<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 1, 2000
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:
Common Stock par value National Association
$0.00 per share of Securities Dealers
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 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. [X]
State issuer's revenues for its most recent fiscal year. $293,980
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.
$17,777,029 (Based on price of $0.33 on April 1, 2000 and 52,314,784 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 1,
2000; 58,960,851 Common Stock and 200 Preferred Stock.
Documents incorporated by reference: None
<PAGE> 2
AQUA CLARA BOTTLING & DISTRIBUTION, INC. & SUBSIDIARY
TABLE OF CONTENTS
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
Dividend Policy
Recent Sales of Unregistered Securities
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
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 fair market value of the Company common stock on the
date of issuance 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 PET containers. 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 dissolved 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.
During the year ending April 1, 2000, the Company expanded its product line to
include 6-packs of 20-oz. bottles, and 1-Liter and 1.5-Liter bottles. The
Company also entered into marketing alliances with Visit Florida, the Florida
state tourism promotion organization, and Florida Media, Florida's premier
magazine publisher, to promote the licensed "FLA USA" label as a second brand.
This relationship gave the Company access to several non-traditional
distribution opportunities.
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 is not flavoring its water. After the successful
introduction of Company's oxygen enriched bottled water product, the
introduction of a new products 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 utilizes 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 additional 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.
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 arrangements for distribution of
its products in the Northeast and Southern 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 operating facilities include the plant building with approximately
14,000 sq. ft. under roof with an exposed four-bay loading dock sitting on 2.1
acres in Clearwater, Florida and warehouse space located in Tampa, FL.
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 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 3 - 5 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 one of the
warehouse facilities 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.
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
regional bottled water companies located in the United States and Canada. Aqua
Clara has chosen to compete by focusing on distinctive products, innovative
packaging, and customer service.
<PAGE> 6
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 applicable state and federal requirements. 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 party to legal proceedings as set forth below.
Civil Litigation in Circuit Court of the Sixth Judicial Circuit in and for
Pinellas Count; John S. McAvoy, et al, v. Aqua Clara Bottling & Distribution,
Inc. et al., Case No. 99-004394-CI-011. The complaint was filed by former CEO
John McAvoy, his wife and son seeking the company to delegend shares of stock
and for subsequent damages. The matter settled in mediation on February 11,
1999. A final disposition order has not been filed pending completion of the
settlement agreement obligations of which the remaining portion is to record a
mortgage interest in the property as security for a promissory note which is
being completed.
<PAGE> 7
Nolen v. Mersis - Civil Litigation in the Circuit Court of the Sixth Judicial
Circuit in and for Pinellas County Case No. 00-3400-CI-021. This case was a
shareholder's derivative suit naming the Company and several of its directors
as Defendants. This suit was settled and a Notice of Voluntary Dismissal was
filed with prejudice on Friday July 7, 2000. The dismissal of this suit
corresponds to the resignation of former CEO E. J. Mersis and other Directors.
Civil Litigation in the Circuit Court of the Sixth Judicial Circuit in and for
Pinellas County - Rand L. Gray and Kathleen Gray v. Aqua Clara Bottling &
Distribution, Inc. et al., Pinellas County, Case No. 00-2122-C1-021. This case
arises out of an alleged breach of an employment contract. An Amended Complaint
was filed by the Plaintiffs on June 26, 2000. The Amended Complaint alleges 6
counts: Count I - Foreclosure of Mortgage; Count II - Foreclosure of Security
Interest on Personal Property; Count 3 - Damages on promissory Note; Count IV
Damages for Breach of employment Agreement; Count V - Damages for Breach of
Severance Agreement; and Count VI-Damages for Breach of Indemnity Agreement.
Our response to Plaintiffs' Amended Complaint is due July 17, 2000. Settlement
negotiations have failed and litigation previously stayed has become active. A
counter-claim seeking damages will be filed.
