March 31, 1997
and Period August 17, 1995 (Date of Inception) through
April 4, 1998
Deficit
Accumulated
Additional During
Common Stock Preferred 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 1,029,500 100,950
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 (252,727)
Balance,
March 31, 1997 5,634,122 993,616 0 (333,246) (50,000)
Collection of subscription receivable,
April 1997 50,000
Issuance of common stock for
services and $100,000 562,500 1,126,250
Stock issued through Regulation
D offering, December 1997 75,000 247,500 2,500 $ 447,597 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 (1,903,714)
Balance, April 4, 1998 6,271,622 $ 2,367,366 2,500 $ 1,864,988 $ 1,417,391 $(3,654,351) $0
</TABLE>
Read independent auditors' report. The
accompanying notes are an integral part of
the consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Period August 17,
Year Ended 1995 (Date of
April 4, March 31, Inception) through
1998 1997 April 4, 1998
Operating Activities
<S> <C> <C> <C>
Net loss $(1,903,714) $(252,727) $(2,236,960)
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 56,200
Issuance of common stock for services 1,026,250 100,950 1,147,450
Increase in:
Prepaid assets (399,709) 2,427 (397,282)
Inventory (26,948) (26,948)
Increase (decrease) in:
Accounts payable 51,436 4,917 56,353
Accrued expenses 98,209 (5,467) 99,112
Total adjustments 772,238 102,827 901,685
Net cash and cash equivalents used by
operating activities (1,131,476) (149,900) (1,335,275)
Investing activities
Proceeds from sale of assets 133,925 133,925
Purchase of investments (51,004)
Proceeds from sale of investment 50,004 50,004
Purchase of property, plant and equipment (942,892) (43,978) (1,096,369)
Decrease (increase) in other assets 7,930 (65,977) (65,186)
Net cash and cash equivalents
used by investing activities (801,037) (59,951) (1,028,630)
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) (64,338)
Net proceeds from issuance of stock 2,262,488 475,148 2,757,886
Net cash and cash equivalents provided by
financing activities 2,264,850 600,752 3,087,523
Net increase in cash and cash equivalents 332,337 390,901 723,618
Cash and cash equivalents, beginning of period 391,281 380 0
Cash and cash equivalents, end of period $ 723,618 $ 391,281 $ 723,618
Supplemental disclosures of cash flow
information and noncash investing and
financing activities
Cash paid for interest $ 38,967 $ 56,010 $ 98,384
</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 ended 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 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, $1,026,250 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.
Read independent auditors' report. The
accompanying notes are an integral part of
the consolidated financial statements.
F-6
<PAGE>
Aqua Clara Bottling & Distribution, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
1. Organization, Background and Subsequent Event
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
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 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.
The following is a pro forma statement of the operations (unaudited) as
if the five-gallon water business was not in existence for all periods
presented:
<TABLE>
<CAPTION>
Period August 17,
Year Ended 1995 (Date of
April 4, March 31, Inception) through
1998 1997 April 4, 1998
General and administrative
<S> <C> <C> <C>
expenses $ (1,570,524) $ (202,185) $ (1,844,354)
Interest expense (38,968) (50,542) (98,384)
Other income 27,589 27,589
Net loss $ (1,581,903) $ (252,727) $ (1,915,149)
</TABLE>
Read independent auditors' report.
F-7
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 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 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 15 years.
Shares of common stock issued for other than cash have been assigned
amounts equivalent to the estimated fair value of the service received
until the time the Company's stock began trading. At that time, the
Company valued the transactions based on quoted prices. The Company
records shares as outstanding at the time the Company becomes
contractually obligated to issue shares.
Property, plant, and equipment are recorded at cost. Depreciation is
calculated by the 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
depreciation has been taken as of March 31, 1997 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
underling common stock on the grant date and, therefore, there are no
compensation costs included in the accompanying 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
Read independent auditor's report.
F-8
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
2. Significant Accounting Policies (continued)
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 retain 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.
