<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 3, 1999
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
FLORIDA EIN 84-1352529
1315 Cleveland Street 33755-5102
Clearwater, Florida
(727) 446-2999
www.aquaclara.com
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<S> <C>
Common Stock par value $0.00 per share National Association of Securities Dealers
</TABLE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $184,952
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices to such stock as of a specified date within 60 days.
$6,585,179 (Based on price of $0.48 on April 3, 1999 and 13,719,123 shares held
by non-affiliates)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Outstanding as of April 3,
1999; 16,160,523 Common Stock and 1,676 Preferred Stock.
Documents incorporated by reference: None
<PAGE> 2
AQUA CLARA BOTTLING & DISTRIBUTION, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K
</TABLE>
Signatures
<PAGE> 3
PART I
Item 1. Description of Business
History
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.
On July 29, 1996, Aqua Clara Bottling and Distribution, Inc. (hereinafter
referred to as "Aqua Clara" or the "Company") was incorporated under the laws
of Colorado for the purpose of raising capital to fund the development of
products for subsequent entry into the bottled water industry.
In December, 1996, the stockholders of Pocotopaug gained control of Aqua Clara
and Aqua Clara acquired Pocotopaug in a business combination accounted for as a
reorganization of Pocotopaug. Pocotopaug became a wholly owned subsidiary of
Aqua Clara through the exchange of 1,690,122 shares of Aqua Clara common stock
for all 1,000,000 shares of the outstanding stock of Pocotopaug. The
accompanying consolidated financial statements have been based on the
assumption that the Companies were combined for all periods presented.
In December, 1997, the Company issued 2,500 shares of convertible cumulative
preferred stock through a private placement memorandum. The Company raised
$2,500,000 and incurred offering costs of $387,512. The Company issued 75,000
shares of common stock as compensation to a promoter of this offering. These
shares were valued at the 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.
During the year ending April 3, 1999, the Company began producing 20-oz.
bottles of oxygenated water packaged in a PET container. The Company's oxygen
enriched bottled water is made by combining super purified water and oxygen.
Through water purification processing the source water is reduced to 1-2 parts
per million of total dissolved solids and then oxygen is introduced through a
unique proprietary process. As a point of reference, the Food and Drug
Administration's (FDA) definition of distilled water is no more than 5 parts
per million of total dissolved solids. The Company's oxygen enriched water
contains approximately 40 parts per million of oxygen. Normal tap water
contains approximately 3 parts per million of dissolved oxygen. As such, the
company's oxygen enriched bottled water contains approximately 1200% more
oxygen.
The Company's principal executive offices are located at 1315 Cleveland St.,
Clearwater, Florida 33755, and its telephone number is (727) 446-2999.
<PAGE> 4
Business Development
The Company's primary focus is 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 are grocery stores, convenience stores,
gas station markets, health spas and vitamin/health food stores.
The Company's market research, undertaken by a non-affiliated research firm,
has indicated that no specific medical claims have to be made to consumers with
regard to its product. According to this market research the public will
readily accept the necessity and benefits of both highly purified water and
oxygen. Oxygen is literally the breath of life; oxygen is a natural energizer
and body purifier. Oxygen is odorless and tasteless, as well as non-carbonated.
As such, the Company's water tastes like a fine premium bottled water - light
and crisp. Oxygen does not produce the unhealthy "jolt" associated with
caffeine products. Rather, it is believed to create a feeling of physical well
being and mental clarity. There 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 flavor its water. After the introduction of
Company's oxygen enriched bottled water product, the introduction of a new
product with natural flavoring 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 product markets 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. 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 package bottled water product will
primarily be sold through retail outlets, including convenience stores, gas
station markets, grocery stores, health food stores, and health spas. However,
secondary distribution will be effected through vending and private labeling.
Neither vending nor private labeling have the attendant costs of direct
retailing, while they do have the benefit of increasing the production volume
and thereby increasing the production margins.
Although the Company will distribute its own product in certain areas,
primarily the Company will sell to qualified third party distributors. These
third party distributors will have the right to distribute to retail outlets in
defined geographic areas. A large number of potential distributors have
contacted the Company regarding potential distribution of its oxygen enriched
bottled water. The Company has entered into one contract for distribution of
its products in the Northeast United States. Additional possible distribution
channels are currently under development.
Water Sources
Under FDA guidelines, bottled water must contain fewer than 500 parts per
million ("ppm") of total dissolved solids. Varying amounts and types of
dissolved solids provide different tastes to water. The Company uses FDA and
International Bottled Water Association approved water sources.
<PAGE> 5
Facilities
The Company currently operates out of a building with approximately 14,000 sq.
ft. under roof with an exposed four-bay loading dock sitting on 2.1 acres in
Clearwater, Florida. Approximately 2,400 sq. ft. is utilized for office
facilities and the rest is used for bottling and warehouse operations. The
remodeling of the building was completed in fiscal year 1999 for approximately
$600,000. At the present time, a dispute over the balance due to pay for the
remodeling is being addressed. The disputed amount is approximately $100,000
(see legal proceedings).
The Company finished installation and startup of a medium-sized bottling
facility during the fiscal year ended April 3, 1999, at a total cost of
approximately $750,000. The bottling line is rated at 160 bottles/min., or,
practically, 1,080 24-bottle cases of 20-oz. bottled water each shift, and is
currently fully operational and running as expected.
Upon delivery to the Company's facilities, the source water is passed through a
number of filtration, ion exchange, and reverse osmosis processes by which it
is reduced to a very pure 1 - 2 parts per million of dissolved solids. Water is
oxygenated using the purest oxygen commercially available in a proprietary
process. The water is then treated with ultraviolet light, which effectively
kills bacteria and other micro-organisms before delivery to the bottling area
where the various products are filled and capped. The filling room is supplied
with pressurized air from high-capacity, high-efficiency particulate filters,
resulting in a clean filling and capping environment.
