UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
FLORIDA EIN 84-1352529
1315 Cleveland Street
Clearwater, Florida 33755-5102
(727) 446-2999
www.aquaclara.com
Indicate by check mark whether the Registrant (1) has filed all report required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The registrant had 30,760,952 shares of common stock, no par value,
outstanding as of October 2, 1999.
<PAGE>
Part I:
Financial Information
(Item 1)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
OCTOBER 2, 1999 OCTOBER 4, 1998
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 94,222 $ 33,278
Accounts receivable 23,090 35,540
Employee Advances 0 2,557
Inventories 122,533 64,000
Prepaid expenses 406,050 8,086
Other current assets 9,195 0
----------- -----------
Total Current Assets 655,090 143,461
Property, plant, & equipment, net of accum depre 1,879,138 1,979,215
Other assets 1,506 23,826
----------- -----------
$ 2,535,735 $ 2,146,502
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade 83,461 402,574
Accrued expenses 13,996 140,622
Current maturities of long-term deb 5,544 40,390
Current obligation under capital lease 3,526 0
Due to stockholders 155,534 0
Other current liabilities 6,723 0
----------- -----------
Total current liabilities 268,784 583,586
Long-term debt, less current maturities 767,617 264,633
Obligation under capital lease, less current portion 10,331
----------- -----------
0
$ 1,046,733 $ 848,219
Stockholders' equity:
Preferred stock; no par value, 5,000,000 shares
authorized; 1,319.5 shares issued & outstanding 903,811 1,864,988
Common stock; no par value, 50,000,000 shares
authorized; 30,760,952 shares issued & outstanding 5,670,510 3,218,666
Additional paid-in capital 1,417,391 1,417,391
Accumulated deficit (6,502,710) (5,202,762)
----------- -----------
$ 1,449,268 $ 1,298,283
$ 2,535,735 $ 2,146,502
</TABLE>
<PAGE>
Financial Information
(Item 3)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
Oct 2 '99 Oct 4 '98 Oct 2 '99 Oct 4'98
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 74,434 $ 75,711 $ 177,908 $ 94,822
Cost of sales 37,246 73,792 100,203 103,656
------------ ------------ ------------ ------------
Gross profit 37,188 1,919 77,705 (8,834)
General, administrative, & sales expenses 372,692 671,486 908,980 921,295
------------ ------------ ------------ ------------
Operating loss (335,504) (669,567) (825,275) (930,129)
Other income (expense):
Interest expense 5,997 (6,530) (8,066) (13,147)
Interest and other income 0 (579) 0 (3,835)
Gain (loss) on sale of assets 0 0 (10,415) 0
Other expense (8,009) 0 (256) 0
------------ ------------ ------------ ------------
Net other income (expense) (2,012) (7,109) (18,737) (16,982)
Net loss (337,516) (676,676) (844,012) (947,111)
Dividends on preferred stock:
Unpaid 8.0% cumulative dividend 0 50,411 0 100,274
Effective dividend on issuance of stock
For less than trading value 0 49,863 0 187,500
Net loss applicable to common stock $ (337,516) $ (727,087) $ (844,012) $ (1,234,885)
Basic loss per share $ (0.06) $ (0.11) $ (0.07) $ (0.19)
Weighted average common shares outstanding 5,316,481 6,374,465 11,609,063 6,339,764
</TABLE>
<PAGE>
Part 1
Financial Information
(Item 4)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
<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>
Balances, April 3, 1999 1,676 1,250,284 16,160,523 3,670,870 1,417,391 (5,658,697) --
Conversion of preferred
stock (357) (346,473) 2,677,889 346,473 -- -- --
Issuance of common stock
for services 3,937,725 825,038 -- -- --
for convertible debenture 6,884,815 530,129 -- -- --
for S1 Registration 1,100,000 298,000
Net loss for period (844,012)
Balances, Oct 2, 1999 1,319 903,811 30,760,952 5,670,510 1,417,391 (6,502,709) --
</TABLE>
<PAGE>
Part 1
Financial Information
(Item 5)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
6 MONTHS ENDED 6 MONTHS ENDED
OCT 2, 1999 OCT 4, 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating activities:
Net Income (Loss) $ (844,013) $ (947,111)
Provided by Operations:
Depreciation 53,288 10,658
Issuance of Stock for Services 825,038 0
Issuance of Stock for S1 298,000 0
Issuance of Stock for Debenture 530,129 0
(Gain) Loss on Disposal of Assets 10,415 0
Allowance for Doubtful Accounts 10,000 0
Change in Assets & Liabilities:
(INC) Decrease in Accounts Receivable 24,995 (35,540)
(INC) Decrease in Inventories (59,805) (37,052)
(INC) Decrease in Prepaid Expenses (406,050) 392,714
(INC) Decrease in Other Assets 17,391 0
INC (DEC) in Accounts Payable (343,022) 37,221
INC (DEC) in Accrued Expenses (234,352) 41,510
INC (DEC) in Other Liabilities (19,969) 0
INC (DEC) in Shareholder Accural (214,532) 0
----------- -----------
Total Adjustments 491,527 409,511
Net Cash Provided by Operation (352,486) (537,600)
Cash Flows from Investing
Acqusition of Equipment (35,121) (424,305)
Proceeds from Sale of Equipment 0 0
INC (DEC) in Other Assets 0 30,191
----------- -----------
Cash Provided (USED) in Capital (35,121) (394,114)
Proceeds from Stock Issues 0 250,000
Proceeds from Debt 1,150,000 0
Payments on Debt (678,131) (8,626)
Proceeds from Due to Stockholders 0 0
----------- -----------
Cash Provided (USED) Investing 471,869 241,374
Net INC (DEC) in Cash & CE 84,262 (690,340)
Cash & CE at Begin of Year 9,960 723,618
Cash & CE at End of Year 94,222 33,278
