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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
Commission File Number 0-28125
The Children's Beverage Group, Inc.
(Name of Small Business Issuer in its charter)
Delaware 87-0459103
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
237 Melvin Drive, Northbrook, Illinois 60062
(Address of Principal Executive Offices)
(847)562-4040
(Issuer's telephone number)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
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
Class March 1, 2000
Common Stock, $.0001 par value 29,462,504*
* Excludes 5,000,000 shares issued as collateral against a promissory note, see
Part II, Item 2 herein. Though issued, treated herein as not outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X .
--- ---
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TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements 3
Independent Accountants' Review Report 3
Condensed Balance Sheets - March 31,
2000 and December 31, 1999 4
Condensed Statements of Operations -
three months ended March 31, 2000 and 1999 5
Condensed Statements of Cash Flows -
three months ended March 31, 2000 and 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
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PART I
Item 1. FINANCIAL STATEMENTS
ACCOUNTANTS' REVIEW REPORT
The Children's Beverage Group, Inc.
Northbrook, Illinois
We have reviewed the accompanying condensed balance sheet of The Children's
Beverage Group, Inc. as of March 31, 2000, and the related condensed statements
of operations and cash flows for the three months ended March 31, 2000 and 1999.
All information included in these financial statements is the representation of
the management of The Children's Beverage Group, Inc.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review consists principally of
inquiries of Company personnel and analytical procedures applied to financial
data. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
The condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements as
modified by the instructions to Form 10-QSB by Regulation S-K. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Based on our review, with the exception described in the preceding paragraph, we
are not aware of any material modifications that should be made to the
accompanying condensed financial statements reviewed by us, in order for them to
be in conformity with generally accepted accounting principles.
/s/ DiRocco & Dombrow, P.A.
DiRocco & Dombrow, P.A.
May 12, 2000
Fort Lauderdale, Florida
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The Children's Beverage Group, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
================================================================================
March 31, December 31,
2000 1999
(Unaudited) (Audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 432 $ 9,653
Restricted investments 500,000 500,000
Accounts receivable - 6,176
Inventories 94,460 94,460
- --------------------------------------------------------------------------------
Total Current Assets 594,892 610,289
- --------------------------------------------------------------------------------
Property and Equipment, Net 5,542,502 4,851,163
Other Assets 609,999 624,137
- --------------------------------------------------------------------------------
$ 6,747,393 $ 6,085,589
================================================================================
Liabilities and Stockholders' (Deficit)
Current Liabilities
Accounts payable $ 1,248,655 $ 1,327,578
Accrued expenses 164,586 150,976
Capital lease obligations 766,998 766,998
Notes payable - bank 550,000 550,000
Notes payable - officer 458,349 447,899
- --------------------------------------------------------------------------------
Total Current Liabilities 3,188,588 3,243,451
- --------------------------------------------------------------------------------
Long-Term Liabilities
Industrial revenue bonds 6,292,088 5,080,254
- --------------------------------------------------------------------------------
Total Long-Term Liabilities 6,292,088 5,080,254
- --------------------------------------------------------------------------------
Total Liabilities 9,480,676 8,323,705
- --------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2 - 4)
Stockholders' (Deficit) (Notes 3 - 5)
Preferred stock, $.001 par value,
50,000,000 shares authorized,
1,000,000 shares outstanding 1,000 1,000
Common stock - $.0001 par value; 250,000,000
shares authorized, (Note 5) 2,946 2,946
Additional paid-in capital 6,629,751 6,629,751
Accumulated deficit (9,366,980) (8,871,813)
- --------------------------------------------------------------------------------
Total Stockholders' (Deficit) (2,733,283) (2,238,116)
- --------------------------------------------------------------------------------
$ 6,747,393 $ 6,085,589
================================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
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The Children's Beverage Group, Inc.
Condensed Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
===========================================================================
2000 1999
(Unaudited) (Unaudited)
===========================================================================
<S> <C> <C>
Net Sales $ - $ 401,073
Cost of Sales 1,519 413,900
- ---------------------------------------------------------------------------
Gross Loss (1,519) (12,827)
Selling, General, and Administrative Expenses 305,267 890,793
- ---------------------------------------------------------------------------
Loss From Operations (306,786) (903,620)
Interest Income 11,970 9,923
Interest Expense (200,351) (40,448)
- ---------------------------------------------------------------------------
Net Loss $ (495,167) $ (934,145)
===========================================================================
Basic and Diluted Net Loss Per Common Share $(0.02) $(0.04)
===========================================================================
Weighted Average Common
Shares Outstanding 29,462,504 26,336,337
===========================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
5
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The Children's Beverage Group, Inc.
Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
===============================================================================================================
2000 1999
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Used in Operating Activities
Net loss $ (495,167) $ (934,145)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 111,299 30,475
Noncash equity transaction charged to operations - 625,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable 6,176 23,022
Decrease (increase) in inventories - (122,960)
Increase (decrease) in accounts payable (78,923) 73,981
Increase in accrued expenses 13,610 -
- ---------------------------------------------------------------------------------------------------------------
Total adjustments 52,162 629,518
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (443,005) (304,627)
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (788,500) (151,320)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (788,500) (151,320)
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from bank notes payable - 2,500
Proceeds from notes payable and stockholder advances 10,450 490,447
Repayment of other notes payable - -
Capital lease obligation payments - (37,000)
Proceeds from Industrial Revenue Bonds 1,211,834 -
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,222,284 455,947
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (9,221) -
Cash and Cash Equivalents, at beginning of period 9,653 -
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 432 $ -
===============================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 138,342 $ 40,448
- ---------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Noncash Investing and Financing Activities
During 1999, the Company purchased machinery for $100,000 in exchange for common
stock. Accordingly, assets and equity were recorded for this amount.