Water to Go2, Inc. vs. Aqua Clara - Case No. 00-002797-CI-020. This case
concerned breach of contract which was voluntarily dismissed with prejudice on
June 15, 2000. Each case was voluntarily dismissed with prejudice without costs
incurred by the corporation except legal fees. The dismissal of this suit
corresponds to the resignation of former CEO E. J. Mersis and other Directors.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended April 1, 2000, the Company submitted two issues to
a vote of the Shareholders. At a duly noticed meeting held March 7, 2000, the
Shareholders approved an increase in the authorized number of common shares for
the Company from 50,000,000 to 100,000,000. Also approved was a modification of
the indemnification provisions of the Articles of Incorporation to eliminate
both duplicative and inconsistent provisions from the Articles.
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.
Quarter Ended High Low
------------- ---- ---
September 30, 1997 4.50 1.8437
December 31, 1997 4.0625 2.00
March 31, 1998 2.5 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
July 3, 1999 .475 .22
October 2, 1999 .43 .12
January 1, 2000 .20 .08
April 2, 2000 .47 .125
<PAGE> 8
As of April 18, 2000, there were approximately 354 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.
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. Common stock was issued in lieu of dividends upon the conversion of
Preferred A shares, leaving 200 shares of Preferred Stock outstanding.
Recent Sales of Unregistered Securities
From May to August, 1999, the company issued forty six (46) Class B Convertible
Debentures at $25,000 each, for a total of $1,150,000. These debentures bore
conversion rights to Company common stock at a discount from the average
trading price at the time of the conversion. The underlying common stock is
currently in the process of registration with the Securities and Exchange
Commission. All but ten of the debentures have been converted as of April 1,
2000. Subsequent to April 1, 2000, another four debentures were converted.
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.
Results of Operations
Sales for the fiscal years ending April 1, 2000 and April 3, 1999 were $293,980
and $184,952 respectively. The lower than expected sales amount is the result
of the Company's inability to find major distributors or retail chains to
purchase large quantities of product.
The Gross Profit for the fiscal years ended April 1, 2000 and April 3, 1999,
were $64,141 and $42,189 respectively. Selling and general administrative
expenses for the fiscal years were $2,917,367 and $1,568,388.
Sales of PET bottled water products did not commence until July, 1998. At that
time, the Company had no agreements in place with distributors for its
products. While the Company has entered into distribution agreements with
distributors in the Northeast and Southern United States, there can be no
assurances that these distributors will be successful in promoting the product
in their geographic areas 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 $4,600,000 of net operating loss
carryforwards as of April 1, 2000, which may be offset against future taxable
income. The carryforwards begin to expire in 2011.
<PAGE> 9
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. The Company has reserved for the deferred tax
asset arising from net operating loss carryforwards.
Liquidity and Capital Resources
Our primary source of liquidity has historically consisted of sales of equity
securities and debt instruments. In the fiscal year ending April 1, 2000, 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 in an amount of $264,097 and the payment of a demand
note. The remainder of the funds raised were used to finance our continued
operations.
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 2001, management believes that the losses will continue to decrease
and a break-even point could be reached in the second quarter of this year.
Inflation has not had a significant impact on the Company's results of
operations.
Year 2000
As expected, the Company experienced no disruption in the ability to conduct
business on its own or on the part of any suppliers or customers due to Year
2000 issues. We consider this issue closed.
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.
Item 7. Financial Statements
Attached hereto and filed as part of this 10-KSB are the consolidated financial
statements.
<PAGE> 10
INDEPENDENT AUDITORS' 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 1, 2000 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended April 1, 2000 and April 3, 1999. These
consolidated financial statements are the responsibility of management of Aqua
Clara Bottling & Distribution, Inc. and Subsidiary. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aqua Clara Bottling
& Distribution, Inc. and Subsidiary as of April 1, 2000 and the results of its
operations and cash flows for the years ended April 1, 2000 and April 3, 1999,
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 these
uncertainties.