The manufacturing process is designed to be highly automated. Bottles are
mechanically de-palletized, cleaned, filled and capped. The filled bottles are
automatically coded, labeled, tamper-banded (if applicable), and packed in
cases. After palletizing and stretch-wrapping, the product is either loaded
directly onto a truck for immediate shipment or is stored in the warehouse
facility for future shipment. Most products are shipped within 48 to 72 hours
after production via outside carriers.
The Company maintains exacting internal quality control standards. Each shift's
production is tested in Company laboratory facilities according to FDA and IBWA
standards, and random samples are submitted regularly to an independent
laboratory for confirmation testing.
Employees
The more automated the bottling line, the lower the manpower requirements for
operation. In general, the bottling facility requires approximately four to
five employees per shift.
In addition, the company currently has three management and administrative
staff. This staffing level is anticipated to grow over the next fiscal year in
order to support additional sales and marketing and operational growth.
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
<PAGE> 6
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 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.
Item 2. Description of Property
The information required by this Item is contained in Item 1 above, under the
heading "Facilities."
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings, except as set
forth below.
Civil litigation in the Circuit Court of the Eighteenth Judicial Circuit, in
and for Seminole County, Florida, was filed by Mainstream Construction Group,
Inc., a Florida corporation, Plaintiff vs. Aqua Clara Bottling & Distribution,
Inc., Defendant, Case No. 98-2336-CA-15-B. The complaint is a two-count
complaint for Breach of an Oral Contract and Quantum Merit. The Plaintiff seeks
$236,938 alleging the Company failed to pay for improvements to the
corporation's production and office building. The Company may be liable
<PAGE> 7
for $141,000 of improvements to the property. The dispute appears to be
centered on contested change orders. The matter is pending arbitration.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's Securities Holders during
the fourth quarter of the Company's fiscal year ending April 3, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is eligible to be traded in the over-the-counter
market and quotations are published on the OTC Bulletin Board under the symbol
"AQCB," and in the National Quotation Bureau, Inc. ("NQB") "pink sheets" under
Aqua Clara Bottling & Distribution, Inc. Inclusion on the OTC Bulletin Board
permits price quotations for the Company's shares to be published by such
service.
The following table sets forth the range of high and low bid prices for the
Company's Common Stock for each quarterly period since August 21, 1997. Such
information reflects inter dealer prices without retail mark-up, mark-down or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
September 30, 1997 4.50 1.8437
December 31, 1997 4.0625 2.00
March 31, 1998 3.1875 3.125
June 30, 1998 1.8750 1.8125
October 3, 1998 1.8750 .94
January 2, 1999 .91 .15
April 3, 1999 .48 .08
</TABLE>
As of April 3, 1999, there were approximately 231 record holders of Company
common stock, which figure does not take into account those shareholders whose
certificates are held in the name of broker-dealers. The Company estimates that
in excess of 2,000 shareholders of the Company hold their shares in the name of
broker-dealers.
Dividend Policy
The Company has not declared or paid cash dividends or made distributions in
the past on its common stock, and the Company does not anticipate that it will
pay cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings to finance its
operations.
Recent Sales of Unregistered Securities
During the fiscal year ended April 3, 1999, the Company has not conducted any
sales of unregistered securities.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-KSB.
<PAGE> 8
Results of Operations
The Company's sales commenced in April, 1997, with the introduction of its
5-gallon bottled water service. In the year ended April 4, 1998, the Company
had $135,710 in sales from this business. Revenues were comprised of cooler
rentals and water sales, which terminated in March, 1998. With the proceeds
from its offering of Series A Preferred Stock, the Company entered the PET
bottled water market. The sales for the fiscal year ending April 3, 1999, are
$184,952. The lower than expected sales amount is the result of the Company's
inability to find a major distributor to purchase large quantities of product
until March, 1999. This agreement was reached too late in the year to
significantly affect annual sales figures.
The Company's sales comparisons to previous years will not be an indicator of
any future growth patterns because the Company was still in the development
stage of launching its new product.
The Gross Profit for the fiscal year ended April 3, 1999, was $42,819. The
Selling and General Administrative expenses for the fiscal year were
$1,568,388. Non-recurring expenses included $400,000 for lead generation
corporate/relations contract from the prior year that was completely expensed
in the current year.
Sales of PET bottled water products did not commence until July, 1998. The
Company at that time had no agreements in place with distributors for its
products. While the Company has entered into a distribution agreement with a
significant distributor in the Northeast United States, there can be no
assurances that this distributor will be successful in promoting the product in
its geographic area or that sufficient other distribution can be accomplished
to provide adequate operating revenues from this business.
The Company does not intend to manufacture bottled water products without firm
orders in hand for its products. However, the Company intends to expend costs
over the next twelve months in advertising, marketing and distribution, which
amounts are expected to be expended prior to the receipt of significant
revenues. There can be no assurance as to when, if ever, the Company will
realize significant operating revenues or attain profitability.
Net Operating Losses
The Company has accumulated approximately $2,087,000 of net operating loss
carryforwards as of April 3, 1999, which may be offset against future taxable
income through the year 2011 when the carryforwards begin to expire. The use of
these losses to reduce future income taxes will depend on the generation of
sufficient taxable income prior to the expiration of the net operating loss
carryforwards. Temporary differences giving rise to the deferred tax assets
consist primarily of the deferral and amortization of start-up costs for tax
reporting purposes. Management has established a valuation allowance equal to
the amount of the deferred tax assets due to the uncertainty of the Company's
realization of this benefit.
