<PAGE>
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 June 30, 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 August 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 .
___ ---
1
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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 - June 30,
2000 and December 31, 1999 4
Condensed Statements of Operations -
three months ended June 30, 2000 and 1999 5
Condensed Statements of Operations -
six months ended June 30, 2000 and 1999 6
Condensed Statements of Cash Flows -
six months ended June 30, 2000 and 1999 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
2
<PAGE>
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 June 30, 2000, and the related condensed statements
of operations for the three months and six months ended June 30, 2000 and 1999
and cash flows for the six months ended June 30, 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.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999 and the related statements
of operations, stockholders' equity and cash flows for the year then ended (not
presented herein). In our report dated March 17, 2000, we expressed an
unqualified opinion on those financial statements, but we have not performed any
auditing procedures since that date.
/s/ DiRocco & Dombrow, P.A.
DiRocco & Dombrow, P.A.
August 10, 2000
Fort Lauderdale, Florida
<PAGE>
The Children's Beverage Group, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
==============================================================================
June 30, December 31,
2000 1999
(Unaudited) (Audited)
------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 14,999 $ 9,653
Restricted investments (Note 7) 500,000 500,000
Accounts receivable - 6,176
Inventories - 94,460
------------------------------------------------------------------------------
Total Current Assets 514,999 610,289
------------------------------------------------------------------------------
Property and Equipment, Net 5,445,341 4,851,163
Other Assets 595,861 624,137
------------------------------------------------------------------------------
$ 6,556,201 $ 6,085,589
==============================================================================
Liabilities and Stockholders' (Deficit)
Current Liabilities
Accounts payable $ 1,431,983 $ 1,327,578
Accrued expenses 301,372 150,976
Capital lease obligations 766,998 766,998
Notes payable - bank (Note 7) 550,000 550,000
Notes payable - officer 487,249 447,899
------------------------------------------------------------------------------
Total Current Liabilities 3,537,602 3,243,451
------------------------------------------------------------------------------
Long-Term Liabilities
Industrial revenue bonds 6,500,089 5,080,254
------------------------------------------------------------------------------
Total Long-Term Liabilities 6,500,089 5,080,254
------------------------------------------------------------------------------
Total Liabilities 10,037,691 8,323,705
------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2 - 5)
Stockholders' (Deficit) (Notes 4 - 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 6) 2,946 2,946
Additional paid-in capital 6,629,751 6,629,751
Accumulated deficit (10,115,187) (8,871,813)
------------------------------------------------------------------------------
Total Stockholders' (Deficit) (3,481,490) (2,238,116)
------------------------------------------------------------------------------
$ 6,556,201 $ 6,085,589
==============================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
<PAGE>
The Children's Beverage Group, Inc.
Condensed Statements of Operations
For the Three Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
==========================================================================
2000 1999
(Unaudited) (Unaudited)
--------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ - $ 1,386,193
Cost of Sales 131,763 1,570,923
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Gross Loss (131,763) (184,730)
Selling, General and Administrative Expenses 401,756 1,003,498
--------------------------------------------------------------------------
Loss From Operations (533,519) (1,188,228)
Interest Income - -
Interest Expense (210,688) (456,120)
--------------------------------------------------------------------------
Net Loss $ (744,207) $(1,644,348)
==========================================================================
Basic and Diluted Net Loss Per Common Share $(0.03) $(0.06)
==========================================================================
Weighted Average Common
Shares Outstanding 29,462,504 28,308,379
==========================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
<PAGE>
The Children's Beverage Group, Inc.
Condensed Statements of Operations
For the Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
==========================================================================
2000 1999
(Unaudited) (Unaudited)
==========================================================================
<S> <C> <C>
Net Sales $ - $ 1,787,266
Cost of Sales 133,282 1,984,823
--------------------------------------------------------------------------
Gross Loss (133,282) (197,557)
Selling, General and Administrative Expenses 711,023 1,894,291
--------------------------------------------------------------------------
Loss From Operations (840,305) (2,091,848)
Interest Income 11,970 9,923
Interest Expense (411,039) (496,568)
--------------------------------------------------------------------------
Net Loss $(1,239,374) $(2,578,493)
==========================================================================
Basic and Diluted Net Loss Per Common Share $ (0.04) $ 0.09)
==========================================================================
Weighted Average Common
Shares Outstanding 29,462,504 27,350,045
===========================================================================
</TABLE>
See accompanying summary of notes to unaudited condensed financial statements.
