Consolidated Financial Statements
(Expressed in thousands of United States dollars, except where indicated)
CLEARLY CANADIAN BEVERAGE CORPORATION
Second Quarter Report for the three and six months ended June 30, 2007
(Amended as of January 15, 2008)
The accompanying Financial Statements for the six months ended June 30, 2007 have not been reviewed or audited by the Company’s Auditor
CLEARLY CANADIAN BEVERAGE CORPORATION |
Consolidated Balance Sheets |
(Expressed in thousands of United States dollars, except for share and per share amounts) |
(Amended as of January 15, 2008) |
June 30, 2007 | December 31, 2006 | |||||
(Unaudited) | (Audited) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 6,150 | $ | 5,267 | ||
Accounts receivable (note 6) | 1,544 | 634 | ||||
Inventories (note 7) | 1,991 | 427 | ||||
Prepaid expenses and other current assets | 715 | 533 | ||||
10,400 | 6,861 | |||||
Property, plant and equipment (note 8) | 1,614 | 1,153 | ||||
Prepaid contracts (note 15(a)) | - | 1,079 | ||||
Goodwill and intangible assets | 7,480 | - | ||||
$ | 19,494 | $ | 9,093 | |||
Liabilities and Shareholders’ Equity | ||||||
Bank indebtedness (note 5) | $ | 235 | $ | - | ||
Accounts payable and accrued liabilities (note 9) | 3,101 | 1,608 | ||||
Capital lease obligation, current portion (note 11) | 57 | 8 | ||||
Short-term debt (note 10) | 1,071 | - | ||||
$ | 4,464 | $ | 1,616 | |||
Capital lease obligation, net of current portion (note 11) | 168 | 13 | ||||
Long-term debt (note 12) | 4,886 | - | ||||
$ | 9,518 | $ | 1,629 | |||
Shareholders’ equity: | ||||||
Capital stock (notes 13 and 14): | ||||||
Authorized: | ||||||
Unlimited common share without par value | ||||||
Unlimited variable multiple voting shares without par value | ||||||
2,000,000 class A preferred shares | ||||||
2,000,000 class B preferred shares | ||||||
Outstanding –600,000 (2006 – 1,600,000) class B preferred shares | 600 | 1,600 | ||||
Issued – 20,597,702 (2006 – 13,917,153) common shares without par | ||||||
value | ||||||
Outstanding – 20,560,402 (2005 – 13,879,853) common shares | ||||||
without par value | 82,272 | 75,730 | ||||
Variable multiple voting shares – 1,120,000 (2006 – 320,000) | ||||||
Contributed surplus | 12,286 | 8,290 | ||||
Accumulated other comprehensive loss | (296 | ) | (1,101 | ) | ||
Deficit | (84,886 | ) | (77,055 | ) | ||
$ | 9,976 | $ | 7,464 | |||
$ | 19,494 | $ | 9,093 |
Going concern (note 3(a))
Commitments and contingencies (note 15)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
Director | ||
Director |
The accompanying Financial Statements for the six months ended June 30, 2007 have not been reviewed or audited by the Company’s Auditor
1
CLEARLY CANADIAN BEVERAGE CORPORATION |
Consolidated Statement of Operation and Comprehensive loss |
(Unaudited) |
(Expressed in thousands of United States dollars, except for share and per share amounts) |
Unaudited | Unaudited | |||||||||||
For the 3 months ended | For the 6 months ended | |||||||||||
June 30 | June 30 | June 30 | June 30 | |||||||||
2007 | 2006 | 2007 | 2006 | |||||||||
$ | $ | $ | $ | |||||||||
Sales | 2,996 | 2,673 | 4,463 | 4,375 | ||||||||
Cost of sales | 2,422 | 1,910 | 3,533 | 3,252 | ||||||||
Gross profit | 574 | 763 | 930 | 1,123 | ||||||||
Selling, general and administration expenses | 5,590 | 3,172 | 8,185 | 5,683 | ||||||||
Amortization of property, plant and equipment | 6 | 28 | 12 | 60 | ||||||||
Royalty revenue | - | (66 | ) | - | (125 | ) | ||||||
Interest income | (84 | ) | - | (147 | ) | - | ||||||
Other income expense | (6 | ) | (13 | ) | (13 | ) | (45 | ) | ||||
Interest on short-term debt | 6 | 34 | 10 | 125 | ||||||||
Interest on long-term debt | 1 | 14 | 3 | 24 | ||||||||
Interest on acquisition debt | - | - | - | - | ||||||||
Gain on sale of investments | - | - | - | (201 | ) | |||||||
Foreign exchange loss | 649 | - | 649 | - | ||||||||
Loss on settlement of debt | - | 93 | - | 158 | ||||||||
Restructuring expense | - | 125 | - | 112 | ||||||||
6,162 | 3,387 | 8,699 | 5,791 | |||||||||
Net loss earnings and comprehensive | ||||||||||||
loss for the period | (5,588 | ) | (2,624 | ) | (7,769 | ) | (4,668 | ) | ||||
Loss per share, basic and diluted | (0.29 | ) | (0.27 | ) | (0.42 | ) | (0.58 | ) | ||||
Weighted average number of shares | ||||||||||||
outstanding | 19,784,680 | 9,086,385 | 18,811,963 | 8,086,057 | ||||||||
See accompanying notes to consolidated financial statement |
The accompanying Financial Statements for the six months ended June 30, 2007 have not been reviewed or audited by the Company’s Auditor
2
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Balance, December 31, 2004 | 996,568 | 59,035 | - | - | - | - | - | 1,037 | (1,253 | ) | (62,334 | ) | (3,515 | ) | ||||||||||||||||
Private placement issued January | ||||||||||||||||||||||||||||||
