UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2000
OR
[ ] TRANSITION REPORT PURSUAN TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
AQUA CLARA BOTTLING AND DISTRIBUTION, INC.
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-1352529
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1315 Cleveland Street, Clearwater, Florida 33755-5102
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (727) 446-2999
Company's internet address: 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of January 3, 2000, the registrant had 42,495,405 shares of common stock
outstanding at no par value.
<PAGE>
Part I
Financial Information
(Item 1)
Aqua Clara Bottling & Distribution, Inc. And Subsidiary
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
ASSETS
January 1, 2000 April 3, 1999
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<S> <C> <C>
Current Assets
Cash and cash equivalents $ 20,217 $ 9,960
Accounts receivable less allowance for doubtful accounts 1,938 48,085
Inventories 101,118 62,729
Prepaid expenses 418,467
Deposits and other current assets 4,806 26,586
----------- -----------
Total Current Assets 546,546 147,360
Property, plant and equipment net of accumulated 1,857,814 1,898,287
depreciation
Other assets 1,506
----------- -----------
Total Assets $ 2,404,360 $ 2,047,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 89,776 $ 426,483
Accrued Expenses 22,760 248,348
Notes Payable and accrued interest 122,410 370,066
Deferred Revenue 3,000
Current portion of long term debt 5,372 18,149
Current obligation under capital lease 3,702 3,526
Other current liabilities 26,692
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Total Current Liabilities 247,020 1,093,264
Series B Debenture 375,000
Long Term debt less current maturities 141,511 261,976
Obligation under capital lease less current portion 9,266 12,065
----------- -----------
Total Long Term Liabilities 525,777 274,041
Total Liabilities 772,797 1,367,305
STOCKHOLDERS' EQUITY
Preferred Stock, no par value, 5,000,000 shares authorized, 469,233 1,250,284
629 shares issued and outstanding
Common Stock, no par value, 50,000,000 shares authorized; 7,061,684 3,670,870
42,495,405 shares issued and outstanding
Additional Paid In Capital 1,417,391 1,417,391
Accumulated Deficit (7,316,745) (5,658,697)
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Total Stockholders' Equity 1,631,563 679,848
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,404,360 $ 2,047,153
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</TABLE>
<PAGE>
Financial Information
(Item 3)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
Jan 1,2000 Jan 2, 1999 Jan 1,2000 Jan 2, 1999
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<S> <C> <C> <C> <C>
Sales $ 29,755 $ 21,669 $ 207,663 $ 116,491
Cost of Sales 87,457 8,158 187,660 111,814
----------- ----------- ----------- -----------
Gross profit / (loss) (57,702) 13,511 20,003 4,677
General and administrative, and sales expenses 489,543 809,883 1,398,523 1,331,178
----------- ----------- ----------- -----------
Operating (loss) (547,245) (796,372) (1,378,520) (1,326,501)
Other income and (expenses)
Interest expense (151,335) (11,663) (159,400) (20,956)
Interest and other income 1,070 1,070 (6,889)
Gain (loss) on sales of assets (10,415)
Other expenses (110,525) (110,782)
----------- ----------- ----------- -----------
Net other income (expense) (260,790) (11,663) (279,527) (27,845)
Net loss (808,035) (808,035) (1,658,047) (1,354,346)
Dividends on preferred stock 142,565 253,238
Net loss applicable to common stock (950,600) (808,035) (1,911,285) (1,354,346)
Basic loss per share (.02) (.10) (.07) (.19)
Weighted average common shares outstanding 39,461,824 8,279,493 29,100,937 6,980,024
</TABLE>
<PAGE>
Part 1
Financial Information
(Item 4)
Aqua Clara Bottling & Distribution, Inc.