<TABLE>
<CAPTION>
April 3, 1999
-------------
<S> <C>
Deferred tax assets:
Start-up Costs $ 530,000
Net operating loss carryforwards $ 785,000
----------
Gross deferred tax assets $1,315,000
Valuation allowance $1,315,000
----------
Total deferred tax asset $ 0
</TABLE>
Since inception, substantial changes in 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 that have been limited
because of the change in
<PAGE> 9
ownership as described above, any other net operating losses will expire if not
utilized within 15 years of the year in which they were incurred.
Liquidity and Capital Resources
As of January 2, 1999, the Company had a working capital deficit of
approximately $840,000. At January 2, 1999, the Company's daily operating cash
needs were being supplied by the then Directors of the Company. The Directors
were making secured loans to the Company to fund the Company operations. The
Directors projected the ability to invest enough capital in the Company to keep
the Company open and operational until March, 1999.
On February 11, 1999, a group of the Company's shareholders loaned the Company
$250,000, which was the needed capital to continue operations until May, 1999.
This loan was secured by the assets of the Company and is a demand note.
Subsequent to April 3, 1999, the Company raised $1,075,000 through the issuance
of a Class B Preferred Debenture. The proceeds of this raise were used to
retire the First Mortgage on the plant and real estate and the demand note
described in the above paragraph. The remainder of the raise will be used to
finance continued operation of the Company. It is anticipated that, in
conjunction with anticipated revenue, the current capital is sufficient to
support Company operations until June, 2000.
The Company has no plans or arrangements in place with respect to additional
capital sources at this time. The Company has no lines of credit available to
it at this time. There is no assurance that additional capital will be
available to the Company when or if required.
Although the Company expects to have continued losses in the first quarter of
fiscal year 2000, management believes that the losses will continue to decrease
and a break-even point could be reached in the first or second quarter of this
year. Inflation has not had a significant impact on the Company's results of
operations.
Year 2000
The Company is conducting an ongoing review of its computer systems and those
of its vendors, suppliers and customers to determine compliance with the Year
2000 issue. As of this date, it appears that all systems are in compliance but
there can be no complete assurance of this.
The Company will maintain the ability to conduct internal operations as well as
vendor and customer interactions manually should Year 2000 problems arise. It
is anticipated that current accounting and administrative staff are sufficient
to maintain operations until such problems can be resolved. The Company plans
to continue its ongoing investigations.
Risk Factors and Cautionary Statements
Forward-looking statements in this report are made pursuant to the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: Changing economic conditions, interest rate
trends, continued acceptance of the Company's products in the marketplace,
competitive factors, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.
<PAGE> 10
Item 7. Financial Statements
Attached hereto and filed as part of this 10-KSB are the consolidated financial
statements.
Independent Auditor's Report
Board of Directors
Aqua Clara Bottling & Distribution, Inc. and Subsidiary
Clearwater, Florida
We have audited the accompanying consolidated balance sheet of Aqua Clara
Bottling & Distribution, Inc. and Subsidiary as of April 3, 1999 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit 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 audit provides 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 3, 1999 and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered losses from
operations and has negative working capital. 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
consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Tedder, James, Worden & Associates, P.A.
May 28, 1999, except as to Note 1 which is as of June 25, 1999
Orlando, FL
<PAGE> 11
Independent Auditors' Report
Board of Directors
Aqua Clara Bottling & Distribution, Inc.
and Subsidiary
Largo, Florida
We have audited the accompanying statements of operations, changes in
stockholders' equity, and cash flows of Aqua Clara Bottling & Distribution,
Inc. and Subsidiary for the year ended April 4, 1998. These 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 financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statements of operations, changes in stockholders' equity,
and cash flows referred to above present fairly, in all material respects, the
results of operations of Aqua Clara Bottling & Distribution, Inc. and
Subsidiary and its cash flows for the year ended April 4, 1998 in conformity
with generally accepted accounting principles.
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
May 28, 1998
<PAGE> 12
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Balance Sheet
April 3, 1999
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,960
Accounts receivable, net of allowance for
doubtful accounts of $10,000 48,085
Inventories 62,729
Other current assets 26,586
----------
Total Current Assets 147,360
Property, plant, and equipment, net of accumulated depreciation 1,898,287
Other assets 1,506
----------
$2,047,153
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade 426,483
Accrued expenses 248,348
Current maturities of long-term debt 18,149
Current obligation under capital lease 3,526
Due to stockholders 370,066
Other current liabilities 26,692
----------
Total current liabilities 1,093,264
Long-term debt, less current maturities 261,976
Obligation under capital lease, less current portion 12,065
----------
$1,367,305
Stockholders' equity:
Preferred stock; no par value, 5,000,000 shares
authorized; 1,676 shares issued and outstanding 1,250,284
Common stock; no par value, 50,000,000 shares
authorized; 16,160,523 shares issued and outstanding 3,670,870
Additional paid-in capital 1,417,391
Accumulated deficit (5,658,697)
----------
$ 679,848
$2,047,153
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Operations