<PAGE>
The Children's Beverage Group, Inc.
Condensed Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
================================================================================================================================
2000 1999
(Unaudited) (Unaudited)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Used in Operating Activities
Net loss $(1,243,374) $(2,578,493)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 222,599 86,025
Noncash equity transaction charged to operations - 1,520,267
Changes in assets and liabilities
Decrease (increase) in accounts receivable 6,176 (371,576)
Decrease (increase) in inventories 94,460 (406,062)
Increase in other assets - (10,535)
Increase in accounts payable 104,405 738,299
Increase in accrued expenses 150,396 -
--------------------------------------------------------------------------------------------------------------------------------
Total adjustments 578,036 1,556,418
--------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (665,338) (1,022,075)
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of property and equipment (788,500) (181,829)
--------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (788,500) (181,829)
--------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from bank notes payable - 17,500
Proceeds from notes payable and stockholder advances 39,350 989,904
Use of restricted cash - 233,500
Capital lease obligation payments - (37,000)
Proceeds from Industrial Revenue Bonds 1,419,834 -
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,459,184 1,203,904
--------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 5,346 -
Cash and Cash Equivalents, at beginning of period 9,653 -
--------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, at end of period $ 14,999 $ -
================================================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 208,299 $ 101,301
================================================================================================================================
Supplemental Schedule of Noncash Investing and Financing Activities
During the period ended June 30, 1999, the Company converted $592,900 of
stockholder notes payable into common stock with a value of
$988,167. Accordingly, the reduction of debt was recorded with an
increase to equity. The excess value of the common stock at the
time of conversion was recorded as interest expense.
During the period ended June 30, 1999, the Company purchased machinery
for $513,000 in exchange for common stock and warrants. Accordingly,
assets and equity were recorded for this amount. Subsequently, the
Company wrote-off $100,000 of 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.
<PAGE>
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 and through additional funding from the City
of Rochester's Economic Development Department which is being negotiated.
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
<PAGE>
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 by the fourth quarter of 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 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. On June 8, 2000, the Federal Court ruled that the two lawsuits
are to be consolidated into one proceeding in the United States District Court
in St. Louis. As a result, the litigation pending in the Circuit Court of Warren
County has been removed to Federal Court. The parties are now beginning
discovery. The Company intends to vigorously defend against the WPI claim and
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.
On July 21, 2000, the presiding judge in this case issued a Memorandum
Opinion and Order refusing to reinstate the case, dismissing Plaintiffs Motion
and denying all relief. Specifically, on alleged breach number 4 (above), the
Court held that use of the color blue by the Company was de minims and the
Company had agreed to discontinue use of the color.
<PAGE>
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 ("HUD")to be completed by September 2000. The
Economic Development Department of the City of Rochester obtained approval from
the City Council to increase the proposed the HUD Section 108 loan from $2.0
million to $3,459,000. HUD has approved the loan, and The Economic Development
Authority projects that the funds will be released by the end of September 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 June 30, 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.
Also in 1999, the Company relied 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 six months ended June 30, 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 August 1, 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 August 2, 2000, no funds had been issued against the Promissory Note.
6. Common Stock Issued and Outstanding
The Company has 250,000,000 shares of $.0001 par value common stock
authorized. As of June 30, 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
<PAGE>
outstanding common stock as of June 30, 2000 for accounting purposes, including
the determination of weighted average common stock outstanding for determining
basic and diluted net loss per share. As of June 30, 1999, 29,049,504 shares of
common stock were issued and outstanding.
7. Subsequent Events
On July 19, 2000, the Company has relinquished the $500,000 bank line of
credit utilizing the restricted investments of $500,000 as reflected on the
balance sheet as of June 30, 2000 to pay off this loan. As a result, the bank
line of credit of $50,000 remains which is guaranteed by the president and
chairman of the board.