14, 2005 at CA$2.50 per unit prior | ||||||||||||||||||||||||||||||
to consolidation | 46,500 | 97 | - | - | - | - | - | - | - | - | 97 | |||||||||||||||||||
Class A preferred shares issued on | ||||||||||||||||||||||||||||||
conversion of loan May 5, 2005 | - | - | - | 1,000,000 | 1,000 | - | - | - | - | - | 1,000 | |||||||||||||||||||
Private placement of class A | ||||||||||||||||||||||||||||||
preferred shares issued May 5, | ||||||||||||||||||||||||||||||
2005 at US$1.00 per share | - | - | - | 1,000,000 | 1,000 | - | - | - | - | - | 1,000 | |||||||||||||||||||
Private placement issued May 16, | ||||||||||||||||||||||||||||||
2005 at US$1.00 per share | 2,260,000 | 2,260 | - | - | - | - | - | - | - | - | 2,260 | |||||||||||||||||||
Private placement issued May 24, | ||||||||||||||||||||||||||||||
2005 at US$1.00 per share | 815,000 | 815 | - | - | - | - | - | - | - | - | 815 | |||||||||||||||||||
Finders fees – private placement – | ||||||||||||||||||||||||||||||
May 16, 2005 and May 24, 2005 | ||||||||||||||||||||||||||||||
issued at US$1.42 per share | 450,000 | 639 | - | - | - | - | - | - | - | - | 639 | |||||||||||||||||||
Share issue cost – private placement | (1,003 | ) | - | - | - | - | - | - | - | - | (1,003 | ) | ||||||||||||||||||
Stock dividend on class A preferred | ||||||||||||||||||||||||||||||
shares issued May 24, 2005 issued | ||||||||||||||||||||||||||||||
at market US$1.50 per share | 7,506 | 11 | - | - | - | - | - | - | - | (11 | ) | - | ||||||||||||||||||
Class A preferred shares converted | ||||||||||||||||||||||||||||||
to class B preferred shares | - | - | - | (2,000,000 | ) | (2,000 | ) | 2,000,000 | 2,000 | - | - | - | - | |||||||||||||||||
Stock dividend on class B preferred | ||||||||||||||||||||||||||||||
shares issued May 24, 2005 | ||||||||||||||||||||||||||||||
issued at market US$1.50 per | ||||||||||||||||||||||||||||||
share | 200,000 | 300 | - | - | - | - | - | - | - | (300 | ) | - | ||||||||||||||||||
Private placement issued May 27, | ||||||||||||||||||||||||||||||
2005 at US$1.00 per share | 635,953 | 634 | - | - | - | - | - | - | - | - | 634 | |||||||||||||||||||
Carryforward | 5,411,527 | 62,788 | - | - | - | 2,000,000 | 2,000 | 1,037 | (1,253 | ) | (62,645 | ) | 1,927 |
3
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 5,411,527 | 62,788 | - | - | - | 2,000,000 | 2,000 | 1,037 | (1,253 | ) | (62,645 | ) | 1,927 | |||||||||||||||||
Shares issued on September 30, | ||||||||||||||||||||||||||||||
2005 at market US$1.17 per | ||||||||||||||||||||||||||||||
share | 225,000 | 263 | - | - | - | - | - | - | - | - | 263 | |||||||||||||||||||
Share issued on October 17, 2005 at | ||||||||||||||||||||||||||||||
market US$1.38 per share | 25,000 | 34 | - | - | - | - | - | - | - | - | 34 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share | 105,000 | 105 | - | - | - | - | - | - | - | - | 105 | |||||||||||||||||||
Shares issued on November 30, | ||||||||||||||||||||||||||||||
2005 at US$2.00 per share | 222,825 | 446 | - | - | - | - | - | - | - | - | 446 | |||||||||||||||||||
Shares issued on November 30, | ||||||||||||||||||||||||||||||
2005 at US$2.00 per share | 75,000 | 150 | - | - | - | - | - | - | - | - | 150 | |||||||||||||||||||
Private placement issued December | ||||||||||||||||||||||||||||||
28, 2005 at US$1.25 per share | 800,000 | 1,000 | - | - | - | - | - | 35 | - | - | 1,035 | |||||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
December 28, 2005 | - | (30 | ) | - | - | - | - | - | - | - | - | (30 | ) | |||||||||||||||||
Share subscription receivable | - | - | (198 | ) | - | - | - | - | - | - | - | (198 | ) | |||||||||||||||||
Fair value of stock options issued | - | - | - | - | - | - | - | 1,612 | - | - | 1,612 | |||||||||||||||||||
Fair value of warrants issued for | ||||||||||||||||||||||||||||||
consulting services | - | - | - | - | - | - | - | 1,904 | - | - | 1,904 | |||||||||||||||||||
Restructuring cost | - | - | - | - | - | - | - | 221 | - | - | 221 | |||||||||||||||||||
Loss for the year | - | - | - | - | - | - | - | - | - | (6,069 | ) | (6,069 | ) | |||||||||||||||||
Exchange difference | - | - | - | - | - | - | - | - | 324 | - | 324 | |||||||||||||||||||
Balance, December 31, 2005 | 6,864,352 | 64,756 | (198 | ) | - | - | 2,000,000 | 2,000 | 4,809 | (929 | ) | (68,714 | ) | 1,724 | ||||||||||||||||
Share subscription received in | 198 | |||||||||||||||||||||||||||||
January, 2006 | - | - | 198 | - | - | - | - | - | - | - | ||||||||||||||||||||
Shares issued for settlement of debt | ||||||||||||||||||||||||||||||
on February 27, 2006 at US$2.00 | ||||||||||||||||||||||||||||||
per share | 100,000 | 238 | - | - | - | - | - | - | - | - | 238 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share | 1,122,500 | 1,122 | - | - | - | - | - | - | - | - | 1,122 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on March 1, 2006 at | ||||||||||||||||||||||||||||||