For the years ended April 3, 1999 and April 4, 1998
<TABLE>
<CAPTION>
Year Ended
April 3, 1999 April 4, 1999
<S> <C> <C>
Sales $ 184,952 $ 135,710
Cost of sales 142,133 277,146
------------ ------------
Gross profit 42,819 (141,436)
General, administrative, and sales expenses 1,568,388 2,084,099
------------ ------------
Operating loss (1,525,569) (2,225,535)
Other income (expense):
Interest expense (40,601) (38,968)
Interest and other income 5,256 27,589
Gain (loss) on sale of assets (2,467) 33,200
Other expense (3,971) 0
------------ ------------
Net other income (expense) (41,783) 21,821
Net loss before cumulative effect of a change in
accounting principle (1,567,352) (2,203,714)
Cumulative effect of a change in
accounting principle (23,194) 0
------------ ------------
Net loss (1,590,546) (2,203,714)
Dividends on preferred stock:
Amortization of intrinsic value
of conversion rights 0 1,417,391
Unpaid 8.0% cumulative dividends 134,080 59,178
------------ ------------
Net loss applicable to common stock $ (1,724,626) $ (3,680,283)
------------ ------------
Basic loss per share $ 0.19 $ 0.62
------------ ------------
Weighted average common shares outstanding 8,911,295 5,962,307
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Stockholders' Equity
For the years ended April 3, 1999 and April 4, 1999
<TABLE>
<CAPTION>
Additional Accumu- Sub-
Preferred Stock Common Stock Paid-In lated scription
Shares Amount Shares Amount Capital Deficit Receivable
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1997 -- -- 4,884,122 1,032,416 -- (447,046) (50,000)
Collection of subscription
receivable, April 1997 -- -- -- -- -- -- 50,000
Issuance of common stock
for services & $100,000 -- -- 1,312,500 1,501,250 -- -- --
Stock issued through
regulation D offering,
December 1997 2,500 447,597 75,000 247,500 1,417,391 -- --
Amortization of the intrinsic
value of the conversion rights
of the preferred stock -- 1,417,391 -- -- -- (1,417,391) --
Net loss for the year -- -- -- -- -- (2,203,714) --
Balances, April 4, 1998 2,500 1,864,988 6,271,622 2,781,166 1,417,391 (4,068,151) --
Stock issued through
Regulation D offering
August 1998 -- -- 250,000 250,000 -- -- --
Conversion of preferred
stock 824 (614,704) 9,388,901 614,704 -- -- --
Issuance of common stock
exercise of options -- -- 250,000 25,000 -- -- --
Net loss for the year -- -- -- -- -- (1,590,546) --
Balances, April 3, 1999 1,676 1,250,284 16,160,523 3,670,870 1,417,391 (5,658,697) --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Cash Flows
For the years ended April 3, 1999 and April 4, 1998
<TABLE>
<CAPTION>
Year Ended
April 3, 1999 April 4, 1998
<S> <C> <C>
Operating activities:
Net loss $ (1,590,546) $ (2,203,714)
Adjustments to reconcile net loss to net cash
used in operating activities
Allowance for doubtful accounts 10,000 0
Loss (gain) on sales of assets 2,467 (33,200)
Depreciation and amortization 100,444 56,200
Cumulative effect of a change in
accounting principle 23,194 0
Issuance of common stock for services 0 1,326,250
(Increase) decrease in:
Accounts receivable (58,085) 0
Employee advances 17,691 0
Inventories (35,781) (26,948)
Prepaid expenses 400,800 (399,709)
Other current assets (26,586) 0
Increase (decrease) in:
Accounts payable 217,002 51,436
Accrued expenses 229,946 98,209
Other current liabilities 26,692 0
Stockholder salary accrual 118,533 0
------------ ------------
Net cash used in operating activities (564,229) (1,131,476)
Investing activities:
Proceeds from sale of assets 4,000 133,925
Purchase of property, plant and equipment (578,295) (942,892)
Decrease in other assets 15,877 7,930
------------ ------------
Net cash used in investing activities (558,418) (801,037)
Financing activities:
Proceeds from borrowings 0 55,475
Proceeds from due to stockholders 155,822 0
Payments on borrowings (21,833) (53,113)
Net proceeds from issuance of stock 275,000 2,262,488
------------ ------------
Net cash provided by financing activities 408,989 2,264,850
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statement of Cash Flows, Continued
For the years ended April 3, 1999 and April 4, 1998
<TABLE>
<S> <C> <C>
Net increase (decrease) in cash & cash equivalents $ (713,658) $ 332,337
Cash and cash equivalents, beginning of year 723,618 391,281
------------ ------------
Cash and cash equivalents, end of year $ 9,960 $ 723,618
Supplemental disclosures of cash flow information and
noncash investing and financing activities:
Cash paid for interest $ 39,134 $ 38,967
</TABLE>
During the year ended April 3, 1999, 824 shares of preferred stock was
converted into 9,388,901 common shares.
During the year ended April 4, 1998, $1,401,250 of common stock was
issued in exchange for services to be performed.
During the year ended April 4, 1999, the Company incurred a capital
lease obligation of $18,900 when it acquired new equipment.
During the year ended April 3, 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 3, 1998, the Company sold its five-gallon
water business. As a part of the terms of the sale, debt of $149,782
was assumed by the purchaser.
See accompanying notes to consolidated financial statements.
<PAGE> 17
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements
Years Ended April 3, 1999 and April 4, 1998
(1) ORGANIZATION, BACKGROUND, SALE OF ASSETS, AND GOING CONCERN
On August 17, 1995, Pocotopaug Investment, Inc. (hereinafter referred to
as "Pocotopaug") was incorporated under the laws of Florida for the
purpose of raising capital to fund the development of products for
subsequent entry into the bottled water industry.
On July 29, 1996, Aqua Clara Bottling & Distribution, Inc. (hereinafter
referred to as "Aqua Clara" or the "Company") was incorporated under the
laws of Colorado for the purpose of raising capital to fund the
development of products for subsequent entry into the bottled water
industry.
In December 1996, the stockholders of Pocotopaug gained control of Aqua
Clara and Aqua Clara acquired Pocotopaug in a business combination
accounted for as a reorganization of Pocotopaug. Pocotopaug became a
wholly owned subsidiary of Aqua Clara through the exchange of 1,690,122
shares of Aqua Clara's common stock for all 1,000,000 shares of the
outstanding stock of Pocotopaug. The accompanying consolidated financial
statements have been based on the assumption that the Companies were
combined for all periods presented.