And Subsidiary
Consolidated Statements of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ --------- ---------- --------- ---------- -----------
<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 (1,047) (781,051) 11,855,760 781,052
Conversion of debentures 7,931,397 775,000
Common stock issuance for services 6,547,725 1,834,762
Net loss for period (1,658,047)
Balances - January 1, 2000 629 469,233 42,495,405 7,061,684 1,417,391 (7,316,744)
</TABLE>
<PAGE>
Part I
Financial Information
(Item 5)
Aqua Clara Bottling & Distribution, Inc. And Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
JANUARY 1, 2000 JANUARY 2, 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income / (loss) (1,658,047) $(1,354,346)
Provided by Operations:
Depreciation 83,510 18,794
(Gain) Loss on disposal of assets 10,415
Change in Assets and Liabilities
(Increase) Decrease in accounts receivable 46,147 (32,802)
(Increase) Decrease in inventories (38,389) (22,002)
(Increase) Decrease in prepaid expenses (418,467) 397,948
(Increase) Decrease other assets 23,286
Increase (Decrease) in accounts payable (336,707) 262,068
Increase (Decrease) in accrued expenses (225,588) 261,120
Increase (Decrease) in other liabilities (39,293) 56,447
Increase (Decrease) shareholder accrual (247,656)
----------- -----------
Total Adjustments (1,142,742) 941,573
Net cash provided (used) by operations (2,800,789) (412,773)
INVESTING ACTIVITIES
Acquisition of equipment (40,472) (580,176)
Proceeds from sales of equipment
Increase (Decrease) in other assets (1,506)
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Net cash provided (Used) in investing activities (40,472) (581,682)
FINANCING ACTIVITIES
Proceeds from Stock Issues 1,834,762 250,000
Proceeds from Debt 1,225,000 11,616
Payments on Debt (208,244) 10,949
----------- -----------
Net cash provided (Used) in financing activities 2,851,518 272,565
Net Increase (Decrease) in Cash and Cash Equivalents 10,257 (721,890)
Cash and Cash Equivalents at Beginning of Year 9,960 723,618
Cash and Cash Equivalents at End of Year $ 20,217 $ 1,728
=========== ===========
</TABLE>
<PAGE>
During the year ended April 3, 1999, the Company converted 824 shares of
preferred stock into 9,388,901 shares of common stock.
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 1, 2000, the Company converted 1,047 shares of
preferred stock into 11,855,760 shares of common stock.
During the year ended April 1, 2000, the Company converted 775 shares of the
convertible debenture into 7,931,397 shares of common stock.
<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 applied within these statements. They have
been prepared on a consistent basis including normal recurring adjustments and
should be read in conjunction with the consolidated financial statements and
related notes contained in the Annual Report for the fiscal year ended April 3,
1999.
The results of operations for the nine month period ended January 1, 2000 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 market.
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 are 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 northeast United States for distribution of the 20oz. bottles of oxygenated
water. The terms and conditions of the Company's agreement with this distributor
have been revised to reflect new marketing approaches of both companies.
Effective January 1, 2000 the distributor will no longer have exclusive sales
rights to the following states: PA, MD, DE, VA, NJ, NY, CT, VT, MA, RI, ME, NH,
and the District of Columbia, however the distributor will continue to purchase
from the Company and distribute the Aqua Clara brand throughout the U. S. as
they deem appropriate.
Subsequent to April 3, 1999 the Company raised $1,150,000 through the issuance
of a Secured 8% Series B Convertible Debenture. The proceeds from the debenture
were used to retire the building's mortgage and the 90-day note to stockholders.
The remainder of the proceeds were 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 intercompany accounts and transactions have
been eliminated.
The financial statements for previous years reflect the Company in a
developmental stage. The financial statements for the current period no longer
present the Company in this developmental 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 may differ from those estimates.
During the quarter ended January 1, 2000, the Company implemented a change in
the closing dates of its accounting periods whereby its fiscal quarter terms
will vary in length in two four week terms followed by one five week term,
commonly known as "4-4-5." The Company adopted this policy to facilitate a
higher degree of consistency with its operational processes. The projected
year-end of April 1, 2000 remains unchanged. The results of this impact are
discussed later.