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 period ended April 4, 1998
and the year ended March 31, 1997, respectively.
The Company changed its fiscal year to the first Saturday in April
beginning with the fiscal year ended April 4, 1998.
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.
4. Property, Plant, and Equipment
Property, plant, and equipment consist of the following at April 4,
1998:
Land $ 90,000
Building (not yet placed in service) 528,707
Building improvements in process 757,530
Machinery and equipment 6,421
Vehicles 30,392
1,413,050
Less accumulated depreciation 5,048
$ 1,408,002
Read independent auditors' report.
F-9
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
5. Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
Notes payable and long-term debt at April 4, 1998 consist of:
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>
collateralized by property and plant $ 277,409
Stockholder notes payable; 6.0%; due on
demand; unsecured 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
313,649
Less amounts currently due 34,135
$ 279,514
</TABLE>
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):
1999 $ 34,135
==============
20 $ 18,284
==============
2001 $ 256,512
==============
2002 $ 4,718
==============
During 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 liable. The principal payments required on these notes
payable and obligations under capital leases are $149,782 at April 4,
1998.
Read independent auditors' report.
F-10
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
6. Lease Commitments
During the years ended April 4, 1998 and March 31, 1997, the Company
rented 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 April 4, 1998
1999 $ 31,404
2000 11,592
2001 9,152
2002 800
$ 52,948
Rent expense amounted to approximately $83,269, $5,000, and $88,269 for
the years ended April 4, 1998 and March 31, 1997 and the period August
17, 1995 (date of inception) through April 4, 1998, respectively.
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 $310,000, 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 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 at April
4, 1998:
Deferred tax assets:
Start up costs $ 663,000
Net operating loss carryforwards 120,000
Gross deferred tax assets 783,000
Valuation allowance 783,000
Total deferred tax assets $ 0
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 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 offices 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, the Company accrued $80,710 in
deferred salaries related to these agreements.
F-11
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
8. Commitments and Contingencies (continued)
During the period 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 will be
expensed at the time services are received.
9. Stock
In early December 1996, the Company committed to issue 750,000 shares
to two of its officers for services rendered. Theses shares were valued
at $.10 per share, management's estimate of the fair market value of
the stock at that time. In addition, during December 1996, the Company
issued 259,500 shares to individuals for consulting services performed.
These shares were also valued at $.10 per share
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. 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.
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:
Number
Month of Shares Amount
April 1997 62,500 $ 31,250
September 1997 (including
$100,000 received) 400,000 920,000
March 1998 100,000 175,000
562,500 $ 1,126,250
During the period 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:
Read independent auditors' report.
F-12
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
9. Stock (Continued)
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. The maximum amount of these shares increased 5% 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 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.
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 the later of
50,000 annually over the next five years or upon the Company's raising
its next tranche of $2,500,000.
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 to April
4, 1998:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
<S> > <C>
Outstanding at August 17, 1995 0
Granted during the period ended
April 4, 1998 650,000 $ 2.08
=========
Exercised 400,000 $ .25
------- =========
Outstanding at April 4, 1998 250,000 $ 5.00
=========== =========
</TABLE>
Read independent auditors' report.
F-13
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended April 4, 1998 and March
31, 1997 and Period August 17, 1995 (Date of
Inception) through April 4, 1998
10. Stock Options (continued)
The following is a summary of options outstanding at April 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>
The exercise date of the above options is the later 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:
Risk-free interest rate 5.79%
Expected years until exercise 3
11. Subsequent Event
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 30, 1998 or 30 days subsequent to the
effective date of the Company's registration statement filed with the
SEC.
Read independent auditors' report.
F-14
<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
August __, 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 ofIssuance 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."
In July 1998 the Company sold a total of 1,000,000 shares at a price
of $1.00 per share to 2 accredited persons payable with promissory notes.
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.
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(3)
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) 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 August 2, 1998.
AQUA CLARA BOTTLING AND
DISTRIBUTION, INC.