Orlando, Florida
June 28, 2000
<PAGE> 11
AQUA CLARA BOTTLING & DISTRIBUTION, INC. AND SUBSIDIARY
Consolidated Balance Sheet
April 1, 2000
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash $ 20,980
Accounts receivable 10,793
Inventories 290,145
Prepaid expenses and other current assets 398,185
-----------
Total current assets 720,103
Property, plant, and equipment, net 1,832,669
Other assets 1,506
-----------
$ 2,554,278
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 132,057
Accrued expenses 237,073
Current maturities of long-term debt 254,693
Current obligation under capital leases 6,042
Due to stockholders 334,153
-----------
Total current liabilities 964,018
Long-term debt, less current maturities 140,607
Obligations under capital leases, less current obligations 14,559
-----------
Total liabilities 1,119,184
Stockholders' equity:
Preferred stock; no par value; 5,000,000 shares
authorized; 200 shares issued and outstanding 149,203
Common stock; no par value; 100,000,000 shares
authorized; 58,960,851 shares issued and outstanding 8,440,527
Additional paid-in capital 2,454,942
Accumulated deficit (9,609,578)
-----------
Total stockholders' equity 1,435,094
-----------
$ 2,554,278
===========
</TABLE>
<PAGE> 12
AQUA CLARA BOTTLING & DISTRIBUTION, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended April 1, 2000 and April 3, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ----------
<S> <C> <C>
Sales $ 293,980 184,952
Cost of sales 229,839 142,133
------------ ----------
Gross profit 64,141 42,819
Selling, general and administrative expenses 2,917,367 1,568,388
------------ ----------
Operating loss (2,853,226) (1,525,569)
Other income (expense):
Interest expense (624,852) (40,601)
Interest and other income 8,420 5,256
Loss on sale of assets (5,791) (2,467)
Other expense -- (3,971)
------------ ----------
Net other expense (622,223) (41,783)
Net loss before cumulative effect of a change in
accounting principle (3,475,449) (1,567,352)
Cumulative effect of a change in
accounting principle -- (23,194)
------------ ----------
Net loss (3,475,449) (1,590,546)
Dividends on preferred stock:
Paid by issuing common stock and 8%
cumulative dividends not accrued 276,671 176,317
------------ ----------
Net loss applicable to common stock (3,752,120) (1,766,863)
============ ==========
Basic loss per share $ 0.12 0.20
============ ==========
Weighted average common shares
outstanding 30,942,463 8,911,295
============ ==========
</TABLE>
<PAGE> 13
AQUA CLARA BOTTLING & DISTRIBUTION, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the years ended April 1, 2000 & April 3, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ------------------------ Paid-In Accum
Shares Amount Shares Amount Capital Deficit Total
------ ----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, April 4, 1998 2,500 1,864,988 6,271,622 2,781,166 1,417,391 (4,068,151) 1,995,394
Stock issued through
Regulation D
offering, August, 1998 0 0 250,000 250,000 0 0 250,000
Conversion of preferred
stock (824) (614,704) 8,742,280 614,704 0 0 0
Preferred stock dividends 0 0 646,621 101,415 0 (101,415) 0
Issuance of common stock
exercise of options 0 0 250,000 25,000 0 0 25,000
Net loss 0 0 0 0 0 (1,590,546) (1,590,546)
------ ----------- ---------- ---------- --------- ---------- ----------
Balances, April 3, 1999 1,676 1,250,284 16,160,523 3,772,285 1,417,391 (5,760,112) 679,848
Issuance of common stock
for services and $147,009 0 0 8,501,632 2,293,144 0 0 2,293,144
Conversion of debentures 0 0 12,394,597 900,000 0 900,000
Conversion of preferred stock (1,476) (1,101,081) 18,958,035 1,101,081 0 0
Preferred stock dividends 0 0 2,946,064 374,017 0 (374,017) 0
Issuance of stock options
to employees 0 0 0 0 494,000 0 494,000
Allocation of beneficial