The Economic Development Department of the City of Rochester obtained
approval from the City Council to increase the proposed the HUD Section 108 loan
from $2.0 million to $3,459,000. HUD has approved the loan, and The Economic
Development Authority projects that the funds will be released by the end of
September 2000.
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 June 30, 2000, the Company has a working
capital deficit of $3,018,603.
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
<PAGE>
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 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 $1.36 million from the bond proceeds to
order eight additional pieces of production equipment, expected to cost a total
of approximately $4.53 million. 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 until 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.
<PAGE>
The following selected financial information has been derived from the
Company's financial statements. The information set forth below is not
necessarily 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
Three and six month periods ended June 30, 1999. Since there were no sales for
the Three and six month periods ended June 30, 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>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales N/A 100.0% N/A 100.0%
Cost of Sales N/A 113.3% N/A 111.0%
-------- ---------- --------- --------
Gross Profit N/A (13.3%) N/A (11.0%)
Selling, general and
administrative expenses N/A 72.4% N/A 106.0%
-------- ---------- --------- --------
Operating loss N/A (85.7%) N/A (117.0%)
Interest income N/A 0.0% N/A 0.5%
Interest expense N/A (32.9%) N/A (27.8%)
-------- ---------- --------- --------
Net loss N/A (118.6%) N/A 144.3%)
======== ========== ========= ========
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Sales. Net sales decreased to zero for the quarter ended June 30, 2000
from $1,386,193 for the quarter ended June 30, 1999. The decrease in net sales
is attributable to the Company's products being manufactured through a co-
packing relationship in 1999 with third-party manufacturers. One of these co-
packers entered into bankruptcy during 1999. The 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 $131,763 for the quarter ended
June 30, 2000 from $1,570,923 for the quarter ended June 30, 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. The
incurrence of cost of sales in 2000 primarily reflects the write-off of
inventory that has exceeded its safe usage date.
Selling, General and Administrative Expenses. Selling general and
administrative expenses decreased to $401,756 for the quarter ended June 30,
2000 from $1,003,498 for the quarter ended June 30, 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 offset primarily by an increase in
depreciation expense.
Interest Expense. Interest expense decreased to $210,688 for the quarter
ended June 30, 2000 from $456,120 for the quarter ended June 30, 1999. The
decrease was primarily due to the one-time incurrence of approximately $395,000
in interest expense related to the conversion of stockholder notes payable
during the June 30 1999 quarter offset by approximately $160,000 of interest
expense related to the Industrial Revenue Bonds debt initiated in October 1999.
<PAGE>
Net Loss. The Company's net loss decreased to $744,207 for the quarter
ended June 30, 2000 from $1,644,348 for the quarter ended June 30, 1999. The
decrease in the Company's net loss was primarily attributable to a decrease in
the loss on gross margin, a decrease in sales promotion expense of $625,000,
which related to the sponsorship of an Indy Racing League car team, and by a
nearly $235,000 decrease in interest expense.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Sales. Net sales decreased to zero for the six months ended June 30,
2000 from $1,787,266 for the six months ended June 30, 1999. The decrease in net
sales is attributable to the Company's products being manufactured through a co-
packing relationship in 1999 with third-party manufacturers. One of these co-
packers entered into bankruptcy during 1999. The 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 $133,282 for the six months
ended June 30, 2000 from $1,984,823 for the six months ended June 30, 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. The incurrence of cost of sales in 2000 primarily reflects the write-
off of inventory that has exceeded its safe usage date.
Selling, General and Administrative Expenses. Selling general and
administrative expenses decreased to $711,023 for the six months ended June 30,
2000 from $1,894,291 for the six months ended June 30, 1999. The decrease in
selling, general and administrative expenses in 2000 was primarily attributable
to a decrease in sales promotion expense of $1,250,000 which related to the
sponsorship of an Indy Racing League car team offset primarily by an increase in
depreciation expense.
Interest Income. Interest income increased to $11,970 for the six months
ended June 30, 2000 from $9,923 for the six months ended June 30, 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 decreased to $411,039 for the six
months ended June 30, 2000 from $496,568 for the six months ended June 30, 1999.