CA$2.30 per share | 28,260 | 58 | - | - | - | - | - | - | - | - | 58 | |||||||||||||||||||
Shares issued for settlement of debt | ||||||||||||||||||||||||||||||
on March 28, 2006 at US$2.62 per | ||||||||||||||||||||||||||||||
share | 40,000 | 102 | - | - | - | - | - | - | - | - | 102 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on March 31, 2006 at | ||||||||||||||||||||||||||||||
US$2.39 per share | 2,089 | 5 | - | - | - | - | - | - | - | - | 5 | |||||||||||||||||||
Carryforward | 8,157,201 | 66,281 | - | - | - | 2,000,000 | 2,000 | 4,809 | (929 | ) | (68,714 | ) | 3,447 |
4
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 8,157,201 | 66,281 | - | - | - | 2,000,000 | 2,000 | 4,809 | (929 | ) | (68,714 | ) | 3,447 | |||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on March 31, 2006 at | ||||||||||||||||||||||||||||||
US$2.30 per share | 2,175 | 5 | - | - | - | - | - | - | - | - | 5 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on April 12, 2006 at | ||||||||||||||||||||||||||||||
US$2.56 per share | 1,954 | 5 | - | - | - | - | - | - | - | - | 5 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on April 12, 2006 at | ||||||||||||||||||||||||||||||
US$2.56 per share | 29,308 | 75 | - | - | - | - | - | - | - | - | 75 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on April 17, 2006 at | ||||||||||||||||||||||||||||||
US$2.45 per share | 20,442 | 50 | - | - | - | - | - | - | - | - | 50 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on April 19, 2006 at | ||||||||||||||||||||||||||||||
US$2.35 per share | 18,915 | 44 | - | - | - | - | - | - | - | - | 44 | |||||||||||||||||||
Shares issued for settlement of debt | ||||||||||||||||||||||||||||||
on May 2, 2006 at US$2.62 per | ||||||||||||||||||||||||||||||
share | 88,885 | 233 | - | - | - | - | - | - | - | - | 233 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share | 45,000 | 45 | - | - | - | - | - | - | - | - | 45 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on May 4, 2006 at | ||||||||||||||||||||||||||||||
US$2.41 per share | 8,300 | 20 | - | - | - | - | - | - | - | - | 20 | |||||||||||||||||||
Private placement issued May 10, | ||||||||||||||||||||||||||||||
2006 at US$2.00 per share | 1,032,500 | 2,065 | - | - | - | - | - | - | - | - | 2,065 | |||||||||||||||||||
Private placement issued May 12, | ||||||||||||||||||||||||||||||
2006 at US$2.00 per share | 275,000 | 550 | - | - | - | - | - | - | - | - | 550 | |||||||||||||||||||
Private placement issued May 15, | ||||||||||||||||||||||||||||||
2006 at US$2.00 per share | 5,000 | 10 | - | - | - | - | - | - | - | - | 10 | |||||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
May 10, 2006 to May 15, 2006 | (314 | ) | - | - | - | - | - | - | - | - | (314 | ) | ||||||||||||||||||
Share issue cost – warrant private | ||||||||||||||||||||||||||||||
placement May 10, 2006 to May 15, | ||||||||||||||||||||||||||||||
2006 | - | (186 | ) | - | - | - | - | - | 186 | - | - | - | ||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on June 7, 2006 at | ||||||||||||||||||||||||||||||
US$2.05 per share | 19,630 | 40 | - | - | - | - | - | - | - | - | 40 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on June 9, 2006 at | ||||||||||||||||||||||||||||||
US$2.80 per share | 4,075 | 11 | - | - | - | - | - | - | - | - | 11 | |||||||||||||||||||
Carryforward | 9,708,385 | 68,934 | - | - | - | 2,000,000 | 2,000 | 4,995 | (929 | ) | (68,714 | ) | 6,286 |
5
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 9,708,385 | 68,934 | - | - | - | 2,000,000 | 2,000 | 4,995 | (929 | ) | (68,714 | ) | 6,286 | |||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
services on June 13, 2006 at | ||||||||||||||||||||||||||||||
US$2.80 per share | 10,715 | 30 | - | - | - | - | - | - | - | - | 30 | |||||||||||||||||||
Option exercised at US$1.19 per | ||||||||||||||||||||||||||||||
share | 16,106 | 19 | - | - | - | - | - | - | - | - | 19 | |||||||||||||||||||
Warrant exercised at US$1.25 per | ||||||||||||||||||||||||||||||
share | 30,000 | 37 | - | - | - | - | - | - | - | - | 37 | |||||||||||||||||||
Shares issued for services on July | ||||||||||||||||||||||||||||||
25, 2006 at US$3.29 per share | 9,312 | 31 | - | - | - | - | - | - | - | - | 31 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
lawsuits on July 13, 2006 at | ||||||||||||||||||||||||||||||
US$3.69 per share | 24,314 | 89 | - | - | - | - | - | - | - | - | 89 | |||||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
lawsuits on July 13, 2006 at | ||||||||||||||||||||||||||||||
US$2.40 per share | 600,000 | 1,440 | - | - | - | - | - | - | - | - | 1,440 | |||||||||||||||||||
Private placement issued on July 6, | ||||||||||||||||||||||||||||||
2006 to July 13, 2006 at US$2.75 | ||||||||||||||||||||||||||||||