In December 1997, the Company issued 2,500 shares of convertible
cumulative preferred stock through a private placement memorandum. The
Company raised $2,500,000 and incurred offering costs of $387,512. The
Company issued 75,000 shares of common stock as compensation to a
promoter of this offering. These 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 entered into a lead
generation/corporate relations agreement that required the Company to
pay $400,000. This was included in prepaid expenses at April 4, 1998 and
was expensed during the year ended April 3, 1999.
During the year ended April 4, 1998, the Company began its five-gallon
water business. In February 1998, the Company sold this portion of the
business. The assets disposed of consist of certain receivables, a
vehicle, and various equipment used in the Company's bottled water
business. The total sales price was approximately $352,394, which
included the assumption of installment notes payable of approximately
$149,782 by the acquiring company. The Company recognized a gain of
approximately $33,000 on this sale.
<PAGE> 18
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(1) ORGANIZATION, BACKGROUND, SALE OF ASSETS, AND GOING CONCERN, CONTINUED
The following is a pro forma statement of the operations (unaudited) as
if the five-gallon water business was not in existence for the year
ended April 4, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 4, 1998
-------------
<S> <C>
General and administrative expenses $ (1,870,524)
Interest expense (38,968)
Other income 27,589
-------------
Net loss $ (1,881,903)
=============
</TABLE>
During the year ended April 4, 1998 the revenues reflected in the
consolidated financial statements are from initial operations of a
five-gallon water business, which was discontinued in March 1998. During
the year ended April 3, 1999 the Company began producing 20oz bottles of
oxygenated water. The Company will need to generate additional sales or
obtain additional financing to fund its operations. These factors,
combined with the fact that the Company has not generated any positive
cash flows from operations, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded assets or amounts and classifications of
liabilities that might be necessary in the event the Company cannot
continue in existence.
In March 1999 the Company entered into an agreement with a major
distributor in the Northeastern United States for distribution of their
20oz. bottles of oxygenated water. Subsequent to April 3, 1999 the
Company raised $1,075,000 through the issuance of a Class B Preferred
Debenture. The proceeds of this debenture were used to retire the
mortgage on the building and the 90-day note to stockholders. The
remainder of the proceeds will be used to fund operations.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
The consolidated financial statements include the accounts of
Aqua Clara Bottling & Distribution, Inc. and its wholly owned
subsidiary, Pocotopaug Investments, Inc. All significant
intercompany accounts and transactions have been eliminated.
The financial statements for previous years reflected the Company
as being in the development stage. The accompanying financial
statements present the Company as no longer being in the
development stage.
(B) ESTIMATES
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.
<PAGE> 19
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(C) CASH EQUIVALENTS
Cash equivalents consist of all highly liquid debt instruments
purchased with a maturity of three months or less.
(D) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market.
(E) INCOME TAXES
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.
(F) PREFERRED STOCK
The Company charges to retained earnings and credits its
additional paid-in capital for the amortization of the intrinsic
value of the conversion feature of its preferred stock in
accordance with the statements issued by the Securities and
Exchange Commission.
(G) COMMON STOCK
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.
(H) PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation
is calculated by the straight-line methods over the estimated
useful lives of the assets. Property under capital leases is
amortized over the shorter of the lease terms or the estimated
economic life of the property.
<PAGE> 20
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain
market assumptions and pertinent information available to
management. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair
values. These financial instruments include cash, investment
securities, accounts payable, and accrued expenses. Fair values
were assumed to approximate carrying values for these financial
instruments since they are short-term in nature 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.
(J) BASIC LOSS PER SHARE
Basic loss per share is based on the weighted average number of
common shares outstanding during each period. The Company
implemented SFAS No. 128 "Earnings Per Share" during the year
ended April 4, 1998.
In computing dilutive earnings per share, the following were
excluded because their effects were antidilutive.
Year ended April 3, 1999 - Preferred shares convertible into
common stock and 2,173,382 contingently issuable shares.
Year ended April 4, 1998 - Preferred shares convertible into
common stock, options on 250,000 shares and 600,000
contingently issuable shares.
(K) ADVERTISING COSTS
Advertising costs are expensed, as incurred and amounted to
$6,376 and $849,176 for the years ended April 3, 1999 and April
4, 1998, respectively.
(L) FISCAL YEAR
The Company's fiscal year ends with the first Saturday in April.
(3) CHANGES IN ACCOUNTING PRINCIPLE
During 1998 the AICPA issued Statement of Position (SOP) 98-5 that
requires companies to write-off start-up expenses in the year incurred
and any previously capitalized expenditures in the year adopted.
The Company adopted SOP 98-5 during the year ended April 3, 1999 and
recorded a $23,194 cumulative effect of a change in accounting principle
as required by the SOP ($0 per share).
<PAGE> 21
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(4) INVENTORIES
Inventories consist of the following at April 3, 1999:
<TABLE>
<S> <C>
Raw materials $ 53,161
Finished goods 9,568
----------
$ 62,729
==========
</TABLE>
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at April 3,
1999:
<TABLE>
<S> <C>
Land $ 90,000
Building 932,311
Machinery and equipment 959,423
Vehicles 22,393
----------
2,004,127
Less accumulated depreciation 105,840
----------
$1,898,287
==========
</TABLE>
For the years ended April 3, 1999 and April 4, 1998, depreciation expense
amounted to $100,444 and $5,048, respectively. The Company has reviewed
its long-lived assets for impairment and has determined that no
adjustments to the carrying value of long-lived assets is required.