conversion feature of debentures 0 0 0 0 543,551 0 543,551
Net loss 0 0 0 0 0 (3,475,449) (3,475,449)
------ ----------- ---------- ---------- --------- ---------- ----------
Balances, April 1, 2000 200 $ 149,203 58,960,851 $8,440,527 2,454,942 (9,609,578) 1,435,094
====== =========== ========== ========== ========= ========== ==========
</TABLE>
<PAGE> 14
AQUA CLARA BOTTLING & DISTRIBUTION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended April 1, 2000 and April 3, 1999
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Operating activities:
Net loss $(3,475,449) (1,590,546)
Adjustments to reconcile net loss
to net cash used in operating activities:
Allowance for doubtful accounts (10,000) 10,000
Loss on sales of assets 5,791 2,467
Depreciation 113,248 100,444
Cumulative effect of a change in accounting principle -- 23,194
Issuance of stock options to employees 494,000 --
Beneficial conversion feature of debentures 543,551 --
Issuance of common stock for services 2,146,135 --
(Increase) decrease in cash caused by changes in:
Accounts receivable 47,292 (58,085)
Employee advances -- 17,691
Inventories (227,416) (35,781)
Prepaid expenses and other current assets (371,599) 390,091
Accounts payable (294,426) 217,002
Accrued expenses (11,275) 229,946
Other current liabilities (26,692) 26,692
Stockholder salary accrual -- 118,533
----------- ----------
Net cash used in operating activities (1,066,840) (548,352)
Investing activities:
Proceeds from sale of assets -- 4,000
Purchase of property, plant and equipment (43,690) (578,295)
----------- ----------
Net cash used in investing activities (43,690) (574,295)
Financing activities:
Proceeds from borrowings 1,286,000 --
Payments on borrowings (270,825) (21,833)
Proceeds from due to stockholders 306,246 155,822
Payment on due to stockholders (342,159) --
Payments on capital lease obligations (4,721) --
Net proceeds from issuance of stock 147,009 275,000
----------- ----------
Net cash provided by financing activities 1,121,550 408,989
----------- ----------
Net increase (decrease) in cash and cash equivalents 11,020 (713,658)
Cash, beginning of year 9,960 723,618
----------- ----------
Cash, end of year $ 20,980 9,960
=========== ==========
</TABLE>
<PAGE> 15
AQUA CLARA BOTTLING & DISTRIBUTION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
For the years ended April 1, 2000 and April 3, 1999
2000 1999
------- ------
Supplemental disclosures of cash flow information
and noncash investing and financing activities:
Cash paid for interest $30,600 39,100
======= ======
During the year ended April 1, 2000, $900,000 of
debentures were converted into 12,394,597
common shares.
During the year ended April 1, 2000, 1,476 shares of
preferred stock were converted into 18,958,035
common shares.
During the year ended April 3, 1999, 824 shares of
preferred stock were converted into 8,742,280
common shares.
During the year ended April 1, 2000, preferred stock
dividends were settled through the issuance of
2,946,064 common shares.
During the year ended April 3, 1999, preferred stock
dividends were settled through the issuance of
646,621 common shares.
During the year ended April 1, 2000, the Company
incurred a capital lease obligation of $9,731 when
it acquired new equipment.
During the year ended April 3, 1999, the Company
incurred a capital lease obligation of $18,900 when
it acquired new equipment.
<PAGE> 16
(1) DESCRIPTION OF BUSINESS, GOING CONCERN AND MANAGEMENT PLANS AND
INTENTIONS
The accompanying consolidated financial statements of Aqua Clara
Bottling & Distribution, Inc. (the "Company") include the financial
statements of its wholly owned subsidiary, Pocotopaug Investment, Inc.
Intercompany transactions and accounts have been eliminated upon
consolidation.