per share | 1,205,000 | 3,314 | - | - | - | - | - | - | - | - | 3,314 | |||||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
July 6, 2006 to July 13, 2006 | - | (397 | ) | - | - | - | - | - | - | - | - | (397 | ) | |||||||||||||||||
Share issue cost – warrant private | ||||||||||||||||||||||||||||||
placement July 6, 2006 to July 13, | ||||||||||||||||||||||||||||||
2006 | - | (162 | ) | - | - | - | - | - | 162 | - | - | - | ||||||||||||||||||
Shares issued for services on July | ||||||||||||||||||||||||||||||
10, 2006 at US$3.92 per share | 4,197 | 16 | - | - | - | - | - | - | - | - | 16 | |||||||||||||||||||
Option exercised at US$2.00 per | 150 | |||||||||||||||||||||||||||||
share | 75,000 | 150 | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share | 30,000 | 30 | - | - | - | - | - | - | - | - | 30 | |||||||||||||||||||
Option exercised at US$1.19 per | ||||||||||||||||||||||||||||||
share | 16,102 | 19 | - | - | - | - | - | - | - | - | 19 | |||||||||||||||||||
Shares issued for services on August | ||||||||||||||||||||||||||||||
16, 2006 at US$3.28 per share | 4,121 | 13 | - | - | - | - | - | - | - | - | 13 | |||||||||||||||||||
Shares issued for services on August | ||||||||||||||||||||||||||||||
1, 2006 at US$2.30 per share | 140,000 | 322 | - | - | - | - | - | - | - | - | 322 | |||||||||||||||||||
Private placement completed August | ||||||||||||||||||||||||||||||
31, 2006 at US$3.00 per share | 333,334 | 1,000 | - | - | - | - | - | - | - | - | 1,000 | |||||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
August 31, 2006 | - | (120 | ) | - | - | - | - | - | - | - | - | (120 | ) | |||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
August 31, 2006 | - | (825 | ) | - | - | - | - | - | 825 | - | - | - | ||||||||||||||||||
Carryforward | 12,206,586 | 73,940 | - | - | - | 2,000,000 | 2,000 | 5,982 | (929 | ) | (68,714 | ) | 12,279 |
6
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 12,206,586 | 73,940 | - | - | - | 2,000,000 | 2,000 | 5,982 | (929 | ) | (68,714 | ) | 12,279 | |||||||||||||||||
Share issued for settlement of | ||||||||||||||||||||||||||||||
services on August 1, 2006 at | ||||||||||||||||||||||||||||||
US$2.30 per share | 4,395 | 14 | - | - | - | - | - | - | - | - | 14 | |||||||||||||||||||
Cash dividend on class B preferred | ||||||||||||||||||||||||||||||
paid on October 10, 2006 | - | - | - | - | - | - | - | - | - | (94 | ) | (94 | ) | |||||||||||||||||
Conversion of $150,000 preferred | ||||||||||||||||||||||||||||||
shares to common shares on | ||||||||||||||||||||||||||||||
November 21, 2006 | 615,000 | 150 | - | - | - | (150,000 | ) | (150 | ) | - | - | - | - | |||||||||||||||||
Conversion of $250,000 preferred | ||||||||||||||||||||||||||||||
shares to common shares on | ||||||||||||||||||||||||||||||
November 29, 2006 | 1,025,000 | 250 | - | - | - | (250,000 | ) | (250 | ) | - | - | - | - | |||||||||||||||||
Shares issued for settlement of | ||||||||||||||||||||||||||||||
lawsuits on December 11, 2006 at | ||||||||||||||||||||||||||||||
US$3.28 per share | 13,477 | 44 | - | - | - | - | - | - | - | - | 44 | |||||||||||||||||||
Shares issued for services on | ||||||||||||||||||||||||||||||
December 8, 2006 at US$2.38 per | ||||||||||||||||||||||||||||||
share | 4,235 | 10 | - | - | - | - | - | - | - | - | 10 | |||||||||||||||||||
Shares issued for services on | ||||||||||||||||||||||||||||||
December 8, 2006 at US2.66 per | ||||||||||||||||||||||||||||||
share | 4,498 | 12 | - | - | - | - | - | - | - | - | 12 | |||||||||||||||||||
Shares issued for services on | ||||||||||||||||||||||||||||||
December 8, 2006 at US$2.76 per | ||||||||||||||||||||||||||||||
share | 4,162 | 12 | - | - | - | - | - | - | - | - | 12 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share | 2,500 | 3 | - | - | - | - | - | - | - | - | 3 | |||||||||||||||||||
Paid-in capital – exercise of stock | ||||||||||||||||||||||||||||||
options | - | 1,304 | - | - | - | - | - | (1,304 | ) | - | - | - | ||||||||||||||||||
Fair value of stock options issued for | ||||||||||||||||||||||||||||||
the 12 months ended December 31, | ||||||||||||||||||||||||||||||
2006 | - | - | - | - | - | - | - | 3,310 | - | - | 3,310 | |||||||||||||||||||
Fair value of warrants issued for the | ||||||||||||||||||||||||||||||
12 months ended December 31, | ||||||||||||||||||||||||||||||
2006 | - | - | - | - | - | - | - | 302 | - | - | 302 | |||||||||||||||||||
Loss for the 12 months ended | ||||||||||||||||||||||||||||||
December 31, 2006 | - | - | - | - | - | - | - | - | - | (8,247 | ) | (8,247 | ) | |||||||||||||||||
Exchange difference | - | (9 | ) | - | - | - | - | - | - | (172 | ) | - | (181 | ) | ||||||||||||||||
Balance, December 31, 2006 | 13,879,853 | 75,730 | - | - | - | 1,600,000 | 1,600 | 8,290 | (1,101 | ) | (77,055 | ) | 7,464 |
7