(6) DUE TO STOCKHOLDERS'
Due to stockholders' consists of the following at April 3, 1999:
<TABLE>
<S> <C>
Notes payable to stockholders due on demand with
interest accrued at 5% to 10%
$ 174,690
Deferred salaries with interest accrued at 5%
195,376
----------
$ 370,066
==========
</TABLE>
Included in notes payable to stockholders is a 90-day note that permits
the Company to borrow up to $250,000 at 10% interest payable in cash or
stock. The note is secured by Company assets and at April 3, 1999 has a
balance of $120,000. As additional consideration the Company will issue
125,000 common shares valued at $25,000 to the loaning stockholders. The
stock to be issued was reflected as a loan fee and the liability is
included in accrued expenses at April 3, 1999 (See note 11). The
remaining notes and the deferred salaries are secured by company assets.
<PAGE> 22
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(7) LONG-TERM DEBT
Long-term debt at April 3, 1999 consists of:
<TABLE>
<S> <C>
Mortgage payable; interest adjustable annually to prime (8.5% at
April 3, 1999); payable $2,954 per month including interest;
unpaid principal of approximately $238,000 due February 15, 2001;
collateralized by property and plant
$ 265,429
Installment note payable; interest 10.5%; payments $462 per month
including interest; collateralized by a vehicle 14,221
Other note 475
----------
Long-term debt 280,125
Less current installments 18,149
----------
Long-term debt, less current installments $ 261,976
==========
</TABLE>
The following is a schedule by year of the principal payments required
on long-term debt:
<TABLE>
<S> <C>
2000 $ 18,149
2001 256,338
2002 5,232
2003 406
----------
$ 280,125
==========
</TABLE>
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 contingently liable. The principal payments required on these
notes payable and obligations under capital leases are approximately
$50,000 at April 3, 1999.
<PAGE> 23
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(8) LEASE COMMITMENTS
At April 3, 1999 the Company is obligated under a long-term capital
lease for equipment. The following is a schedule by year of future
minimum lease payments under the capital lease.
<TABLE>
<S> <C>
2000 $ 4,439
2001 4,439
2002 4,439
2003 4,439
--------
Total lease payments 17,756
Less amount representing
interest (6.5%) 2,165
--------
Present value of lease
payments 15,591
Less current obligation 3,526
--------
Long-term capital lease
obligation $ 12,065
========
</TABLE>
At April 3, 1999 the Company rented vehicles and equipment under
operating leases. The following is a schedule by year of future minimum
rental payments required under operating leases that have an initial or
remaining noncancellable lease term in excess of one year as of April 3,
1999.
<TABLE>
<S> <C>
2000 $ 5,990
2001 4,998
2002 800
---------
$ 11,788
=========
</TABLE>
Rent expense amounted to $5,990 and $83,269 for the years ended April 3,
1999 and April 4, 1998, respectively.
(9) 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 $2,087,000, which begin to expire in years after 2011.
Temporary differences giving rise to the deferred tax assets consist
primarily of the deferral and amortization of start-up costs for tax
reporting purposes. Management has established a valuation allowance
equal to the amount of the deferred tax assets due to the uncertainty of
the Company's realization of this benefit.
<PAGE> 24
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(9) INCOME TAXES, CONTINUED
The components of deferred tax assets consist of the following at April
3, 1999:
<TABLE>
<S> <C>
Deferred tax assets:
Start up costs $ 530,000
Net operating loss carryforwards 785,000
-----------
Gross deferred tax assets 1,315,000
Valuation allowance 1,315,000
-----------
Total deferred tax assets $ --
===========
</TABLE>
Since inception, substantial changes of ownership of the Company have
occurred. Under federal tax law, these changes 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
beginning in years after 2011.
(10) COMMITMENTS AND CONTINGENCIES
The Company had employment agreements with its officer and former
employees, which provided for a salary accrual. At April 3, 1999, the
Company accrued $178,618 in deferred salaries related to these
agreements. These amounts are included in due to stockholders in the
consolidated financial statements.
(11) STOCK
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 812,500 shares of common stock to
directors, officers and employees for services rendered. These shares
were valued at $.50 per share, the fair market value of the common stock.
During the year ended April 4, 1998, the Company issued 2,500 shares of
Series A convertible preferred stock. These shares are nonvoting, and
the holders are entitled to receive an eight-percent annual dividend and
have a liquidation preference of $1,300 per share. These preferred
shares are
<PAGE> 25
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(11) STOCK, CONTINUED
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 (i) $1.875. The Series A preferred shares contain a
provision that the Company shall increase the conversion rate by five
percent for each of the following occurrences:
1. Failure to file a registration statement under the Securities
Act of 1933 covering the common stock within 30 days of closing
date;
2. Failure of the registration to become effective within 120 days
of closing date; and
3. Failure to issue the common shares within the time limits set
forth in the amended articles of incorporation.
Considering the beneficial conversion feature of the 2,500 Series A
convertible preferred shares, the Company allocated $1,417,391 of the
proceeds raised from the issuance of these shares, which represents the
intrinsic value of the conversion feature to additional paid-in capital.
The amortization of this discount is charged against retained earnings
and increases preferred stock analogous to a dividend distribution based
on the demand conversion.
During the year ended April 3, 1999, 824 shares of the preferred stock
were converted into 9,388,901 common shares. This conversion includes
the 5% increase as the Company failed to register the shares within the
120-day time frame and all unpaid dividends on the preferred stock. The
remaining preferred stock if converted using the aforementioned 65% of
the average of the market price of the common stock, at April 3, 1999,
would convert to a maximum of approximately 7,750,000 common shares
which reflects the 5% additional shares issuable and unpaid dividends on
the preferred stock.
At April 4, 1998 the Company had 250,000 options outstanding at exercise
prices ranging from $3.50 to $7.00. During March 1999 these options were
exercised at $.10 per share and resulted in a total cash consideration
paid to the Company of $25,000. The option price was reduced to reflect
the reduction in the market value of the common stock.