The Company is engaged in the production, bottling, selling and
distribution of non-sparkling purified drinking water products in
containers ranging from .5 to 1.5 liters in size. During the year
ended April 3, 1999, the Company began producing oxygenated water. It
is the Company's intent to find a market niche in oxygen-enriched
water.
The Company continues to experience net losses and a working capital
deficit. These factors, combined with the fact that the Company has
not generated positive cash flows from operations, raise substantial
doubt about the Company's ability to continue as a going concern.
Management intends to fund its operations through the offering of
additional shares of common stock for sale, refinancing its existing
debt and obtaining a line of credit. 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) INVENTORIES
Inventories are stated at the lower of cost (first-in,
first-out) or market.
(b) 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. Equipment under
capital leases is amortized over the shorter of the lease
term or the estimated economic life of the property.
(c) 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.
<PAGE> 17
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) 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.
(e) 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 1, 2000 - Preferred shares
convertible into common stock and debentures
convertible into common stock.
Year ended April 3, 1999 - Preferred shares
convertible into common stock and 2,173,382
contingently issuable shares.
(f) 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.
<PAGE> 18
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(g) 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.
(h) 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,
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, including its obligations under
capital leases and amounts due to stockholders, 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. Fair value of these
financial instruments also approximates their carrying values
due to their short-term maturities and to their proximity to
current market rates.
(i) STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance
with Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock - Issued to Employees" (APB 25). Under
APB 25, the Company recognizes compensation expense related
to employee stock options based on the intrinsic value of the
stock options on the date of grant.
During the year ended March 31, 1997, Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) became effective for the Company.
SFAS 123, which prescribes the recognition of compensation
expense based on the fair value of options on the grant date,
allows companies to continue applying APB 25, however,
additional disclosures including the pro forma effect of the
adoption of SFAS 123 are required (see note 12).
<PAGE> 19
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) FISCAL YEAR
The Company's fiscal year ends with the first Saturday in
April.
(k) BUSINESS RISK
During the year ended April 1, 2000, a single customer
accounted for approximately 38% of the Company's sales. Prior
to April 1, 2000, this single customer discontinued
purchasing from the Company.
(l) RECLASSIFICATIONS
Certain reclassifications have been made to the 1999
financial statements in order to conform to the 2000
presentation.
(3) INVENTORIES
Inventories consist of the following at April 1, 2000:
Raw materials $ 72,755
Finished goods 217,390
--------
$290,145
========
<PAGE> 20
(4) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at April 1,
2000:
Land $ 90,000
Building 926,520
Machinery and equipment 1,012,844
Vehicles 22,393
----------
2,051,757
Less accumulated depreciation 219,088
----------
$1,832,669
==========
For the years ended April 1, 2000 and April 3, 1999, depreciation
expense amounted to $113,248 and $100,444, 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.
(5) DUE TO STOCKHOLDERS
Due to stockholders consists of the following at April 1, 2000:
Notes payable, including accrued interest, to
stockholders; due on demand with interest
accrued at 8%, collateralized by a security
interest in real property $ 316,205
Deferred salaries with interest accrued at 5% 17,948
---------
$ 334,153
=========
<PAGE> 21
(6) LONG-TERM DEBT
Long-term debt at April 1, 2000 consists of:
Mortgage payable; interest 10% payable
monthly; unpaid principal due June 1,
2001; collateralized by real property $ 134,983
Installment note payable; interest 10.5%;
payments $462 per month including
interest; collateralized by a vehicle 10,317
Secured series "B" convertible debentures
("Debentures"), interest 8%, maturing at
various times during June 2000. The
Debentures are convertible at any time
prior to maturity, at the option of the
holder, into common shares at a
conversion price equal to 65% of the
three day average closing bid price prior
to the date of conversion; secured by
real estate and personal property 250,000
---------
Long-term debt 395,300
Less current installments 254,693
---------
Long-term debt, less current installments $ 140,607
=========
The following is a schedule by year of the
principal payments required on long-term
debt:
2001 $ 254,693
2002 140,607
---------
$ 395,300
=========
Considering the beneficial conversion feature of the
debentures, the Company allocated $543,551 of the proceeds
raised from the issuance of these debentures, which
represents the intrinsic value of the conversion feature, to
additional paid-in capital. Because the debentures are
convertible at the date of issuance, the proceeds allocated
to additional paid-in capital have been charged to interest
expense at the date of issuance.