Subsequently, the Company wrote-off this amount related to the
Sweet-Ripe litigation.
During 1999, the Company paid for $2,250,000 of advertising through the issuance
of common stock. Accordingly, assets and equity were recorded for this amount.
The asset amount was ratably charged to operations throughout the year with
$625,000 recorded in the first quarter.
===============================================================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis Of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of results for the interim periods. The accompanying financial
statements include estimated amounts and disclosures based on management's
assumptions about future events. Actual results may differ from those estimates.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year. Basic and diluted
earnings per share are the same due to the anti-dilutive nature of the options.
The condensed financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make information presented not misleading.
These financial statements should be read in conjunction with the
financial statements included in the Company's Form 10-KSB for the fiscal year
ended December 31, 1999, as filed with the Securities and Exchange Commission
and available under the EDGAR reporting system or from the Company.
The Company's ability to continue as a going concern is contingent upon
its ability to secure additional financing, reinitiate production and sale of
its products and attain profitable operations. In addition, the Company's
ability to continue as a going concern must be considered in light of the
problems, expenses and complications frequently encountered by entrance into
established markets and the competitive environment in which the Company
operates.
Management is pursuing various sources of debt and/or equity financing and
re-initiating production with a contract producer along with the build-out of a
plant in Rochester, New York utilizing financing through an Industrial Revenue
bond which closed in October 1999. Although the Company plans to pursue
additional financing and re-initiate production of its beverage product, there
can be no assurance that the Company will be able to secure financing when
needed or obtain such on terms satisfactory to the Company, if at all.
Furthermore, there can be no assurance that the Company will be able to
negotiate a contract with a manufacturing facility to produce its beverage
product as an interim measure until its Rochester plant is operational. Failure
to develop such an interim manufacturing arrangement may result in the Company
rapidly depleting available funds and may make sources of additional financing
reluctant to risk investing in the Company. Furthermore, failure to secure such
financing may result in the Company rapidly depleting its available funds and
not being able to comply with its payment obligations under its bank loans and
with vendors.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
2. Commitments and Contingencies
The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company, whereby Sweet Ripe bottled and packaged the
Company's beverage product using machinery provided by the Company. During the
course of dealing, there arose certain disputes between the parties as to a
variety of continuing manufacturing problems. Believing Sweet Ripe to be in
breach of its contractual duties, having provided an opportunity to cure, the
Company caused its bottling and packaging at Sweet Ripe to cease. In response,
Sweet Ripe refused to
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allow the Company to remove its machinery. Shortly thereafter, Sweet Ripe filed
a Notice of Intention to File a Proposal under the Canadian Bankruptcy and
Insolvency Act, which in effect, caused a stay of proceedings. The Company then
petitioned a Master of the Superior Court of Justice to lift the stay of
proceedings so that the Company could proceed with an action to recover the
manufacturing equipment. In arguing against the stay of proceedings, Sweet Ripe
asserted that the Company owes approximately $700,000 to Sweet Ripe. The Master
did not agree to lift the stay of proceedings but rather adjourned that matter
subject to any orders that the Bankruptcy Court might make with regard to the
matter. The Bankruptcy Court required the filing of a monetary proof of claim
which was filed in late January 2000 and the claim was denied due to Sweet
Ripe's counterclaim. The Company appealed that decision on February 16, 2000.
The appeal will likely be heard in June 2000 although a precise date has not yet
been agreed upon. The equipment at issue is valued at approximately $1.5
million. Two of the three major pieces of equipment at issue are leased and the
remaining equipment is owned by the Company. The Company has engaged outside
legal counsel to handle its legal representation with respect to any related
proceedings.
The Company had a contractual relationship with Warrenton Products, Inc.
("WPI"), a Missouri corporation, whereby WPI bottled and packaged the Company's
beverage product using machinery provided by the Company. During the course of
dealing, certain disputes arose between the parties about a variety of
manufacturing problems, including disagreements over production levels deemed
unsatisfactory by the Company. In November 1999, WPI unilaterally decided to
discontinue manufacturing the Company's product for its sole customer. The
Company contended that WPI breached its contractual obligations to the Company.
The Company entered into a letter of intent with WPI in December 1999 that would
subsequently allow for the reinitiating of production at WPI's facilities. Based
on WPI's unwillingness to cure conditions as provided for in either document,
the Company engaged outside legal counsel to handle its legal representation
with respect to any related proceedings.
On January 28, 2000, the Company filed a lawsuit against WPI in the U.S.
District Court in the Eastern District of Missouri. Besides recovering the
damages caused by WPI's discontinuing production, the Company has requested the
Court to release the three major pieces of the Company's production equipment
located at WPI which are valued at approximately $1.5 million. Two of the three
major pieces of equipment are owned and the remaining equipment is leased by the
Company. WPI has offered to release this equipment, and the Company is
negotiating a settlement amount with WPI for the release of the equipment.
On February 3, 2000, WPI filed a lawsuit against the Company alleging
damages of approximately $2.0 million plus interest, costs and punitive damages.
The Company intends to vigorously defend against the WPI claim and vigorously
prosecute its claim.
In February 2000, Capri Sun, Inc. and Rudolph Wild GMBH & Co. KG, a German
limited partnership, (collectively, the "Plaintiffs") filed a Motion to
Reinstate Case and Enforce Settlement Agreement in the Northern District of
Illinois, old case no. 97 C 1961 (Settlement Agreement). The Company has filed
its response to the Motion, and Plaintiffs' reply was filed on March 28, 2000.
The Company has denied three of the four alleged breaches raised by Capri Sun
and offers to discontinue use of the color blue on all future press runs of its
pouches.
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On February 3, 2000, WPI filed a lawsuit against the Company in the Circuit
Court of Warren County, Missouri. This lawsuit alleges breach of contract,
promissory estoppel and fraudulent misrepresentation, which alleges damages of
approximately $2.0 million plus interest and costs and also seeks punitive
damages. The Company intends to vigorously defend against the WPI claim and
prosecute its claim.