The Company has entered into agreements to issue stock for services and
litigation settlements that occurred during the year ended April 3,
1999. The stock to be issued is 2,173,382 shares at an estimated market
value of $375,126 and a liability for the stock to be issued has been
reflected in the consolidated financial statements.
<PAGE> 26
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Notes to Consolidated Financial Statements - Continued
Years Ended April 3, 1999 and April 4, 1998
(12) LITIGATION
The Company is a party to legal actions. The Company has recorded an
estimated liability of $209,000 in connection with these actions in the
consolidated financial statements.
A former officer of the Company has asserted a claim for 500,000 shares
of the Company common stock in fulfillment of an oral separation
agreement, however, the Company has claims against the former officer
equal to or greater than the value of the stock. The Company does not
believe the former officer will prevail and has not reflected either
claim in the consolidated financial statements.
(13) SUBSEQUENT EVENT
The Company has entered into agreements to issue stock subsequent to
April 3, 1999 for services to be performed during fiscal year 2000. The
stock to be issued is 1,165,000 shares at an estimated market value of
approximately $463,000.
<PAGE> 27
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
As of April 3, 1999, the Company has changed accountants. The Company's new
independent auditors are Tedder, James, Worden and Associates, P.A., 200 East
Robinson Street, Suite 425, Orlando, Florida 32801. This change was reported on
Form 8K dated April 8, 1999, incorporated herein by reference.
Former accountants have not expressed any disagreeing opinions regarding the
Company's treatment of accounting matters. In addition, the Company has no
issues related to the financial opinions of former accountants, and did not
consult current accountants regarding any opinions prior to their engagement.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The following table sets forth the names, ages, and offices held with the
Company by its directors and executive officers, as of April 3, 1999:
<TABLE>
<CAPTION>
Name Position Director Since Age
- ---- -------- -------------- ---
<S> <C> <C> <C>
John C. Plunkett President, Chief 1997 50
Executive Officer
Rand L. Gray Chief Financial Officer 1997 52
Robert F. Guthrie Secretary, Director 1997 64
</TABLE>
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. The Company has
compensated its directors for service on the Board of Directors through the end
of fiscal year 2000 by the awarding of 50,000 shares of registered common stock
to each director. Any non-employee director of the Company is reimbursed for
reasonable expenses incurred for attendance at meetings of the Board of
Directors and any committee of the Board of Directors. The Executive Committee
of the Board of Directors, to the extent permitted under Colorado law,
exercises all of the power and authority of the Board of Directors in the
management of the business and affairs of the Company between meetings of the
Board of Directors. Each executive officer serves at the discretion of the
Board of Directors.
The business experience of each of the persons listed above during the past
five years is as follows:
John C. Plunkett is the President and Chief Executive Officer of the Company.
Mr. Plunkett is a graduate of the U.S. Naval Academy with a degree in Naval
Engineering. He has over 20 years experience in the engineering consulting
industry and 10 years experience in real estate management. Mr. Plunkett has
been associated with the Company as an officer and director since its inception
and became President in 1998.
Rand L. Gray is the Treasurer and Chief Financial Officer of the Company. Mr.
Gray has been an accountant and business manager for over twenty-five years.
Subsequent to April 3, 1999, Mr. Gray is no longer an officer of the Company.
Robert F. Guthrie is the Secretary of the Company. Mr. Guthrie is an attorney
licensed to practice in Florida and has several years of banking experience
prior to retiring from the industry. Mr. Guthrie has been associated with the
Company as a director since May 1997 and became Secretary in December 1998.
<PAGE> 28
Item 10. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred compensation
plan for the benefit of its employees, officers or directors. The Company has
entered into an employment contract with John C. Plunkett. This contract has
provisions for annual renewal.
Beginning with the fiscal year ending April 2, 2000, the Company began
compensating its directors.
Cash Compensation
The following table sets forth all cash compensation paid by the Company to its
officers and directors for services rendered to the Company for 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.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Other Annual Restricted
Principal Position Year Salary Bonus Compensation Stock (Value)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John S. McAvoy 1999 32,000 0 0 0
Former 1998 43,875 0 0 0
President/CEO 1997 0 0 0 0
John C. Plunkett 1999 28,000 0 0
President/CEO 1998 43,875 0 0 250,000
1997 0 0 0 0
Rand L. Gray 1999 30,000 0 0 0
Former CFO 1998 30,000 0 0 125,000
1997 0 0 0 0
Robert F. Guthrie 1999 0 0 0 0
1998 0 0 0 2,500
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, to the best knowledge of the
Company as of April 3, 1999, with respect to each person known by the Company
to own beneficially more than 5% of the Company's outstanding common stock,
each director and all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of Class(1)
of Beneficial Owner Beneficial Ownership
<S> <C> <C>
John S. McAvoy (2) 1,796,400 11.1
1993 Whitney Way
Clearwater, FL 34624
John C. Plunkett 450,000 2.8
1315 Cleveland St.
Clearwater, FL 33755
</TABLE>
<PAGE> 29
Item 11. Security Ownership of Certain Beneficial Owners and Management
Continued
<TABLE>
<S> <C> <C>
Rand L. Gray(3) 170,000 1.1
202 Sandwater Lane
Oldsmar, FL 34677
Robert F. Guthrie 25,000 0.2
1315 Cleveland St.
Clearwater, FL 33755
All Directors and Executive Officers as a 645,000 4.0
Group (3 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 1,445,250 shares held jointly with his spouse, 200,000 shares
held by his spouse, and 32,650 shares held by his son.
(3) Includes 150,000 shares held jointly with his spouse and 20,000 shares
held by the children of Mr. and Mrs. Gray.
Item 12. Certain Relationships and Related Transactions
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 these
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 and Richard Chrzanowski,
directors.