By: /s/ John S. McAvoy
John S. McAvoy
President
The undersigned officer and/or director of Aqua Clara Bottling and
Distribution, a Colorado corporation (the "Corporation"), hereby constitutes and
appoints John S. McAvoy and Rand L. Gray, and each of them, with full power of
substitution and resubstitution, as attorney to sign for the undersigned in any
and all capacities this Registration Statement and any and all amendments
thereto, and any and all applications or other documents to be filed pertaining
to this Registration Statement with the Securities and Exchange Commission or
with any states or other jurisdictions in which registration is necessary to
provide for notice or sale of all or part of the securities to be registered
pursuant to this Registration Statement and with full power and authority to do
and perform any and all acts and things whatsoever required and necessary to be
done in the premises, as fully to all intents and purposes as the undersigned
could do if personally present. The undersigned hereby ratifies and confirms all
that said attorney-in-fact and agent, or any of his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof and incorporate such
changes as any of the said attorneys-in-fact deems appropriate.
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 August 2, 1998.
By: /s/ John S. McAvoy President, CEO and Director
John S. McAvoy (principal executive officer)
By: /s/Rand L. Gray Treasurer, CFO and Director
Rand L. Gray (principal accounting and financial officer)
By: /s/John C. Plunkett Secretary, COO and Director
John C. Plunkett
8
<PAGE>
August 3, 1998
Aqua Clara Bottling & Distribution, Inc.
10720 72nd Street, North, Suite 305
Largo, Florida 33777
Re: Registration Statement on
Form SB-2, File No. 333-44315 (the "Registration Statement")
Gentlemen:
You have requested our opinion as to the legality of the issuance by
you (the "Corporation") of an estimated 4,610,190 shares of common stock
("Shares") including 1,952,500 Shares currently outstanding; an estimated
2,307,690 Shares issuable upon conversion of the Series A Convertible Preferred
Stock ("Series A Stock"), and options to purchase 350,000 shares of common
stock, all as further described in the Registration Statement in the form to be
filed with the U.S. Securities and Exchange Commission.
As your counsel, we have reviewed and examined:
1. The Articles of Incorporation of the Corporation;
2. The Bylaws of the Corporation;
3. A copy of certain resolutions of the corporation;
4. The Registration Statement;
5. The Designation filed with the Colorado Secretary of State
describing the terms of the Series A Stock;
6. Corporate Relations/Lead Generation Agreement between the
Company and
Corporate Relations Group; and
7. Secured Installment Promissory Notes (the "Notes").
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
August 3, 1998
Page -2-
In giving our opinion, we have assumed without investigation the
authenticity of any document or instrument submitted us as an original, the
conformity to the original of any document or instrument submitted to us as a
copy, and the genuineness of all signatures on such originals or copies.
Based upon the foregoing, we are of the opinion that the Shares to be
offered pursuant to the Registration Statement, if sold as described in the
Registration Statement (and as to shares issuable upon warrants as options if
the warrants or options are exercised in accordance with their terms), will be
legally issued, fully paid and nonassessable, provided that no less than par
value is paid for any Shares, and provided the Notes are fully paid.
No opinion is expressed herein as to the application of state securities
or Blue Sky laws.
This opinion is furnished by us as counsel to you and is solely for your
benefit. Neither this opinion nor copies hereof may be relied upon by, delivered
to, or quoted in whole or in part to any governmental agency or other person
without our prior written consent.
Notwithstanding the above, we consent to the reference to our firm name
in the Prospectus filed as a part of the Registration Statement and the use of
our opinion in the Registration Statement. In giving these consents, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
HAND & HAND
<PAGE>
1/4/97
John S. McAvoy
President
Aqua Clara Bottling & Distribution Co.
17755 US Hwy. 19N
Clearwater, FL 34624
Subj: Invoice for Services
Dear John:
This letter represents my invoice for services provided to Aqua Clara in the
areas of: Information Management; Communications Planning and Systems
Evaluation; and Project Management.