The decrease was primarily due to the one-time incurrence of approximately
$395,000 in interest expense related to the conversion of stockholder notes
payable during the June 30 1999 quarter offset primarily by an increase of
$325,000 of interest expense related to the Industrial Revenue Bonds debt
initiated in October 1999.
Net Loss. The Company's net loss decreased to $1,243,374 for the six
months ended June 30, 2000 from $2,578,493 for the six months ended June 30,
1999. The decrease in the Company's net loss was primarily attributable to a
decrease in sales promotion expense of $1,250,000, which related to the
sponsorship of an Indy Racing League car team in 1999, a reduction of $65,000 in
the loss at the gross margin level, a reduction of $85,000 in interest expense
offset primarily by an increase in depreciation 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
<PAGE>
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 June 30, 2000. Subsequent to June 30, 2000, the
Company has relinquished the $500,000 bank line of credit utilizing the
restricted investments of $500,000 as reflected on the balance sheet as of June
30, 2000 to pay off this loan.
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 Agency for the purpose of providing funds to the Company to
finance certain costs in connection with a project. The Company has received
$6,500,089 of the bond proceeds which bears interest at 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.
The contract has been amended to provide for closing consistent with HUD
approval.
<PAGE>
The Economic Development Department of the City of Rochester obtained
approval from the City Council to increase the proposed the HUD Section 108 loan
from $2.0 million to $3,459,000. HUD has approved the loan, and The Economic
Development Authority projects that the funds will be released by the end of
September 2000.
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 August 1, 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 August 2, 2000, no funds had been issued
against the Promissory Note.
Net cash used for the Company's operations was $665,338 and $1,022,075 for
the six months ended June 30, 2000 and 1999, respectively. The decrease in net
cash used for operating activities in the 2000 period was primarily due to the
use of working capital in the most recent quarter as a financing source.
Cash used in investing activities was for purchases of property and
equipment totaling $788,500 for the six months ended June 30, 2000 and $181,829
for the six months ended June 30, 1999. The increase in 2000 primarily was used
towards downpayments on 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, 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 $1,459,184 and $1,203,904 for the six months ended
June 30, 2000 and 1999, respectively. The increase in 2000 was primarily due
to additional proceeds from the issuance of industrial revenue bonds of
$1,419,800 during 2000 versus borrowings from shareholders of $989,900 and the
use of $233,500 restricted cash during 1999.
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 August 2, 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 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.
<PAGE>
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 was scheduled for
discovery status on June 21, 2000, but it has been delayed due to the illness of
one of the legal representatives in this matter.
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
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.
<PAGE>
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. On June 8, 2000, the Federal Court ruled that the two lawsuits
are to be consolidated into one proceeding in the United States District Court
in St. Louis. As a result, the litigation pending in the Circuit Court of Warren
County has been removed to Federal Court. The parties are now beginning
discovery. The Company intends to vigorously defend against the WPI claim and
prosecute its claim.
Capri Sun Dispute
On February 14, 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.
On July 21, 2000, the presiding judge in this case issued a Memorandum
Opinion and Order refusing to reinstate the case, dismissing Plaintiffs Motion
and denying all relief. Specifically, on alleged breach number 4 (above), the
Court held that use of the color blue by the Company was de minims and the
Company had agreed to discontinue use of the color.
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.
Item 2. CHANGES IN SECURITIES
(c) During the three months ended June 30, 2000, the Company continues
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
<PAGE>
of the August 1, 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 August 2, 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 5. OTHER INFORMATION
The Company's Chairman, CEO and President, Mr. Jon A. Darmstadter, has
informed the Company that he has received an offer to purchase his stock
ownership in the Company representing 6,519,731 shares (including 50,000 shares
held under beneficial ownership) of the Company's common stock and 1,000,000 of
the Company's preferred stock. Since his ownership represents effective voting
control (i.e., over 50% of the eligible voting shares outstanding), this
transaction could represent a change in control of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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: August 14, 2000 By /s/Jon A. Darmstadter
------------------------
Jon A. Darmstadter, Chairman,
President, & Chief Executive Officer
Date: August 14, 2000 By /s/ Edward R. Ferry
------------------------
Edward R. Ferry,
Vice President