Gulf Atlantic Publishing and Arrow Marketing purchased 400,000 shares at $0.25
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 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>
<PAGE> 30
Item 12. Certain Relationships and Transactions Continued
On March 29, 1999, CRG exercised the above options at a reduced price of $0.10
per share, offered by the Company to raise operating capital.
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 (these shares have been issued). CRG was also granted piggyback
rights for these shares, which were subsequently disbursed when the Company
failed to meet the deadline for registration effectiveness. 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, the Company was required to host a due
diligence trip for up to ten retail brokers who demonstrated an interest in the
Company.
In August, 1998, the Company entered into two subscription agreements to issue
250,000 shares for $250,000. Under the terms of these agreements, the $250,000
was paid and the stock was issued and was included in the registration which
became effective October, 1998.
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.
Mr. John McAvoy has (unsecured) deferred salary of $46,480 as of April 3, 1999.
Mr. John Plunkett's spouse is a significant stockholder in a corporation which
has an oral contract to distribute the Company's products.
Pursuant to the terms of the original Amended Employment Agreements dated
January 20, 1998, on December 15, 1998, the Company reduced the accrued and
unpaid 1997-98 salaries of Messrs. Plunkett ($50,000) and Gray ($39,000) to
promissory notes and secured their interest with the assets of the Company. On
January 21, 1999, the Company reduced the remainder of the accrued and unpaid
1997-98 salaries of Messrs. Plunkett ($8,881) and Gray ($9,948) to promissory
notes subject to the continuing security interests. The promissory notes are
demand instruments at 5% simple interest. A blanket Security Agreement on all
of the Company's assets, a UCC filing on the Company's non-realty assets, and a
mortgage on the Company's realty secures each note. Each note, security
agreement, UCC filing and mortgage includes any future accrued and unpaid
salary.
During October through December, 1998, the Company received emergency loans
from Messrs. Plunkett ($11,839), Gray ($7,436) and Guthrie ($5,000), which
amounts were reduced to promissory notes and secured with the assets of the
Company. During January, 1999, the Company received emergency loans from
Messrs. Plunkett ($533) and Gray ($11,013), which amounts were reduced to
promissory notes on January 21, 1999, subject to the continuing security
interests. The promissory notes are demand instruments at 5% simple interest. A
blanket Security Agreement on all of the Company's assets, a UCC filing on the
Company's non-realty assets, and a mortgage on the Company's realty secures
each note. Each note, security agreement, UCC filing and mortgage includes any
future advancement of additional funds.
Subsequent to April 3, 1999, the Company issued Mr. Guthrie 50,000 shares of
common stock in full payment of the secured note described above. The Company
issued Mr. Plunkett 750,000 shares of common stock in full payment of the
secured notes for accrued salary and moneys loaned the Company, described
above, retiring the notes.
<PAGE> 31
Item 12. Certain Relationships and Related Transactions Continued
The Company on January 21, 1999, reduced the legal fees and costs ($45,480)
owed to its litigation counsel, Mr. Michael C. Berry, and its corporate
counsel, Mr. Michael Geo. F. Davis, to a promissory note. The promissory note
is a demand instrument at 5% simple interest. A mortgage on the Company's
realty secures the note. The note, security agreement, and mortgage include any
future fees or costs advancements.
Subsequent to April 3, 1999, the Company paid the amounts owed Messrs. Berry
and Davis, retiring the note described above.
The Company on February 11, 1999, received a loan from a group of the Company's
shareholders, who are neither officers nor directors. Under the loan terms
$250,000 was made available over ninety days. The 10% interest rate is payable
in cash or stock. A blanket Security Agreement on all of the Company's assets,
a UCC filing on the Company's non-realty assets, and a mortgage on the
Company's realty secures the note. The note, security agreement, UCC filing and
mortgage include any future advancements of additional funds. Messrs. Plunkett,
Gray, Guthrie and Berry/Davis subordinated their mortgages, where filed, to the
mortgage of the loaning shareholders.
Subsequent to April 3, 1999, the Company on June 25, 1999, paid off the loan
described above, retiring the note.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
<S> <C>
*3.1 Articles of Incorporation and all amendments thereto
*3.2 By-Laws
21.1 Subsidiaries
27 Financial Data Schedules
</TABLE>
* Previously filed as Exhibit to Form SB-2
(b) The Company did not file any reports on Form 8-K for the
three month period ended April 3, 1999.
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 2, 1999 AQUA CLARA BOTTLING & DISTRIBUTION, INC.
By: /s/ John C. Plunkett
-----------------------------------
John C. Plunkett
President and duly
authorized Officer
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF AQUA CLARA BOTTLING & DISTRIBUTION, INC.
The following is a subsidiary of Aqua Clara Bottling & Distribution, Inc., a
Colorado corporation:
1. Pocotopaug Investments, Inc., a Florida corporation, 100% owned
by Aqua Clara Bottling & Distribution, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-START> APR-05-1998
<PERIOD-END> APR-03-1999
<CASH> 9,960
<SECURITIES> 0
<RECEIVABLES> 48,085
<ALLOWANCES> 0
<INVENTORY> 62,729
<CURRENT-ASSETS> 147,360
<PP&E> 1,899,793
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,047,153
<CURRENT-LIABILITIES> 1,093,264
<BONDS> 274,041
0
1,250,284
<COMMON> 3,670,870
<OTHER-SE> (4,241,306)
<TOTAL-LIABILITY-AND-EQUITY> 2,047,153
<SALES> 184,952
<TOTAL-REVENUES> 184,952
<CGS> 142,133
<TOTAL-COSTS> 142,133
<OTHER-EXPENSES> 1,568,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (40,601)
<INCOME-PRETAX> (1,590,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,590,546)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