<PAGE> 22
(7) LEASE COMMITMENTS
Obligations Under Capital Leases
At April 1, 2000, the Company is obligated under a
long-term capital leases for equipment. The
following is a schedule by year of future minimum
lease payments under these capital leases.
2001 $ 7,365
2002 6,791
2003 6,791
2004 2,352
--------
Total lease payments 23,299
Less amount representing interest (6.5% - 8%) 2,698
--------
Present value of lease payments 20,601
Less current obligation 6,042
--------
Long-term capital lease obligation $ 14,559
========
Operating Leases
At April 1, 2000, 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 1, 2000.
2001 $ 4,998
2002 400
--------
$ 5,398
========
Rent expense amounted to approximately $22,000 and
$6,000 for the years ended April 1, 2000 and April
3, 1999, respectively.
<PAGE> 23
(8) 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 $4,600,000, which begin expiring in years
after 2011. Temporary differences giving rise to the deferred tax
assets consist primarily of the net operating loss carryforward.
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.
Deferred tax assets consist of the following at April 1, 2000:
Deferred tax assets:
Net operating loss carryforwards 1,723,000
Other 104,000
----------
Gross deferred tax assets 1,827,000
Valuation allowance 1,827,000
----------
Net deferred tax assets $ --
==========
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 beginning in years after 2011.
(9) COMMITMENTS AND CONTINGENCIES
A former officer of the Company filed suit against the Company for
immediate delegending of his 1,796,400 shares of common stock and for
amounts due under promissory notes and deferred salaries. This suit
was settled prior to April 1, 2000. In settlement of this claim, the
Company paid $55,000 and guaranteed a sales price of $.37 per share
for the former officer's outstanding common shares. The Company has
been notified that the former officer is asserting a shortfall from
the sale of his common shares of approximately $118,000. This amount
is included in accrued expenses in the accompanying financial
statements.
<PAGE> 24
(9) COMMITMENTS AND CONTINGENCIES, CONTINUED
Another former officer of the Company filed suit against the Company
for approximately $80,000 of accrued wages and loans that took the
form of a mortgage on the property. This claim also seeks 1,350,000
shares of the Company's common stock. The Company has accrued $80,000,
relating to the accrued wages and loans, in the accompanying financial
statements. However, the Company asserts that all or a majority of the
number of common shares due is a frivolous claim and has not included
any amount related to these shares in the accompanying financial
statements.
(10) 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 ($0.00 per share).
(11) 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 convertible at any time, at the option of the
holder, into common shares equal to $1,000 divided by the lower of (a)
65 percent of the average market price of the common stock for the
five trading days prior to the conversion date, or (b) $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.
As of April 1, 2000, approximately $37,000 of cumulative preferred
dividends are in arrears.
<PAGE> 25
(11) STOCK, CONTINUED
During the years ended April 1, 2000 and April 3, 1999, 1,476 and 824
shares, respectively, of the preferred stock were converted into
18,958,035 and 8,742,280 common shares, respectively. These
conversions include 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 1, 2000, would convert to a maximum of
approximately 1,150,000 common shares which reflects the 5% additional
shares issuable and unpaid dividends on the preferred stock.
The 1999 financial statements previously reflected preferred stock
dividends settled upon conversion of preferred stock to common stock
as a component of the preferred stock conversion. The 1999 financial
statements have been modified to reflect the common stock issued in
settlement of the preferred stock dividends as an increase to common
stock and a corresponding increase in accumulated deficit. There is no
impact to net loss or to total stockholders' equity.