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 13,879,853 | 75,730 | - | - | - | 1,600,000 | 1,600 | 8,290 | (1,101 | ) | (77,055 | ) | 7,464 | |||||||||||||||||
Option exercised at US$2.00 per | ||||||||||||||||||||||||||||||
share on January 11, 2007 | 36,000 | 72 | - | - | - | - | - | - | - | - | 72 | |||||||||||||||||||
Option exercised at US$2.10 per | ||||||||||||||||||||||||||||||
share on January 23, 2007 | 10,000 | 21 | - | - | - | - | - | - | - | - | 21 | |||||||||||||||||||
Shares issued for services on Jan | ||||||||||||||||||||||||||||||
22, 2007 at US2.38 per share | 3,874 | 9 | - | - | - | - | - | - | - | - | 9 | |||||||||||||||||||
Conversion of $500,000 preferred | ||||||||||||||||||||||||||||||
shares to common shares on | ||||||||||||||||||||||||||||||
January 7, 2007 | 2,050,000 | 500 | - | - | - | (500,000 | ) | (500 | ) | - | - | - | - | |||||||||||||||||
Conversion of $500,000 preferred | ||||||||||||||||||||||||||||||
shares to common shares on | ||||||||||||||||||||||||||||||
January 12, 2007 | 2,050,000 | 500 | - | - | - | (500,000 | ) | (500 | ) | - | - | - | - | |||||||||||||||||
Warrant exercised at US$1.25 per | ||||||||||||||||||||||||||||||
share on February 23, 2007 | 60,000 | 75 | ||||||||||||||||||||||||||||
- | - | - | - | - | - | - | - | 75 | ||||||||||||||||||||||
Option exercised at US$2.00 per | ||||||||||||||||||||||||||||||
share on February 25, 2007 | 37,500 | 75 | ||||||||||||||||||||||||||||
- | - | - | - | - | - | - | - | 75 | ||||||||||||||||||||||
Shares issued for services on | ||||||||||||||||||||||||||||||
February 25, 2007 at US2.91 per | ||||||||||||||||||||||||||||||
share | 4,074 | 12 | - | - | - | - | - | - | - | - | 12 | |||||||||||||||||||
Option exercised at US$2.00 per | ||||||||||||||||||||||||||||||
share on March 2, 2007 | ||||||||||||||||||||||||||||||
37,500 | 75 | - | - | - | - | - | - | - | - | 75 | ||||||||||||||||||||
Private placement issued on March | ||||||||||||||||||||||||||||||
14, 2007 to March 23, 2007 at | ||||||||||||||||||||||||||||||
US$3.00 per share | 833,000 | 2,499 | - | - | - | - | - | - | - | - | 2,499 | |||||||||||||||||||
Shares issued for services on May | ||||||||||||||||||||||||||||||
8, 2007 at US2.83 per share | ||||||||||||||||||||||||||||||
8,444 | 26 | - | - | - | - | - | - | - | - | 26 | ||||||||||||||||||||
Private placement issued on March | ||||||||||||||||||||||||||||||
30, 2007 at US$3.00 per share | ||||||||||||||||||||||||||||||
333,333 | 1,000 | - | - | - | - | - | - | - | - | 1,000 | ||||||||||||||||||||
Shares issued for services on April 3, | ||||||||||||||||||||||||||||||
2007 at US2.83 per share | ||||||||||||||||||||||||||||||
9,078 | 26 | - | - | - | - | - | - | - | - | 26 | ||||||||||||||||||||
Shares issued for services on May | ||||||||||||||||||||||||||||||
8, 2007 at US2.83 per share | ||||||||||||||||||||||||||||||
3,662 | 10 | - | - | - | - | - | - | - | - | 10 | ||||||||||||||||||||
Shares issued for services on May 8, | ||||||||||||||||||||||||||||||
2007 at US2.70 per share | ||||||||||||||||||||||||||||||
9,465 | 26 | - | - | - | - | - | - | - | - | 26 | ||||||||||||||||||||
Shares issued for services on May 8, | ||||||||||||||||||||||||||||||
2007 at US3.00 per share | ||||||||||||||||||||||||||||||
1,705 | 5 | - | - | - | - | - | - | - | - | 5 | ||||||||||||||||||||
Carryforward | 19,367,488 | 80,661 | - | - | - | 600,000 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 11,395 |
8
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 19,367,488 | 80,661 | - | - | - | 600,00 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 11,395 | |||||||||||||||||
Brokers warrant exercised at | ||||||||||||||||||||||||||||||
US$2.25 per share on May 14, | ||||||||||||||||||||||||||||||
2007 | 79,025 | 178 | - | - | - | - | - | - | - | 178 | ||||||||||||||||||||
Restricted shares issued for | ||||||||||||||||||||||||||||||
purchase of My Organic Baby at | ||||||||||||||||||||||||||||||
$2.76 per share on May 25, 2007 | 200,000 | 553 | - | - | - | - | - | - | - | - | 553 | |||||||||||||||||||
Non Lock Up restricted shares | ||||||||||||||||||||||||||||||
issued for purchase of My Organic | ||||||||||||||||||||||||||||||
Baby at $2.48 per share on May 25, | ||||||||||||||||||||||||||||||
2007 | 215,000 | 533 | - | - | - | - | - | - | - | - | 533 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on May 25, 2007 | 100,000 | 100 | - | - | - | - | - | - | - | - | 100 | |||||||||||||||||||
Option exercised at US$1.18 per | ||||||||||||||||||||||||||||||
share on June 1, 2007 | 9,872 | 12 | - | - | - | - | - | - | - | - | 12 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on June 7, 2007 | 50,,000 | 50 | - | - | - | - | - | - | - | - | 50 | |||||||||||||||||||
Shares issued for services on June | ||||||||||||||||||||||||||||||