</TABLE>
<PAGE>
Aqua Clara Bottling & Distribution, Inc. And Subsidiary
Notes To The (Unaudited) Consolidated Financial Statements
Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-QSB. Accordingly, certain
principles for complete financial statement are not included herein. The
financial statements are prepared on a consistent basis (including normal
recurring adjustments) and should be read in conjunction with the consolidated
financial statement and related notes contained in the Annual Report for the
fiscal year ended April 3, 1999.
The results of operations for the six-month period ended October 2,
1999 are not necessarily indicative of those to be expected for the entire year.
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.
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. Common stock
shares totaling 5,000,000 are held in an escrow account for when the debentures
are converted. 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.
<PAGE>
Significant Accounting Policies
The consolidated financial statements include the accounts of Aqua
Clara Bottling & Distribution, Inc. and its wholly owned subsidiary, Pocotopaug
Investments, Inc. All significant inter-company 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.
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.
Cash equivalents consist of all highly liquid debt instruments
purchased with a maturity of three months or less.
Inventories are 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.
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.
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 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.
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.
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.
<PAGE>
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.
The Company's fiscal year ends with the first Saturday in April.
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).
Inventories consist of the following at October 2, 1999:
Raw materials $ 113,276
Finished goods 9,257
-------------
$ 122,533
Property, plant, and equipment consist of the following at October 2,
1999:
Land $ 90,000
Building 926,520
Machinery and equipment 975,045
Vehicles 22,393
-------------
2,039,248
Less accumulated depreciation (160,110)
-------------
$ 1,879,138
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.
Prepaid expenses for this fiscal year consist of marketing,
advertising, promotion of the product and company and the board of director
fees.
Due to stockholders' consists of the following at October 2, 1999:
Notes payable to stockholders due on demand with
interest accrued at 5% to 10% $ 36,575
Deferred salaries with interest accrued at 5% 119,034
---------
$ 155,609
Long-term debt at October 2, 1999 consists of:
<TABLE>
<S> <C>
Note payable: Secured 8% Series "B" Convertible Debenture was
raised in June 1999. The note will be converted into common
stock. Series "B" Convertible Debenture $ 625,000
<PAGE>
Installment note payable; interest 10.5%; payments $462 per
month including interest; collateralized by a vehicle 12,161
---------
Long-term debt $ 637,161
Less current installments 5,544
---------
Long-term debt, less current installments $ 631,617
</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 $13,000 at October 2, 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.
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
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 October 2, 1999.
2000 $ 5,990
2001 4,998
2002 800
----------
$ 11,788
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.
The components of deferred tax assets consist of the following at
April 3, 1999:
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 $ --
<PAGE>
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.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 major retailers and distributors to purchase large quantities of product.
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 period ended October 2, 1999, was $77,705. The
Selling and General Administrative expenses through this quarter were $908,980.
Non-recurring expenses included $200,000 for generation of funding the Series
"B" Debenture and the mortgage payoff of $264,097.
The Company intends to increase spending over the next six 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company raised $1,150,000 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.
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 3rd
quarter of fiscal year 2000, management believes that the losses will continue
to decrease and a break-even point could be reached in the 4th quarter of this
year. Inflation has not had a significant impact on the Company's results of
operations.
<PAGE>
BUSINESS AND PLAN OF OPERATION
GENERAL
Prior information pertaining to Aqua Clara Bottling & Distribution,
Inc. can be found in the Annual Report for the fiscal 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.
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 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.
INDUSTRY OVERVIEW
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.
PRODUCTS
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 super markets, convenience stores, mass merchants, gas station
markets, health spas and vitamin/health food stores.