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 in these notes are based upon certain market
assumptions and pertinent information available to management. The respective
carrying value of certain financial instruments on the balance sheet approximate
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 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.
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 consist primarily of stock issued in lieu of cash compensation
for the performance of professional services including marketing and advertising
of the Company, public relations, and as compensation to members of the board of
directors.
Due to stockholders consists of notes payable and due upon demand. Interest on
these notes accrues at rates between 5% to 8%.
Long-term debt at January 1, 2000 consists of:
Note payable: Secured 8% Series B Convertible Debenture was
raised in June 1999. The note will be converted into common
stock.
<TABLE>
<CAPTION>
<S> <C>
Series B Convertible Debentures $ 375,000
Note payable: interest at 10%, secured by building 135,797
Installment note payable; interest at 10.5%; payments $461 per
month including interest; collateralized by a vehicle 11,086
--------------
Long-term debt $ 521,883
Less current installments 5,372
--------------
Long-term debt, less current installments $ 516,511
==============
</TABLE>
<PAGE>
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 $ -
Commitments and Contingencies
Both of the Company's preferred stock and debentures offer conversion options at
the election of the shareholder or debenture holder. At January 1, 2000, the
Company had received conversion requests from both its Preferred A shareholders
and Series B Debenture holders in excess of the available shares required to
execute these conversions. The Company is therefore unable to fulfill the
requests because it has exhausted all authorized common shares. Likewise, the
Company has received notices of the exercise of options that the Company is
unable to fulfill for the same reasons.
A special meeting of the shareholders of record on January 18, 2000 has been
called for on March 7, 2000 to consider proposals to raise the Company's
authorized capitalization from 50,000,000 to 100,000,000 common shares, and to
amend the articles of incorporation to modify the indemnification of directors,
officers, and others. The Board of Directors has recommended approval of both
proposals.
<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.
As discussed earlier, the Company instituted a change in its monthly accounting
periods with no corresponding change in the projected year end date. However, as
a result of this change there were certain impacts on the quarterly financial
statements presented in this report which do not lend themselves to comparisons
with previous periods. A revision of estimated costs of both general and
administrative expenses and operational costs were adopted and may
disproportionately burden the current quarter because of the cumulative effect
of this change. Prospectively, the Company does not expect to incur similar
adjustments.
The gross loss for the quarterly period ended January 1, 2000 was $57,702 with
general and administrative, and selling expenses period totaling $489,543. The
gross profit for the nine month period ended January 1, 2000 was $20,003, with
corresponding general and administrative, and selling expenses of $1,398,523.
Non-recurring expenses and credits for reductions in expenses for the fiscal
year ended April 1, 2000 include $200,000 for generation of funding for the
Series B Debenture; the mortgage payoff of $264,097; settlements of certain
claims against the Company of $118,102; registration and interest penalties
associated with the Series B Debenture in the amount of $104,463; and the write
off of certain notes payable recorded by the Company of $108,818 for which the
Company has determined it is not liable. The Company wrote off an asset of
$9,195 associated with the sale of its five-gallon water business.
The Company intends to increase spending over the next six months in
advertising, marketing and distribution 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
In the current fiscal year, 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 funds raise will be used to finance
continued operation of the Company.
The Company established two revolving lines of credit, each in the amount of
$150,000, one from a shareholder and the other from an officer of the Company.
The Company also received a $75,000 demand note from the same corporate officer.
The Company has no plans or arrangements in place with respect to additional
capital sources at this time. The Company has no significant lines of credit
available to it at this time. There are no assurances that additional capital
will be available to the Company when or if required.
Although the Company expects to have continued losses in the 4th quarter of
fiscal year 2000, management believes that the losses will continue to decrease
and a break-even point could be reached in the near term. 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 24 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 800% 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, health food
stores and spas and hotel resorts.
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. There can be no
assurance that the Company's products will achieve consumer acceptance. Consumer
preferences are inherently subjective and subject to change.
<PAGE>
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.
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., L'Oreal, 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.