7, 2007 at US2.64 per share | 10,135 | 27 | - | - | - | - | - | - | - | - | 27 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on June 7, 2007 | 50,000 | 50 | - | - | - | - | - | - | - | - | 50 | |||||||||||||||||||
Finders fee issued – private | ||||||||||||||||||||||||||||||
placement March 14 to 30, 2007 at | ||||||||||||||||||||||||||||||
US$2.42 per share on June 7, 2007 | 90,000 | 218 | - | - | - | - | - | - | - | - | 218 | |||||||||||||||||||
Shares issued for consideration on | ||||||||||||||||||||||||||||||
employment contract on June 8, | ||||||||||||||||||||||||||||||
2007 at US2.48 per share | 215,000 | 533 | - | - | - | - | - | - | - | 533 | ||||||||||||||||||||
Option exercised at US$1.18 per | ||||||||||||||||||||||||||||||
share on June18, 2007 | 7,922 | 9 | - | - | - | - | - | - | - | - | 9 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on June 20, 2007 | 10,,000 | 10 | - | - | - | - | - | - | - | - | 10 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on June 20, 2007 | 25,,000 | 50 | - | - | - | - | - | - | - | - | 50 | |||||||||||||||||||
Carryforward | 20,429,442 | 82,984 | - | - | - | 600,000 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 13,718 |
9
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of June 30, 2007 and December 31, 2006, 2005
Class A | Class B | |||||||||||||||||||||||||||||
Common shares | preferred shares | preferred shares | ||||||||||||||||||||||||||||
Share | ||||||||||||||||||||||||||||||
subscription | Cumulative | Shareholders’ | ||||||||||||||||||||||||||||
Number | receivable | Number | Number | Contributed | translation | equity | ||||||||||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | account | Deficit | (deficiency) | ||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Broughtforward | 20,429,442 | 82,984 | - | - | - | 600,000 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 13,718 | |||||||||||||||||
Option exercised at US$1.75 per | ||||||||||||||||||||||||||||||
share on June 20, 2007 | 117,500 | 206 | - | - | - | - | - | - | - | - | 206 | |||||||||||||||||||
Option exercised at US$1.00 per | ||||||||||||||||||||||||||||||
share on June 20, 2007 | 10,000 | 10 | - | - | - | - | - | - | - | - | 10 | |||||||||||||||||||
Cash dividend on class B preferred | ||||||||||||||||||||||||||||||
paid on June 20, 2007 | - | - | - | - | - | - | - | - | - | (61 | ) | (61 | ) | |||||||||||||||||
Option exercised at US$2.12 per | ||||||||||||||||||||||||||||||
share on June 21, 2007 | 3,460 | 7 | - | - | - | - | - | - | - | - | 7 | |||||||||||||||||||
Share issue cost – private placement | ||||||||||||||||||||||||||||||
March 14 to 30, 2007 | - | (70 | ) | - | - | - | - | - | - | - | - | (70 | ) | |||||||||||||||||
Share issue cost - Finders fees– | ||||||||||||||||||||||||||||||
private placement March 14 to 30, | ||||||||||||||||||||||||||||||
2007 | - | (218 | ) | - | - | - | - | - | - | (218 | ) | |||||||||||||||||||
Paid-in capital – exercise of stock | ||||||||||||||||||||||||||||||
options for the 6 months ended | ||||||||||||||||||||||||||||||
June 30, 2007 | - | 1,020 | - | - | - | - | - | (1,020 | ) | - | - | - | ||||||||||||||||||
Fair value of stock options issued for | ||||||||||||||||||||||||||||||
the 6 months ended June 30, 2007 | - | - | - | - | - | - | - | 2,235 | - | - | 2,235 | |||||||||||||||||||
Fair value of warrants issued for 6 | ||||||||||||||||||||||||||||||
months ended June 30, 2007 | - | (1,651 | ) | - | - | - | - | - | 1,651 | - | - | - | ||||||||||||||||||
Fair value of warrant for consulting | ||||||||||||||||||||||||||||||
agreement cancelled except for the | ||||||||||||||||||||||||||||||
warrant | - | - | - | - | - | - | - | 1,130 | - | - | 1,130 | |||||||||||||||||||
Loss for the 6 months ended June | ||||||||||||||||||||||||||||||
30, 2007 | - | - | - | - | - | - | - | - | - | (7,769 | ) | (7,769 | ) | |||||||||||||||||
Exchange difference | - | (16 | ) | - | - | - | - | - | - | 805 | - | 789 | ||||||||||||||||||
Balance, June 30, 2007 | 20,560,402 | 82,272 | - | - | - | 600,000 | 600 | 12,286 | (296 | ) | (84,885 | ) | 9,976 |
The accompanying Financial Statements for the six months ended June 30 2007 have not been reviewed or audited by the Company’s Auditor
10
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
(Expressed in thousands of United States dollars, except where indicated)
For the six months ended June 30, 2007 and 2006
Unaudited | Unaudited | |||||||||||
For the 3 months ended | For the 6 months ended | |||||||||||
June 30 | June 30 | June 30 | June 30 | |||||||||
2007 | 2006 | 2007 | 2006 | |||||||||
$ | $ | $ | $ | |||||||||
Cash flows from operating activities | ||||||||||||
Loss for the period | (5,588 | ) | (2,624 | ) | (7,769 | ) | (4,668 | ) | ||||
Items not involving cash (note 16(a)) | 2,137 | 1,881 | 3,518 | 2,736 | ||||||||
Changes in non-cash working capital balances | ||||||||||||