In February 2000, a contract was entered into to purchase an 80,000 square
foot manufacturing facility on a 7 1/2 acre site in Rochester, New York. This
contract provides for a $975,000 purchase price, with closing subject to
satisfactory environmental contamination testing, approval by the County of
Monroe Industrial Development Agency, and funding by the U.S. Department of
Housing and Urban Development to be completed by April 30, 2000.
The Company is involved in various other litigation incidental to its
business. It is the opinion of management that the outcome of such litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
3. Sole Customer, Contract Manufacturer and Concentration of Risk
All of the Company's sales during 1999 were to one customer. Outstanding
accounts receivable at March 31, 1999 was due from such customer. The Company
has stopped shipping product to the customer. The loss of this customer would
have a material adverse effect on the Company's financial condition and results
of operations.
Currently, the Company relies on one contract manufacturer to produce
juice products for its sole customer. As described in note 2, above, the
contract manufacturer discontinued production in November 1999. This
discontinuance has disrupted the Company's operations and no product has been
shipped to the Company's only customer since November 1999. Discussions took
place in an attempt to re-initiate production, but lack of cooperation has
resulted in the filing of a complaint against this contract manufacturer.
4. Stock Options
In February 2000, the Company initiated a Stock Option Plan (the "Plan")
that provides the ability to issue up to five million (5,000,000) of the
Company's common stock to its employees, directors or key service
providers/consultants with an exercise price above fair market value, as defined
in the Plan, at the date of grant. In conjunction with the Plan's adoption, the
board of directors approved the grant of incentive stock options, representing
2,033,200 shares of common stock, to all officers and full-time employees.
These options begin vesting within six (6) months after issuance and will be
fully vested at the second anniversary date of their grant, so long as the
option holder remains an employee of the Company. These issued options expire in
February 2005 and are exercisable at prices ranging from $0.62 to $0.68 per
share.
5. Promissory Note and Common Stock Collateral
During the three months ended March 31, 2000, the Company began negotiating
a Promissory Note arrangement whereby the lender promises to provide debt
financing of up to $750,000, payable by March 12, 2001, at an interest rate of
12%. This Promissory Note calls for the issuance of 5,000,000 shares of the
Company's common stock into an escrow account for the benefit of the lender to
act as collateral ("Collateral") which was issued at that time. The Collateral
is to be returned upon repayment of all principal and interest. The amount to be
loaned under this Promissory Note shall not exceed 25% of the Collateral's value
which as of the May 9, 2000 closing price of the stock, $0.375 per share, would
allow the lender to release a maximum loan amount of $468,750. As of May 10,
2000, no funds had been issued against the Promissory Note.
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6. Common Stock Issued and Outstanding
The Company has 250,000,000 shares of $.0001 par value common stock
authorized. As of March 31, 2000, 34,462,504 are shown as issued and
outstanding, but as discussed in Note 5, above, 5,000,000 shares are issued as
collateral against a Promissory Note which represents a contingent issuance.
Accordingly, only the remaining 29,462,504 shares of common stock will be
treated as issued and outstanding common stock as of March 31, 2000 for
accounting purposes, including the determination of weighted average common
stock outstanding for determining basic and diluted net loss per share. As of
March 31, 1999, 28,061,337 shares of common stock were issued and outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read with the Company's financial statements, including
the notes, included elsewhere in this Form 10-QSB.
Description of Business
The Children's Beverage Group, Inc. (the "Company"), located in Northbrook,
Illinois, intends to manufacture and distribute children's beverages to a single
customer with locations throughout the United States. The Company's products
were manufactured through co-packing relationships with third party
manufacturers. One co-packer entered into bankruptcy during 1999 and held major
equipment owned or leased by the Company. A second co-packer discontinued
production of the Company's beverage product and also held major pieces of
Company equipment. In February 2000, the Company and the second co-packer agreed
to release the major pieces of Company equipment held by them after receiving
payment for costs incurred which is being negotiated. Currently, the Company is
not manufacturing or distributing any children's beverages.
Overview
The Company has experienced recurring losses since inception and has
negative working capital and cash flows from operations. For the years ended
December 31, 1998 and 1999, the Company experienced a net loss of $1,985,420,
and $6,481,421 respectively. As of March 31, 2000, the Company has a working
capital deficit of $2,593,696.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing, re-initiate production and product
sales and attain profitable operations. In addition, the Company's ability to
continue as a going concern must be considered in light of the problems,
expenses and complications frequently encountered by entrance into established
markets and the competitive environment in which the Company operates.
Management is pursuing various sources of debt and equity financing.
Although the Company plans to pursue additional financing, there can be no
assurance that the Company will be able to secure financing when needed or
obtain financing on terms satisfactory to the Company. Failure to secure such
financing may result in the Company rapidly depleting its available funds.
Without such funds the Company would be unable to comply with its payment
obligations under its bank loans and with its vendors.
Additionally, the Company is pursuing avenues to re-initiate production of
its beverage products in 2000. A U.S. contract manufacturer, whom the Company
was utilizing to produce its beverage products, discontinued production in
November 1999. The Company has sued this U.S. contract manufacturer for breach
of contract. Furthermore, seeking an alternative producer requires the release
of major pieces of
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the equipment. All Company-owned and financed major pieces of equipment are
currently either held at the U.S. contract manufacturer's plant (three major
pieces of equipment) or with another Canadian contract manufacturer (another
three major pieces of equipment) who is currently in bankruptcy. The Company's
legal representatives in the bankruptcy proceedings believe that the equipment
in Canada should be released late in the second quarter of 2000, and the Company
is negotiating the release of the remaining equipment held by the U.S. contract
manufacturer. The Company anticipates that these six pieces of equipment will
need to be retrofitted upon release in order to increase the production to
expected rates. The Company is currently negotiating with the manufacturer to
have this equipment improved.