The Company's oxygen enriched bottled water is 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 is 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 is of distilled quality, although the distillation process is not
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. 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 is one significant competitor, Clearly Canadian, producing oxygen
enriched bottled water. The Company also knows of eight other entities that are
attempting to produce and distribute oxygen enriched bottled water. Except for
Clearly Canadian, none of the well-established traditional bottled water
producers has an oxygen enriched bottled water product.
The Company's oxygen enriched water contains approximately 40 parts per
million of oxygen. Normal water contains approximately 3 parts per million of
oxygen. As such, the Company's oxygen enriched bottled water will contain
approximately 800% or more oxygen than conventional bottled water products.
There can be no
<PAGE>
assurance that the Company's products will achieve consumer acceptance. Consumer
preferences are inherently subjective and subject to change.
Initially, the Company will not carbonate or flavor its water. After
the successful introduction of the 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 utilizes a distinctive bottle and label for its
water products.
STRATEGY
The company's objective is to build product markets in Florida and then
expand nationally. To that end, the Company has appointed Crossmark one of the
nations largest consumer packaged goods sales and marketing companies to
represent their product throughout the state of Florida effective immediately.
Crossmark currently impacts three billion retail transactions and
generates $12 billion dollars in annual sales. They currently have over 6,300
sales, merchandising and marketing professionals throughout the United States
focused on building the brands they represent. Crossmark will be marketing and
distributing Aqua Clara Oxygen Enriched Purified premium bottled water to some
of the largest retail food stores, wholesale suppliers, and drugstore chains
throughout Florida including Publix, Winn Dixie, Albertson's, Kash N'Karry,
Associated Grocers, Fleming, Eckerd's and Walgreens. A sample of some of the
brand names Crossmark currently represents include Nabisco Foods, Pillsbury
Company, Reynolds Metals, Inc., Loreal, Royal Oak Charcoal, and now Aqua Clara.
Crossmark offers Aqua Clara the opportunity to build strong brand
recognition through Crossmark's superior market presentation and support.
Through their category management plans, local event marketing plans and
effective merchandising plans, Aqua Clara expects to achieve stronger retail
distribution that will lead to building their brand and category.
PRODUCTION
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.
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.
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 common carriers.
<PAGE>
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
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.
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 a higher quality oxygen enriched
purified drinking water, innovative packaging and customer service.
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.
<PAGE>
The Company's products satisfy all federal and state requirements and
the Company is proceeding with applications to obtain distribution permits 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.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 1
Legal Proceedings
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 Sixth Judicial Circuit, in
and for Pinellas County, Florida, was filed by John S. McAvoy, Plaintiff vs.
Aqua Clara Bottling & Distribution, Inc., Olde Monmouth Stock Transfers, a New
Jersey Corporation, John. C. Plunkett, Rand L. Gray and Robert Guthrie,
Defendant, Case No. 99-004394-CI-011. The complaint is a multi part complaint
claiming Delcaratory Relief; Injunctive Relief; Breach of Fiduciary and
Statutory Duties; Breach of Contract Unpaid Promissory Notes; Breach of Contract
Unpaid Accrued Salary. The Plaintiff seeks removal of the restrictive legends on
stock held and $67,973.79 with regard to Notes and Accrued Salary. The matter is
pending arbitration. The matter is currently in settlement discussions, with
litigation pending.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 2
Changes In Securities
Secured 8% Series "B" Convertible Debenture
The Company has issued 43 Secured 8% Series "B" Convertible Debenture
shares. The "B" Convertible Debenture is convertible at the option of the holder
at any time prior to payment in full of the principal balance of the Debenture,
to convert the Debenture in whole only, into fully paid and non-assessable
shares of Common Stock, no par value, of the Company (the "Common Stock") at a
conversion price equal to 65% of the three day average closing bid price prior
to the date of conversion. At the Corporation's option, the amount of accrued
and unpaid interest due as of the Conversion Date shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date. If the
Corporation elects to convert the amount of accrued and unpaid interest at the
Conversion Date into Common Stock, the Common Stock issued to the Holder shall
be valued at the Conversion Price. The number of shares of Common Stock due upon
conversion shall be (i) the face amount of the Debenture divided by (ii) the
applicable Conversion Price.