Period of Service Amount
June, 1996 through December, 1996 $50,000.00
I believe both the products delivered and the charges are as agreed upon. As
discussed with you on several occasions, I am very interested in receiving some
or all of the above fees in Aqua Clara common stock at the same price and terms
as other services rendered shareholders. Please feel free to call me to discuss
whether this option is available. I look forward to a continuing professional
relationship with you and Aqua Clara.
Sincerely,
John C. Plunkett
Exhibit to P. 11
<PAGE>
RAND L. GRAY
202 Sandwater Lane
Oldsmar, FL 34677
(813) 854-3655
January 3, 1997
FOR SERVICES RELATED TO AQUA-CLARA BOTTLING & DISTRIBUTION FROM SEPTEMBER 1996
THUR DECEMBER 1996.
$25,000.00 OR 250,000 SHARES OF STOCK
JOHN THANK YOU FOR YOU BUSINESS IF I CAN BE OF FURTHER SERVICE PLEASE
CONTACT ME.
RAND L. GRAY
Exhibit to P. 11
<PAGE>
MINUTES - AQUA CLARA BOARD MEETING
The directors met this 27th day of December, 1996. In attendance wer
John McAvoy
and John C. Plunkett. The Directors each waived notice of this meeting of th
Board of
Directors.
The Board discussed compensation owed to John C. Plunkett and Rand L.
Gray for their consulting services. Mr. Gray and Mr. Plunkett had been assisting
the Company as consultants for a number of months. The Company had previously
solicited their assistance as consultants and agreed to pay them in Aqua Clara
common stock. The exact amount of the common stock to be awarded had not been
agreed upon. Rather, it was agreed that both would be compensated with common
stock in amounts equal to their contributions. In light of the contributions
made by both of these men, and their financial sacrifices in the form of lost
income from other sources, the amounts of shares to be awarded were discussed.
After some discussion, the Directors then adopted the following Resolution:
RESOLVED, that John C. Plunkett would be issued 500,000 shares of Aqua
Clara common stock and Rand L. Gray would be issued 250,000 shares of Aqua Clara
common stock is satisfaction for their services rendered on behalf of the
Company as consultants.
Pursuant to the above resolution, the Board directed John S. McAvoy to
notify Mr. Gray
and Mr. Plunkett of the awards and requested they submit invoices for their
services rendered to
the consultants.
There being no further business before the Board, and upon a motion
duly made, the meeting was adjourned.
Dated: December 27, 1996 John S. McAvoy
President, Aqua Clara Bottling &
Distribution, Inc.
Exhibit to P. 11
<PAGE>
MINUTES - AQUA CLARA BOARD MEETING
The directors met this 3rd day of April, 1997. In attendance were John
McAvoy and Jack Plunkett. The Directors each waived notice of this meeting of
the Board of Directors.
Discussion was held with regard to the retention of Rand L. Gray, a
local CPA with extensive corporate business background, as an employee. It was
noted that Mr. Gray had been serving the Company as a consultant. It was
discussed that if Mr. Gray did want to accept employment, that the consulting
relationship continue.
Discussion was held with regard to the amount of shares to be awarded
Mr. Gray for his consulting services pursuant to the December, 1996 consultancy
arrangement.
Upon motion duly made, seconded, and unanimously approved, it was, then,
RESOLVED: Two hundred fifty thousand (250,000) shares of Aqua Clara
common stock will be awarded to Rand L. Gray in exchange for his having
provided consulting services. It was agreed that said shares would be
issued to Mr. Gray at the Company's earliest opportunity in conformance
with Mr. Gray's directions.
Discussions were then held with regard to shares owed to Director Plunkett
pursuant to his pre-employment consultancy services beginning in August, 1996
and running through the present. It was noted that the authorization of said
shares were made by the Board in December, 1996. The amount of the shares
promised to Mr. Plunkett said services were five hundred thousand (500,000)
shares of Aqua Clara common stock.