The Company closed on an Industrial Revenue Bond issuance in October 1999
relating to opening its own plant in Rochester, New York (the "Rochester
Plant"), currently planned to begin operations by late 2000. Additional debt
and/or equity financing will likely be needed to begin operations at the
Rochester Plant. No assurance can be given that the Company will be able to
arrange for interim production before the fourth quarter of 2000 or that the
Rochester Plant will be operational by that date. The Company is aggressively
seeking alternative interim production sources for its beverage products.
The Company has used approximately $1.3 million from the bond proceeds to
order eight additional pieces of production equipment, expected to cost a total
of approximately $4.5 million. Although the manufacturer has indicated that all
machines will be completed by August 2000, the Company is currently negotiating
with the manufacturer about certain alleged inadequacies with the machines. The
Company can make no assurances that its current dispute with the manufacturer
will be resolved in the foreseeable future or that the Company will have
machines that meet its production requirements. If the manufacturing problems
are not resolved soon, it is unlikely that production will commence in Rochester
as anticipated unless the other six machines are obtained from Sweet Ripe and
Warrenton.
In order to meet anticipated expenses over the next twelve months, the
Company intends to seek additional capital through the sale of common shares.
The Company is currently quoted on the OTC Bulletin Board. No underwriter, agent
or other person has agreed to assist the Company in distributing any of its
common shares, and no actions have been taken to ascertain whether to register
such shares under the Securities Act of 1933, as amended (the "Securities Act")
or rely on exemptions from registration to distribute such shares. No assurance
can be given that the Company will be able to sell securities or raise
additional financing to meet its operating needs, or that if available, such
sales could be effected on terms acceptable to the Company. If the Company is
not able to sell additional securities or raise additional financing to meet its
operating expenses, there is substantial doubt that the Company will be able to
continue as a going concern.
When the Company is operating, it expects sales to be seasonal. The juice
drink beverage industry generally experiences its highest sales by volume during
the spring and summer months and its lowest sales by volume during the winter
months. As a result, working capital requirements and cash flow vary
substantially throughout the year. Consumer demand for products is affected by
weather conditions. Cool, wet spring or summer weather could result in decreased
sales of product and could have an adverse effect on the Company's financial
position, cash flows and results of operations.
During the twelve-month period ended December 31, 1998, the Company's
activities were primarily directed to the development of the Company's business
plan, organizational structure, negotiations, financing, project evaluations and
relationship building. During the twelve-month period ended December 31, 1999,
the Company's activities expanded to include significant contract manufacturing
and distribution operations, thus, the Company ceased to be a development-stage
enterprise.
Results of Operations
The following selected financial information has been derived from the
Company's financial statements. The information set forth below is not
necessarily
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indicative of results of future operations and should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this Form
10-QSB.
The following table sets forth the percentage relationship to net sales of
principal items contained in the Company's Statements of Operations for the
quarter ended March 31, 1999. Since there were no sales for the quarter ended
March 31, 2000, no reasonable basis for percentage relationships exist and
accordingly none are reflected within the table. The percentages discussed
throughout this analysis are stated on an approximate basis.
<TABLE>
<CAPTION>
Quarters Ended
March 31,
2000 1999
------ ------
<S> <C> <C>
Net Sales N/A 100.0%
Cost of Sales N/A 103.2%
------ ------
Gross Profit N/A (3.2%)
Selling, general and
administrative expenses N/A 222.1%
------ ------
Operating loss N/A (225.3%)
Interest income N/A 2.5%
Interest expense N/A (10.1%)
------ ------
Net loss N/A (232.9%)
====== ======
</TABLE>
Net Sales. Net sales decreased to zero for the quarter ended March 31, 2000
from $401,073 for the quarter ended March 31, 1999. The decrease in net sales is
attributable to the Company's products being manufactured through a co-packing
relationship in 1999 with a third-party manufacturer. This co-packer entered
into bankruptcy during 1999. A second co-packer discontinued manufacturing the
Company's product in November 1999. All production and orders related to the
Company's sole customer, Wal-Mart. Sales and production ceased in November
1999.
Cost of Sales. Cost of sales decreased to $1,519 for the quarter ended
March 31, 2000 from $413,900 for the quarter ended March 31, 1999. The decrease
in cost of sales is attributable to the co-packing relationships ceasing during
1999, as described above. Primary components of cost of sales in 1999 were co-
packing fees, ingredients, packaging, freight costs and equipment repairs.
Selling, General and Administrative Expenses. Selling general and
administrative expenses decreased to $305,267 for the quarter ended March 31,
2000 from $890,793 for the quarter ended March 31, 1999. The decrease in
selling, general and administrative expenses in 2000 was primarily attributable
to a decrease in sales promotion expense of $625,000, which related to the
sponsorship of an Indy Racing League car team and to legal fees.
Interest Income. Interest income increased to $11,970 for the quarter ended
March 31, 2000 from $9,923 for the quarter ended March 31, 1999. The increase
was attributable to higher interest rates on funds invested in bank certificates
of deposit as required under the Company's bank line of credit arrangements.
Interest Expense. Interest expense increased to $200,351 for the quarter
ended March 31, 2000 from $40,448 for the quarter ended March 31, 1999. The
increase was primarily due to drawing down $5,080,254 of an Industrial Revenue
Bond in October 1999.
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Net Loss. The Company's net loss decreased to $495,167 for the quarter
ended March 31, 2000 from $934,145 for the quarter ended March 31, 1999. The
decrease in the Company's net loss was primarily attributable to a decrease in
sales promotion expense of $625,000, which related to the sponsorship of an Indy
Racing League car team and to legal fees offset by an nearly $160,000 increase
in interest expense.