related to operations (note 16(b)) | 1,163 | (571 | ) | 795 | (17 | ) | ||||||
(2,288 | ) | (1,314 | ) | (3,456 | ) | (1,949 | ) | |||||
Cash flows from financing activities | ||||||||||||
Subscription payable (receivable) | - | 825 | - | 825 | ||||||||
Proceeds from issuance of capital stock and | ||||||||||||
warrants | 1,612 | 2,348 | 4,429 | 3,724 | ||||||||
Increase (decrease) in bank indebtedness | 40 | (221 | ) | 66 | (311 | ) | ||||||
Dividend paid on class B preferred shares | (61 | ) | - | (61 | ) | - | ||||||
Repayment of long-term debt | (14 | ) | - | (20 | ) | - | ||||||
1,577 | 2,952 | 4,414 | 4,238 | |||||||||
Cash flows from investing activities | ||||||||||||
Proceeds from sale of property, plant and | ||||||||||||
equipment | - | 358 | - | 358 | ||||||||
Proceeds from sale of long-term investment | - | - | - | 230 | ||||||||
Cash used in acquisition of DMR Food | ||||||||||||
Corporation | 33 | (355 | ) | - | ||||||||
Cash used in acquisition of My Organic Baby | ||||||||||||
Inc. | (355 | ) | (375 | ) | ||||||||
Purchase of property, plant and equipment | (27 | ) | (24 | ) | (27 | ) | (24 | ) | ||||
(415 | ) | 334 | (757 | ) | 564 | |||||||
Effect of exchange rates on cash and cash | ||||||||||||
equivalents | 599 | 182 | 682 | 194 | ||||||||
Increase (decrease) in cash and cash | ||||||||||||
equivalents | (527 | ) | 2,154 | 883 | 3,047 | |||||||
Cash and cash equivalents - Beginning of | ||||||||||||
period | 6,677 | 1,413 | 5,267 | 520 | ||||||||
Cash and cash equivalents - End of period | 6,150 | 3,567 | 6,150 | 3,567 | ||||||||
Interest paid | 7 | 48 | 13 | 149 | ||||||||
Income taxes paid | - | - | - | 36 | ||||||||
Supplementary cash flow information(note 16(c)) | ||||||||||||
See accompanying notes to consolidated financial statements. |
The accompanying Financial Statements for the six months ended June 30, 2007 have not been reviewed or audited by the Company’s Auditor
11
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
1. | Nature of operations: | |
The Company produces, distributes and markets beverage products, flavoured beverages, organic baby food and snack food products. The Company’s products are sold principally in the United States and Canada. | ||
2. | Financial statement presentation | |
These unaudited interim financial statements have been prepared in accordance with the accounting principles generally accepted in Canada for interim financial information and follow the same accounting policies and methods of their application as the Company’s most recent annual financial statements. These interim financial statements do not include all of the disclosure included in the annual financial statements, and accordingly, they should be read in conjunction with the annual financial statements for the year ended December 31, 2006. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year. | ||
These interim financial statements have been prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain respects from those accounting principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles and practices generally accepted in the United States. | ||
The accompanying Financial Statements for the six months ended June 30, 2007 have not been reviewed or audited by the Company’s Auditors. | ||
3. | Significant accounting policies: | |
(a) | Going concern: | |
The accompanying consolidated financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern. | ||
While these accompanying financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company had a loss of $7,769,000 for the six months ended June 30, 2007. At June 30, 2007 it has working capital of $5,846,000. Operations for the six months ended June 30, 2007 have been funded primarily from cash reserves raised by the issuance of capital stock. Management is in the opinion that cash and cash equivalents of $6.1 million at June 30, 2007 will provide sufficient working capital to meet the Company’s cash requirements until Q1 of 2008. | ||
Management has continued to take steps to try to improve the Company’s financial results and cash flows. These steps include liquidation of non-core investments and pursuing equity financing to fund working capital requirements. The Company’s ability to continue operations is contingent on its ability to obtain financing. Management believes that it will be able to secure the necessary financing; however, there is no assurance that management will be successful in achieving these objectives |
12
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
3. | Significant accounting policies (continued): |
These financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material. | |||
(b) | Principles of accounting: | ||
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP). These principles differ in certain respects from those accounting principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). | |||