Upon motion duly made, seconded, and unanimously approved, it was, then,
RESOLVED: Five hundred thousand shares of Aqua Clara common stock
be awarded to
Mr. John C. Plunkett in exchange for having providing valuable consultancy
services to the
Company. It was agreed that said shares would be issued in Mr. Plunkett's name
or others
according to his direction.
There being no further business before the Board, and upon a motion
duly made, seconded and carried, the meeting was adjourned.
Dated: April 3, 1997
JOHN S. McAVOY, President
Exhibit to P. 11
<PAGE>
Exhibit to P. 11
<PAGE>
SECURED INSTALLMENT PROMISSORY NOTE
$500,000 July 21, 1998
FOR VALUE RECEIVED, the undersigned _____________[One note was executed
by Tom Vinton and the other by Dennis Zweig]("Maker") promises to pay to the
order of Aqua Clara Bottling and Distribution, Inc. ("Lender"), at its principal
office, or at such other place as may be designated in writing by the holders of
this Promissory Note ("Note"), the principal sum of FIVE HUNDRED THOUSAND AND
00/100 DOLLARS ($500,000.00) (the "Principal Sum"). The unpaid Principal Sum
shall bear interest from the date hereof until paid at a rate equal to 6% per
annum.
The unpaid Principal Sum and all accrued but unpaid interest thereon
shall all be due and payable as follows:
Date Principal Sum
August 1, 1998 125,000
September 1, 1998 125,000
October 1, 1998 125,000
November 1, 1998 125,000
In the event that Aqua Clara is not "Effective" - the SEC has not
approved Aqua Clara's SB-2 filing - then the above schedule of payments shall be
modified so that the second payment, now due on September 1, 1998, shall be due
30 days after Aqua Clara is effective. The third and fourth installments will be
due 30 and 60 days, respectively, after the second installment.
All accrued interest shall be due and payable on November 1, 1998.
All payments to be made under this Note shall be payable in lawful
money of the United States of America which shall be legal tender for public and
private debts at the time of payment.
In the event that an action is instituted to collect this Note, or
any portion thereof, Maker promises to pay all costs of collection, including
but not limited to reasonable attorneys' fees, court costs, and such other sums
as the court may establish.
In the event of a default under this Note when due, then the holder
of this Note, at its election, may declare the entire unpaid Principal Sum and
all accrued but unpaid interest thereon immediately due and payable.
The Principal Sum and all accrued and unpaid interest thereon is
secured by a pledge of 250,000 shares of common stock of the Lender ("Shares").
Every provision hereof is intended to be several. If any provision
of this Note is
<PAGE>
determined, by a court of competent jurisdiction to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the other provisions hereof, which shall remain binding and enforceable.
This Note is made in the State of Florida and it is mutually agreed
that Florida law shall apply to the interpretation of the terms and conditions
of this Note.
All agreements between the holder of this Note and Maker are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of deferment or acceleration of the maturity of this Note or otherwise,
shall the rate of interest hereunder exceed the maximum permissible under
applicable law with respect to the holder. If, from any circumstances
whatsoever, the rate of interest resulting from the payment and/or accrual of
any amount of interest hereunder, at any time that payment of interest is due
and/or at any time that interest is accrued, shall exceed the limits prescribed
by such applicable law, then the payment and/or accrual of such interest shall
be reduced to that resulting from the maximum rate of interest permissible under
such applicable law. This provision shall never be superseded or waived.
The makers, endorsers, and/or guarantors of this Note do hereby
severally waive presentment, demand, protest and notices of protest, demand,
dishonor and nonpayment.
IN WITNESS WHEREOF, this instrument is executed as of the date first
hereinabove set forth.
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
By:
Name:
Its:
<PAGE>
June 24, 1998
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
Gentlemen:
We have been furnished with a copy of the response to Item 23 of Form SB-2 for
the event that occurred on December 29, 1997, to be filed by our former client.
Aqua Clara Bottling and Distribution, Inc. We agree with the statements made in
response to that Item insofar as they relate to our Firm.
Very truly yours,
BDO Seidman, LLP
g:\data\019100\doc\sec.doc
<PAGE>