Liquidity and Capital Resources
The Company's ability to continue as a going concern is contingent upon
its ability to secure additional financing and attain profitable operations.
In addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance into established markets and the competitive environment
in which the Company operates. In order to meet anticipated expenses over the
next twelve months, the Company intends to seek additional capital through the
sale of common shares. The Company is currently quoted on the OTC Bulletin
Board. No underwriter, agent or other person has agreed to assist the Company in
distributing any of its common shares, and no actions have been taken to
ascertain whether to register such shares under the Securities Act of 1933, as
amended (the "Securities Act") or rely on exemptions from registration to
distribute such shares. No assurance can be given that the Company will be able
to sell securities or raise additional financing to meet its operating needs, or
that if available, such sales could be effected on terms acceptable to the
Company. If the Company is not able to sell additional securities or raise
additional financing to meet its operating expenses, there is substantial doubt
that the Company will be able to continue as a going concern. Management
believes that sufficient capital resources will be generated from equity
investment and debt financing to provide necessary working capital for fiscal
year 2000.
The Company's principal cash requirements are for capital requirements for
building out its Rochester, New York plant, funding of ingredient and packaging
inventory necessary to fuel beginning operations, funding of accounts receivable
as a result of re-initiating operations, selling, general and administrative
expenses and employee costs. The Company's primary sources of cash have been
from sales of its children's beverage product which reduced the cash used in
operations and the proceeds from the issuance of Industrial Revenue Bonds
designated to and supporting the build-out of the Rochester, New York plant. The
Company is investigating various sources for additional financing, including
both equity infusion and debt facility arrangements, though no representation is
made as to the Company's ability to secure either forms of financing, or if
successful, whether may be dilutive to existing shareholders.
The Company has only started to generate significant revenues from its own
operations in the first eleven months of 1999, however, production and product
sales ceased in November 1999. Prior to the commencement of these operations,
the Company had nominal revenues due to the start-up nature of such operations,
substantial ongoing investment in business development efforts, and expenditures
to build the appropriate infrastructure to support its expected growth.
Consequently, the Company has been substantially dependent on debt financing to
fund its cash requirements.
The Company has two credit facilities under secured notes payable with
maturity dates of July 9, 2000 and September 5, 2000, respectively. The Company
can borrow a maximum of $500,000 and $50,000, respectively, under these
agreements. Borrowings are collateralized by substantially all the Company's
assets. Interest is paid monthly at the prime rate (currently 8.5%) and the
prime rate plus 1% (currently 9.5%), respectively. Borrowings of $550,000 were
outstanding on the lines as of March 31, 2000.
The Company made a payment of 2.2 million shares of common stock valued at
$2.25 million in 1999, related to obligations under a sponsorship agreement with
an Indy Racing League car team. The Company's logo was displayed on the racing
team's car and provided advertising for the Company.
In October 1999, the County of Monroe Industrial Development Agency (the
"Agency") issued $7.42 million of its Industrial Development Revenue Bonds,
Series 1999 (the "Bonds") under an Indenture of Trust dated as of October 1,
1999 (the "Indenture") by and between the Agency and the trustee. The Bonds were
issued by the
13
<PAGE>
Agency for the purpose of providing funds to the Company to finance certain
costs in connection with a project. The Company has received $6,292,088 of the
bond proceeds which has an interest rate of 8.75%. In connection with the Bond
deal, the Company has received a proposal for $2.56 million of financing
representing a combination of Section 108 from the Department of Housing and
Urban Development ("HUD") plus $1.0 million of working capital financing. The
original project terms were based on a facility which had significant
environmental clean-up issues. The Company and the Agency have identified
another facility in Rochester, New York. The Company anticipates that
manufacturing will commence in new facilities in late 2000. In February 2000,
the Company entered into a contract for the purchase of an 80,000 square foot
manufacturing facility on a 7 1/2 acre site for $975,000. The purchase is
subject to certain conditions prior to consummation: satisfactory environmental
contamination testing, approval by the County of Monroe Industrial Development
Agency, and funding by the U.S. Department of Housing and Urban Development.
Though the contract calls for an April 13, 2000 completion of these conditions,
as of May 3, 2000 the U.S. Department of Housing and Urban Development funding
has not been obtained.
In March 2000, the Company entered into a Promissory Note arrangement
whereby the lender promises to provide debt financing of up to $750,000 payable
by March 12, 2001 at an interest rate of 12%. This Promissory Note calls for
the issuance of 5,000,000 shares of the Company's common stock into an escrow
account for the benefit of the lender to act as collateral ("Collateral") which
was issued at that time. The Collateral is to be returned upon repayment of all
principal and interest. The amount to be loaned under this Promissory Note
shall not exceed 25% of the Collateral's value which as of the May 3, 2000
closing price of the stock, $0.37 per share, would allow the lender to release a
maximum loan amount of $462,500. As of May 3, 2000, no funds had been issued
against the Promissory Note.
Net cash used for the Company's operations was $443,005 and $304,627 for
the quarters ended March 31, 2000 and 1999, respectively. The increase in net
cash used for operating activities in the 2000 quarter was primarily due to
higher interest expense and working capital expenditures in the most recent
quarter.
Cash used in investing activities was for purchases of property and
equipment totaling $788,500 for the quarter ended March 31, 2000 and $151,320
for the quarter ended March 31, 1999. The increase in 1999 primarily was used
towards the purchases of major pieces of equipment integral in the manufacture
of the Company's beverage products for its Rochester, New York plant.
The Company's primary sources of liquidity have been from borrowings from
shareholders, a third-party lender, the bank and the proceeds from the
Industrial Revenue bond financing. Proceeds received from financing activities
were used for the Company's operations and purchases of property and equipment.