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 financing 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 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 tock in future financing, 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.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 3
Defaults Upon Senior Securities
(NONE)
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 4
Submission of Matter to a Vote of Security Holders
(NONE)
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 5
Other Information
Management
The following table sets forth the names, ages, and offices held with
the Company by its directors and executive officers, as of October 2, 1999:
<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE AGE
- ---- -------- -------------- ---
<S> <C> <C> <C>
E. J. Mersis Chairman, Chief 1999 55
Executive Officer
John C. Plunkett President, Chief 1997 51
Operatinos Officer
Robert F. Guthrie Secretary, Director 1997 65
Renato P. Mariani Director 1999 48
Peter J. Thinnes Director 1999 58
John Thomas Director 1999 44
</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 except for Mr. Thinnes, 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:
Mr. Emanuel J. Mersis is the Chairman, and Chief Executive Officer of
the Company. Mr. Mersis has over 27 years experience as a top performing CEO and
senior executive with strong domestic and international expertise in consumer
packaged goods. He served Westvaco Corporation, a $3 billion dollar Fortune 500
paper, consumer packaging and chemical company since 1998. Mr. Mersis was the
President and CEO of Signature Brands LLC (a joint venture of McCormick and Co.,
Inc. and Pioneer Products, Inc.) from 1987 to 1998.
John C. Plunkett is the President and Chief Operations Officer of the
Company. Mr. Plunkett 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. Mr. Plunkett is a graduate of the U.S. Naval
Academy with a degree in Naval Engineering.
Robert F. Guthrie has served as Director of the Company since May,
1997. Mr. Guthrie became the Secretary in December 1998. Mr. Guthrie is an
attorney licensed to practice in Florida with affairs in Seminole, Florida.
Mr. Renato P. Mariani has served as Director of the Company since May,
1999. Mr. Mariani is the President of Eagle Diversified, Inc.
<PAGE>
Mr. Peter J. Thinnes was elected Director at the Board's October 11,
1999 meeting. He is ther President of Thinnes & Associates.
Mr. John Thomas has served as Director of the Company since June, 1999.
Mr. Thomas is the President of FloTech, Inc.
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
Beginning with the fiscal year ending April 2, 2000, the Company began
compensating its directors.
CERTAIN TRANSACTIONS
The Company had 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 rates
is payable in cash or stock.
The Company on June 25, 1999, paid off the loan described above,
retiring the note.
<PAGE>
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Part II
Other Information
Item 6
Exhibits and Reports
Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation (1)
3.2 Articles of Amendment for Series A Preferred Stock (1)
3.3 Bylaws (1)
4.1 Class B Debenture (7)
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 (3)
10.4 Lead Generation/Corporate Relations Agreement dated May 24, 1999
with Corporate Relations Group, Inc. (7)
10.5 Installment secured promissory notes (1)
10.6 Modification of Installment secured promissory notes (4)
16.1 Letter from BDO Seidman (3)
21.1 Subsidiaries
23.1 Letters from Pender Newkirk & Company (5)
23.2 Letters from Tedder, James, Worden & Associates, P.A. (5)
27 Financial Data Schedules
(b) Reports on Form 8-K:
5.0 Opinion Regarding Legality, dated May 13, 1999 (6)
23.0 Letter on Audited Financial Information, dated June 11, 1999 (6)
(1) Incorporated by reference to the original filing of the
Registration Statement on Form SB-2, File No. 333-44315 (the
"Registration Statement")
(2) Incorporated by reference to Amendment Number 1 of the
Registration Statement
(3) Incorporated by reference to Amendment Number 2 of the
Registration Statement
(4) Incorporated by reference to Amendment Number 4 of the
Registration Statement
(5) Incorporated by reference to Annual Report Form 10-KSB April 3,
1999
(6) Incorporated by reference to S-8 Filed June 11, 1999
(7) Incorporated by reference to 10QSB Filed September 24, 1999
<PAGE>
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: November 11, 1999 AQUA CLARA BOTTLING & DISTRIBUTION, INC.
By: /s/ EMANUEL J. MERSIS
--------------------------------------
Emanuel J. Mersis
Chairman, Chief Executive Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
21.1 Subsidiaries
27 Financial Data Schedule
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> 6-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> OCT-02-1999
<PERIOD-END> APR-04-1999
<CASH> 92,422
<SECURITIES> 0
<RECEIVABLES> 23,090
<ALLOWANCES> 0
<INVENTORY> 122,533
<CURRENT-ASSETS> 655,091
<PP&E> 2,039,248
<DEPRECIATION> (160,110)
<TOTAL-ASSETS> 2,535,735
<CURRENT-LIABILITIES> 268,784
<BONDS> 0
0
903,811
<COMMON> 5,670,510
<OTHER-SE> (4,241,306)
<TOTAL-LIABILITY-AND-EQUITY> 2,535,734
<SALES> 183,406
<TOTAL-REVENUES> 177,908
<CGS> 100,203
<TOTAL-COSTS> 100,203
<OTHER-EXPENSES> 921,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,066
<INCOME-PRETAX> (844,012)
<INCOME-TAX> 0
<INCOME-CONTINUING> (844,012)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (844,012)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