During the year ended April 1, 2000, $900,000 of debentures were
converted into 12,394,597 common shares.
(12) STOCK OPTIONS
During the year ended April 1, 2000, the Company entered into
employment agreements with two officers of the Company. The employment
agreements include 6,000,000 stock options granted with an exercise
price of $.01. The stock options vest 20% immediately and 20% each
year for the next four years. The number of shares covered by these
stock options and the exercise price shall be proportionally adjusted
for any change in the number of issued shares subsequent to June 3,
1999. As of April 1, 2000, none of the 6,000,000 options had been
surrendered or exercised; 1,200,000 were exercisable.
The Company applies APB 25 and related interpretations in accounting
for the stock options. Accordingly, the Company recognized $494,000 in
compensation expense during the year ended April 1, 2000 related to
the stock options issued. For companies electing to use APB 25, SFAS
123 requires pro forma disclosures determined through the use of an
option-pricing model as if the provisions of SFAS 123 had been
adopted.
<PAGE> 26
(12) STOCK OPTIONS, CONTINUED
The weighted average fair value at the date of grant for options
granted during the year ended April 1, 2000 was $.27 per share. The
fair value of the options granted was estimated on the date of grant
using the Black-Scholes Option Pricing Model with the following
assumptions:
Expected dividend yield 0%
Expected volatility 174.16%
Risk free interest rate 5.3%
Expected term in years 4
If the Company had adopted the provisions of SFAS 123, net loss for
the year ended April 1, 2000 would have increased by $14,000 and basic
loss per share would remain unchanged.
(13) SUBSEQUENT EVENTS
Subsequent to April 1, 2000, a distributor of the Company's products
filed a civil claim against the Company for breach of contract. The
claim seeks specific performance under the contract and damages for
the alleged breach. The distributor is owned by the wife of the
Company's president and chief operating officer (COO). Additionally,
the wife of the Company's president and COO filed a civil complaint
against the Company's chief executive officer (CEO), several members
of the Board of Directors (excluding the president) and the Company.
This claim also seeks specific performance on the contract noted above
and removal of the CEO.
In release of the claims against all parties noted above, the CEO and
several members of the Board of Directors resigned subsequent to April
1, 2000. Additionally, the Company agreed to pay approximately $11,000
in attorney's fees and costs incurred by the plaintiff. This amount
has not been reflected in the accompanying financial statements.
<PAGE> 27
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
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, offices held with the Company, and
age of its directors and executive officers as of April 1, 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> 28
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.
Subsequent to April 1, 2000, Mr. Mersis resigned as Chairman of the Board and
Chief Executive Officer. Messrs. Evans, Potapow and Thomas also resigned as
Directors. Mr. Plunkett assumed the position of President and Chief Executive
Officer, and Mr. Douglas Cifers was elected as Chairman of the Board. Mr.
Cifers is owner/publisher of Florida Media, Inc., Florida's largest statewide
magazine publishing company
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 employment contracts with Emanuel J. Mersis and John C. Plunkett.
These contracts are for five-year terms.
Beginning with the fiscal year ending April 1, 2000, the Company began
compensating its directors.