Net cash provided by financing activities was $1,222,284 and $455,947 for the
quarters ended March 31, 2000 and 1999, respectively. The increase in 2000
was primarily due to additional proceeds from the issuance of industrial revenue
bonds of $1,211,834 offset by a reduction in borrowings from shareholders.
Year 2000
The Company evaluated all its computer systems in the later half of 1999.
It was determined and reported in the December 31, 1999 Form 10-KSB that the
Company believed that the computer systems were Y2K compliant. There have been
no known Y2K problems as of May 3, 2000 and management believes that none will
be encountered.
Inflation
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
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
14
<PAGE>
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: the ability of the Company to provide for its
debt obligations and to provide for working capital needs from financing
sources, the ability of the Company to become operational utilizing either co-
packing arrangements or its plant in Rochester, New York and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Flavorchem Corporation Dispute
Flavorchem Corporation ("Plaintiff") v. The Children's Beverage Group, Inc.
and Jon Darmstadter, Case No. 98 M1-165579, filed in the Chancery Division of
the Circuit Court of Cook County, Illinois in December 1998. Flavorchem
Corporation is seeking $42,542.53, alleging breach of contract and losses
(interest) related thereto. The dispute arises out of an alleged breach of
contract (entered in 1996) between Beverage Pouch Systems, Inc. and Flavorchem
concerning certain flavoring ingredients. The claim alleges that the Company is
legally responsible for the alleged liability associated with the aforementioned
Beverage Pouch System contract with Flavorchem.
An appearance and answer have been filed on behalf of the Company. Pursuant
to a Motion to Strike Plaintiff's Affirmative Defenses, the Company filed
Amended Affirmative Defenses, which have not been answered or objected to as of
March 30, 2000. This matter was dismissed for Want of Prosecution on March 27,
2000, but was reinstated on April 26, 2000. Plaintiff has filed a First Request
for Interrogatories and Documents. The matter is scheduled for discovery status
on June 21, 2000.
Sweet Ripe Drinks, Ltd. Dispute
The Company had a contractual relationship with Sweet Ripe Drinks, Ltd.
("Sweet Ripe"), a Canadian company, whereby Sweet Ripe bottled and packaged the
Company's beverage product using machinery provided by the Company. During the
course of dealing, there arose certain disputes between the parties as to a
variety of continuing manufacturing problems. Believing Sweet Ripe to be in
breach of its contractual duties, having provided an opportunity to cure, the
Company caused its bottling and packaging at Sweet Ripe to cease. In response,
Sweet Ripe refused to allow the Company to remove its machinery. Shortly
thereafter, Sweet Ripe filed a Notice of Intention to File a Proposal under the
Canadian Bankruptcy and Insolvency Act, which in effect, caused a stay of
proceedings. The Company then petitioned a Master of the Superior Court of
Justice to lift the stay of proceedings so that the Company could proceed with
an action to recover the manufacturing equipment. In arguing against the stay of
proceedings, Sweet Ripe asserted that the Company owes approximately $700,000 to
Sweet Ripe. The Master did not agree to lift the stay of proceedings but rather
adjourned that matter subject to any orders that the Bankruptcy Court might make
with regard to the matter. The Bankruptcy Court required the filing of a
monetary proof of claim which was filed in late January 2000 and the claim was
denied due to Sweet Ripe's counterclaim. The Company appealed that decision on
February 16, 2000. The appeal will likely be heard in June 2000 although a
precise date has not yet been agreed upon. The equipment at issue is valued at
approximately $1.5 million. Two of the three major pieces of equipment at issue
are leased and the remaining equipment is owned by the Company. The Company has
engaged outside legal counsel to handle its legal representation with respect to
any related proceedings.
Warrenton Products, Inc. Dispute
The Company had a contractual relationship with Warrenton Products, Inc.
("WPI"), a Missouri corporation, whereby WPI bottled and packaged the Company's
15
<PAGE>
beverage product using machinery provided by the Company. During the course of
dealing, certain disputes arose between the parties about a variety of
manufacturing problems, including disagreements over production levels deemed
unsatisfactory by the Company. In November 1999, WPI unilaterally decided to
discontinue manufacturing the Company's product for its sole customer. The
Company contended that WPI breached its contractual obligations to the Company.
The Company entered into a letter of intent with WPI in December 1999 that would
subsequently allow for the reinitiating of production at WPI's facilities. Based
on WPI's unwillingness to cure conditions as provided for in either document,
the Company engaged outside legal counsel to handle its legal representation
with respect to any related proceedings.
On January 28, 2000, the Company filed a lawsuit against WPI in the U.S.
District Court in the Eastern District of Missouri. Besides recovering the
damages caused by WPI's discontinuing production, the Company has requested the
Court to release the three major pieces of the Company's production equipment
located at WPI which are valued at approximately $1.5 million. Two of the three
major pieces of equipment are owned and the remaining equipment is leased by the
Company. WPI has offered to release this equipment, and the Company is
negotiating a settlement amount with WPI for the release of the equipment.
On February 3, 2000, WPI filed a lawsuit against the Company in the Circuit
Court of Warren County, Missouri. This lawsuit alleges breach of contract,
promissory estoppel and fraudulent misrepresentation, which alleges damages of
approximately $2.0 million plus interest and costs and also seeks punitive
damages. The Company intends to vigorously defend against the WPI claim and
prosecute its claim.
Capri Sun Dispute
In February 2000, Capri Sun, Inc. ("Capri Sun") and Rudolph Wild GMBH & Co.
KG, a German limited partnership, (collectively, "Plaintiffs") filed a Motion to
Reinstate Case and Enforce Settlement Agreement in the Northern District of
Illinois, old case no. 97 C 1961 (Settlement Agreement). The Company has filed
its response to the Motion, and Plaintiffs' reply was filed on March 28, 2000.