On December 13, 1999 the Company announced the launch of Aqua Clara/FLA USA
branded bottled water in a first-of-its-kind marketing partnership. The
Company, VISIT FLORIDA and Florida Media Inc. have teamed up to jointly and
exclusively market a new bottled water brand. Aqua Clara - FLAUSA. This brand
will be primarily sold in Florida and will add the hospitality market as a new
sales target for the Company. VISIT FLORIDA, the state of Florida's official
tourism marketing organization, has endorsed the product with its FLA USA logo
which is displayed on the front of every Aqua Clara/FLA USA water bottle. The
Company has already begun its distribution into the Florida market with the
annual Florida Strawberry Festival as the event's official water provider. The
Festival, is a Florida is one of the largest festivals in the South and will be
held March 2 - 12,2000.
PRODUCTION
The Company currently operates out of a facility 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, with the balance predominantly 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-
<PAGE>
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.
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. 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.
<PAGE>
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 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 multi-part claiming Declaratory 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 in payment
of Notes and Accrued Salary. The matter is pending mediation.
The Company's former director and officer, Rand Gray, has asserted a claim that
the Company committed to certain stock payments as compensation. The Company has
denied the claim.
<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 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 Company'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.
Preferred A stock
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, offices held with the Company, and age
of its directors and executive officers as of January 13, 2000:
<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE AGE
- ---- -------- -------------- ---
<S> <C> <C> <C>
Carl Evans Director 2000 47
Robert F. Guthrie Secretary, Director 1997 65
Renato P. Mariani Director 1999 48
Emanuel J. Mersis Chairman and Chief Executive Officer 1999 55
John C. Plunkett President and Chief Operations Officer 1997 51
Michael Potapow Director 2000 56
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, 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. Evans is Executive Vice President of Evatone, an audio CD-ROM replicating,
packaging and fulfillment company.
Mr. Guthrie has served as Director of the Company since May, 1997 and became the
Secretary in December 1998. Mr. Guthrie is an attorney licensed to practice in
Florida with affairs in Seminole, Florida.
Mr. Mariani has served as Director of the Company since May, 1999. Mr. Mariani
is the President of Eagle Diversified, Inc., a wholesale food, candy and tobacco
company.
Mr. 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.
<PAGE>
Mr. 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.
Mr. Potapow is President and CEO of TMP Management Corporation which owns and
operates a chain of McDonald's restaurants.
Mr. John Thomas has served as Director of the Company since June, 1999. Mr.
Thomas is the President of FloTech, Inc., a fluid controls specialty chemicals
and water purification company.
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 1, 2000, the Company began
compensating its directors.
CERTAIN TRANSACTIONS
On February 11, 1999, the Company 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 interest which accrued at a
rate of 10% is payable in cash or stock. On June 25, 1999, the Company paid off
the loan described above, retiring the note.
Subsequent to the closing date of the financial statements, the Company
established a $150,000 revolving line of credit and a $75,000 demand note with
one of its officers. Both are secured by assets of the Company and accrue 8%
interest.
<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: February 15, 2000 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 Schedules
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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-START> APR-04-1999
<PERIOD-END> JAN-01-2000
<CASH> 20,217
<SECURITIES> 0
<RECEIVABLES> 1,938
<ALLOWANCES> 0
<INVENTORY> 101,118
<CURRENT-ASSETS> 423,273
<PP&E> 2,046,951
<DEPRECIATION> 189,137
<TOTAL-ASSETS> 2,404,360
<CURRENT-LIABILITIES> 247,020
<BONDS> 0
0
469,233
<COMMON> 7,061,684
<OTHER-SE> (5,899,354)
<TOTAL-LIABILITY-AND-EQUITY> 2,404,360
<SALES> 207,663
<TOTAL-REVENUES> 1,070
<CGS> 187,660
<TOTAL-COSTS> 1,586,183
<OTHER-EXPENSES> 121,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,400
<INCOME-PRETAX> (1,658,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,658,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,658,047
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