<PAGE> 29
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
Restricted
Name and Other Annual Stock
Principal Position Year Salary Bonus Compensation (Value)
------------------ ---- ------ ----- ------------ ----------
Rand L. Gray 2000 0 0 0 0
Former CFO 1999 30,000 0 0 0
1998 30,000 0 0 125,000
Robert F. Guthrie 2000 0 0 0 19,000
Director 1999 0 0 0 0
1998 0 0 0 2,500
Renato P. Mariani 2000 0 0 0 19,000
Director
John S. McAvoy 2000 173,000(1) 0 0 0
Former 1999 32,000 0 0 0
President/CEO 1998 43,875 0 0 0
Emanuel J. Mersis 2000 50,346 0 0 8,000
CEO/Chairman of
the Board
John C. Plunkett 2000 62,192 0 0 95,342
President/COO 1999 28,000 0 0 0
1998 43,875 0 0 250,000
John G. Thomas 2000 0 0 0 8,000
Director
Note: 1. Represents payment of deferred salary, repayment of notes, and payment
of guaranties against stock liquidation
<PAGE> 30
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 1, 2000, 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.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class(1)
------------------------------- -------------------- --------
Emanuel J. Mersis (2) 3,850,000 6.53%
1315 Cleveland St.
Clearwater, FL 33755
John C. Plunkett (3) 1,450,000 2.46%
1315 Cleveland St.
Clearwater, FL 33755
Renato P. Mariani 900,000 1.53%
1315 Cleveland St.
Clearwater, FL 33755
Robert F. Guthrie 25,000 *
1315 Cleveland St.
Clearwater, FL 33755
John Thomas 421,067 *
1315 Cleveland St.
Clearwater, FL 33755
All Directors and Executive 6,646,067 11.27%
Officers as a Group (5 persons)
* less than 1%
(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 3,800,000 shares issuable upon exercise of options. Subsequent to
April 1, 2000, Mr. Mersis' rights to 3,800,000 option shares were rescinded
under the terms of his separation agreement.
(3) Includes 650,000 shares issuable upon exercise of options.
<PAGE> 31
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:
Number of Shares Exercise Price Expiration Date
---------------- -------------- ---------------
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
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%.
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. By settlement agreement dated February 11, 2000,
Mr. McAvoy's deferred salary was paid and loans were repaid via a lump-sum cash
payment in the amount of $55,000.
<PAGE> 32
Mr. John Plunkett's spouse is a significant stockholder in a corporation which
has an written 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.
On April 30, 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.
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.
On June 17, 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. The Company on June 25, 1999, paid off
the loan described above, retiring the note.
In April, 1999, the Company issued 500,000 restricted shares of common stock to
Olympus Capital for consulting services to be provided through April, 2000. In
May, 1999, the Company paid $150,000 and agreed to issue 100,000 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 $1,150,000 debenture. Olympus Capital was also granted options for
300,000 shares of common stock at exercise prices of $.30/share for the first
100,000 shares, $.35/share for the next 100,000 shares, and $.40/share for the
last 100,000 shares. On March 14, 2000, the exercise price for all 300,000
option shares was reduced
<PAGE> 33
to $.30/share and Olympus Capital exercised its options. Management has netted
these costs against the proceeds and has allocated a portion of the net
proceeds as a cost of the 100,000 shares issued.
As part of an Agreement and Release, dated January 26, 1999, Tom Vinton and
Dennis Zweig were issued options for 250,000 each of common stock at an
exercise price of $.25/share. On February 4, 2000, as an inducement to
exercise, the exercise price for both individuals was reduced to $.094/share
and both individuals exercised their options. Mr. Vinton offered to purchase an
additional 100,000 shares for $10,000 and his offer was accepted.
Mr. R. Bradshaw, Mr. E. J. Mersis and Mr. J. Spratt have loaned the Company
amounts for working capital. The total owed is $75,000 loaned on December 3,
1999, $151,000 in January 2000, and $75,000 in February 2000 respectively. Mr.
E. J. Mersis note was assumed by Mr. E. D. Cifers in June 2000.
<PAGE> 34
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Name
*3.1 Articles of Incorporation and all amendments thereto
*3.2 By-Laws
21.1 Subsidiaries
27 Financial Data Schedules
* 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 1, 2000.
<PAGE> 35
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 14, 2000 AQUA CLARA BOTTLING & DISTRIBUTION, INC.
By: /s/ John C. Plunkett
-------------------------------------
John C. Plunkett
President/C.E.O.