The nature of the Motion is breach of contract. The contract in dispute is
a Settlement Agreement dated August 29, 1997 by and among Plaintiffs and Jon A.
Darmstadter (the Company's President and CEO) and the predecessors to the
Company (collectively, the "Defendants"). Pursuant to the Settlement Agreement,
the Defendants agreed to, among other things, refrain from using a pouch with
characteristics similar to Capri Sun's products. In this Motion, Plaintiffs
allege four purported breaches of the Settlement Agreement: (1) the relative
dimensions of the Company's pouches are different than allowed in the Settlement
Agreement; (2) the pouches are housed in cardboard boxes that look too much like
the rectangular-shaped boxes of Capri Sun; (3) the Company's website
misleadingly implies that the Company has a trademark license from Capri Sun;
and (4) the pouches use the color blue in contravention of the Settlement
Agreement. Plaintiffs allege no purported monetary injury as a result of any
alleged breaches, and only seeks "specific performance" of the Settlement
Agreement as their remedy. More specifically, Plaintiffs have requested that
the Company be ordered by the Court to discontinue the four alleged breaches.
The Company is vigorously defending the litigation. The Company has argued
in response to Plaintiffs' motion that the first three "breaches" are not
breaches at all since the Settlement Agreement does not address these issues
while the fourth breach would be cured by the Company removing the color blue on
all future press runs of the pouches.
The Company is involved in various other litigation incidental to its
business. It is the opinion of management that the outcome of such litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
16
<PAGE>
Item 2. CHANGES IN SECURITIES
(c) During the three months ended March 31, 2000, the Company is
negotiating a Promissory Note arrangement whereby the lender promises to provide
debt financing of up to $750,000, payable by March 12, 2001, at an interest rate
of 12%. This Promissory Note calls for the issuance of 5,000,000 shares of the
Company's common stock into an escrow account for the benefit of the lender to
act as collateral ("Collateral") which was issued at that time. The Collateral
is to be returned upon repayment of all principal and interest. The amount to be
loaned under this Promissory Note shall not exceed 25% of the Collateral's value
which as of the May 9, 2000 closing price of the stock, $0.375 per share, would
allow the lender to release a maximum loan amount of $468,750. As of May 10,
2000, no funds had been issued against the Promissory Note. This issuance was
claimed exempt from the registration requirements of the Securities Act of 1933
by reason of Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.10 Promissory Note of the Company to Ability Groups, Inc.,
dated: March 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE CHILDREN'S BEVERAGE GROUP, INC.
Date: May 15, 2000 By /s/Jon A. Darmstadter
-------------------------------------
Jon A. Darmstadter, Chairman,
President, & Chief Executive Officer
Date: May 15, 1999 By /s/ Edward R. Ferry
-------------------------------------
Edward R. Ferry,
Vice President
17
<PAGE>
Exhibit 10.10
Promissory Note
---------------
Amount
750,000USD
FOR VALUE RECEIVED, the Debtor The Children's Beverage Group, INC., A Delaware
Corporation ("Debtor") promises to pay Ability Group, Inc. (Lender") and or
assigns, or order the maximum principal some of Seven Hundred Fifty Thousand and
00/100 United States Dollars ($750,000 USD) with interest on the unpaid balance
from the date of this Note, until paid at the rate of twelve percent (12%) per
annum. The principal and interest shall be payable at 505 University Avenue,
Suite 1401, Toronto M5G 1X3 or such other place as the holder hereof may
designate in writing. Said principal amount and all accrued interest shall be
due and payable in full March 12, 2001. Interest shall be payable monthly with
the first installment being due and payable thirty (30) days from the date of
this Note.
Debtor shall post to Lender's escrow account 5,000,000 restricted shares of The
Children's Beverage Group stock as collateral for the above-referenced
indebtedness upon the execution hereof and upon repayment of the Note the stock
shall be returned to Debtor.
If any installment under this Note is not received by the holder hereof within
ten (10) calendar days after it is due, the Debtor shall pay to the holder
hereof a late charge of ten percent (10%) of such installment, such late charge
to be immediately due and payable without demand by the holder hereof.
On the happening to or by the Debtor of any of the following events, this Note
and all other obligations, direct or contingent, of the Debtor or endorser
hereof to Lender shall become due and payable immediately, without demand or
notice: making of any misrepresentation to the Lender for the purpose of
obtaining credit or an extension of credit; any assignment for the benefit of
creditors; voluntary or involuntary application for, or appointment of, a
receiver or filing a voluntary or involuntary petition under any of the
provisions of the federal bankruptcy laws.
From time to time, without affecting the obligation of the Debtor or the
successors or assigns of the Debtor to pay the outstanding principal balance of
this Note and observe the covenants of the Debtor contained herein, without
affecting the guaranty of any person corporation, partnership, or other entity
for payment of the outstanding principal balance of this note, without giving
notice or obtaining consent of the Debtor, the successors or assigns of the
Debtor or guarantors, and without liability on the part of the Lender, the
Lender may, at the Lender's option, extend the time for payment of said
outstanding principal balance or any part thereof, reduce the payment thereon,
release anyone liable on any of said outstanding principal balance, accept a
renewal of this Note, modify the terms and time of payment of said outstanding
principal balance, join in any extension of subordination agreement, release any
security given here for, take or release other or additional security, and agree
in writing with the Debtor to modify the rate of interest or change the amount
of annual installments payable hereunder.
Presentment, Notice of Dishonor, and protest are hereby waived by all makers,
sureties, guarantors, and endorsers hereof. This Note shall be the joint and
several obligations of all makers, sureties, guarantors, and endorsers and shall
be binding upon them and their successors and assigns.
Privilege is reserved to pay this note in full at any time by paying principal
and aggregate interest accrued to the full term of this Note, without prepayment
penalty. No partial prepayment may be made hereunder.
In the event of material breach of any provision, condition, covenant or
warranty herein by Debtor, Lender shall have the right to pursue injunctive
relief against Debtor in the spirit of remedying such a breach.
<PAGE>
Debtor herby waives any and all right to the posting of any inherent bond by the
Lender for pursuing said injunctive relief.
The parties hereto shall do and perform or cause to be performed all such
further acts and things and shall execute and deliver all such other agreements,
certificates, instruments, or documents as any other party may reasonably
request from time to time to carry out the intent and purposes of this Note.
This Note or any rights or obligations hereunder are assignable. This note
creates rights and duties between the parties hereto, in the event of an
Assignment; such Assign(s) must reaffirm such rights and duties under this Note.
Assignment by Debtor may only be completed by agreement of the Lender. Lender
reserves the sole right to Assign with due notice to Debtor.
All notices shall be in writing. Until further notice:
Lender's address for notices is:
Ability Group, Inc
Attn: Mr. Alan Franklin
505 University Avenue, Suite 1401
Toronto M5G 1X3
1-416-977-7030
Debtor's address for notices is:
The Children's Beverage Group
Attn: Mr. Jon Darmstadter
237 Melvin Drive
Northbrook, IL 60062
1-847-562-4040
Except as otherwise specifically provided, any notices to be given
hereunder shall be deemed given upon personal delivery or mailing thereof,
if mailed by U.S. Postal Service Certified Mail, Return Receipt Requested,
to the aforementioned addresses (or to such other address or addresses as
shall be specified in any notice given).
The provisions described herein are the entire agreement between the parties and
supersede all previous communications, representations, and agreements whether
verbal or written between the parties regarding the subject matter hereof.
Each covenant and condition of this Note shall incur to the benefit of and be
binding upon the parties hereto and their respective heirs, successors, and
assigns.
Whenever the masculine, feminine or neuter genders are used herein, as required
by the specific context or circumstance, they shall include each of the other
genders as appropriate. Whenever the singular or plural numbers are used, they
shall be deemed to be the other as required. Wherever the past or present tense
is utilized in this Note and the context or circumstances require another
interpretation, the present shall include the past and the future, the future
shall include the present, and the past shall include the present.
This Note may only be changed or modified and any provisions hereof may only be
waived in or by writing signed by the party against whom enforcement of any
waiver, change or modification is sought. This Agreement may only be amended in
writing by mutual consent of the parties unless otherwise provided for the
contrary within this Note.
This Note shall be construed as a whole and in accordance with its fair meaning.
This Note and all the schedules and exhibits incorporated herein by reference
shall be interpreted in accordance with the laws of
<PAGE>
the State of Maryland and will be deemed to have been executed in the County of
Montgomery, State of Maryland.
If any portion of this Note is unenforceable all other provisions shall be
binding and valid.
The Maker hereof authorizes and empowers any Justice of the Peace or Clerk of
any Court of record within the State of Maryland, having subject matter
jurisdiction, or any Attorney at Law admitted to practice in the State of
Maryland to enter judgment by confession, upon the occurrence of any default
hereunder of Debtor, against the Debtor and in favor of the Lender hereof for
the principal balance all fees and all accrued interest due hereunder plus costs
and 15% attorney's fees of the amount due and owing, expressly waiving summons
or other process, and does further consent to the immediate execution of said
Judgment, expressly waiving benefit of all execution laws and expressly waiving
notice of default or protest.
If any party shall at any time waive any rights hereunder resulting from any
breach by any party of any of the provisions of this Note, such waiver is not to
be construed as a continuing waiver of their breaches of the same or other
provisions of this Note. Resort of any remedies referred to herein shall not be
construed as a waiver of any other rights and remedies for which any party is
entitled under this Note or otherwise.
This Note may be executed in any number of counterparts, each of which is
considered to be an original, but all of which together are one and the same
document. Any changes handwritten or otherwise, must be signed by all
signatories or successor(s) or assign(s) thereto.
The above sum referenced hereinabove is subject solely conditional upon the
expected and anticipated transfer of from funds from lender's credit facility in
the sum exceeding Five Million United States Dollars ($5,000,000 USD), which
said indebtedness contemplated hereunder shall originate. In the event that
said credit facility not be made available to Lender referenced hereinabove,
this Note and the indebtedness hereunder and the related Pledge Agreement shall
become null and void.
It is also understood that the maximum allowable amount under this Note must
never exceed twenty-five percent (25%) of the pledged stock value. In the event
that the stock price is below that of the 25% value agreed to, upon notice, The
Children's Beverage Group must immediately deposit the difference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CHILDREN'S BEVERAGE
GROUP, INC. FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2000 AND 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1998
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 432 0
<SECURITIES> 500,000 500,000
<RECEIVABLES> 0 80,580
<ALLOWANCES> 0 0
<INVENTORY> 94,460 274,215
<CURRENT-ASSETS> 594,892 2,479,795
<PP&E> 5,906,516 1,994,109
<DEPRECIATION> 364,014 55,550
<TOTAL-ASSETS> 6,747,393 4,445,337
<CURRENT-LIABILITIES> 3,188,588 2,537,344
<BONDS> 6,292,088 0
0 0
1,000 1,000
<COMMON> 2,946 2,806
<OTHER-SE> (2,737,229) 1,904,187
<TOTAL-LIABILITY-AND-EQUITY> 6,747,393 4,445,337
<SALES> 0 401,073
<TOTAL-REVENUES> 0 401,073
<CGS> 1,519 413,900
<TOTAL-COSTS> 294,816 1,294,770
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 200,351 40,448
<INCOME-PRETAX> (495,167) (934,145)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (495,167) (934,145)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (495,167) (934,145)
<EPS-BASIC> (0.02) (0.04)
<EPS-DILUTED> (0.02) (0.04)
</TABLE>