(c) | Basis of presentation: | ||
These consolidated financial statements include the accounts of Clearly Canadian Beverage Corporation and its wholly owned subsidiaries, Clearly Canadian Beverage (International) Corporation, CC Beverage (US) Corporation, Blue Mountain Springs Ltd., DMR Food Corporation (o/a Sweet Selections) effective February 7, 2007 and My Organic Baby Inc effective May 24, 2007. | |||
In view of the consolidated nature of these financial statements, the term “Company”, as used herein, is sometimes used to refer to all of the consolidated companies collectively and, where the context or specific transactions require, is sometimes used to refer to certain of the consolidated companies individually. | |||
(d) | Foreign currency translation | ||
The Company uses the United States dollar as its reporting currency while the Company’s functional or “measurement” currency is the Canadian dollar. The assets and liabilities of the Canadian operations are translated into United States dollars at the rates of exchange at the balance sheet dates, and revenue and expenses are translated at the average rates of exchange for the periods of operation. Unrealized gains and losses arising on translation are recorded as a separate component of shareholders’ equity. | |||
Realized gains and losses on foreign currency transactions are included in the determination of loss for the period. | |||
(e) | Revenue recognition: | ||
Revenue is recognized at the time that shipment of product to the customer is confirmed by the shipper, which is the point at which the customer takes ownership of the product, provided that collectibility is reasonably assured. Distributors are contractually obligated to the Company for complete payment of products sold to them regardless of their ability to sell to retailers. A provision for returns is recorded in the period management becomes aware that it is probable that the product may be returned. For bill and hold transactions, the Company recognizes revenue at the time production is complete and the sale is invoiced to the customer. Revenue is recognized when the following criteria had been met: | |||
(1) | The risk of ownership have passed to the customer | ||
(2) | The customer have made a fixed commitment to purchase the goods in writing | ||
(3) | The customer request that the transaction be on a bill and hold basis | ||
(4) | The customer had a fixed schedule for the delivery of product | ||
(5) | The customer have retained specific performance obligations | ||
(6) | The products have been segregated from the Company’s inventory and are not subject to been used to fill other orders | ||
(7) | The product have been completed and ready for shipment | ||
(8) | The company expect customer to pay under its normal billing and credit term | ||
(9) | The Company does not expect risk of loss due to decline in the market value of goods | ||
(10) | The customer custodial risk are insurable and insured | ||
(11) | There are no exceptions to the customer commitment to accept and pay for the product sold |
13
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
3. | Significant accounting policies (continued): |
Royalty revenue is recognized as the Company is notified of the sale of the licensed product and when collectibility is reasonably assured. | ||
Funds received in advance of revenues being recognized are recorded as customer deposits. | ||
Effective January 1, 2006 the Company adopted EIC-156 of the Canadian Institute of Chartered Accountants concerningAccounting By A Vendor for Consideration Given to a Customer (Including a Reseller of the Vendors Products). All sales incentives to direct or indirect customers of the Company, including slotting fees, contractual marketing payments, coupons, rebates, free product and similar sales incentives are accounted for as a reduction of revenue when recognized by the Company in its Statement of Operations. Sales and selling expenses for all comparative periods presented have been reclassified to reflect such expenses in accordance with EIC-156. | ||
(f) | Inventories: | |
Inventories consist of raw materials and finished goods. Raw materials are valued at the lower of cost and market. Finished goods are valued at the lower of cost and net realizable value. Cost is determined on a first-in first-out basis. | ||
(g) | Property, plant and equipment: | |
Property, plant and equipment are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the following periods which represent estimated useful life: |
Asset | Rate |
Buildings | 30 years |
Equipment | 4 – 15 years |
Packaging equipment under capital | |
lease | Over the term of the lease |
Vehicle | 30% declining balance |
Leasehold improvements | Term of the lease |
(h) | Impairment of long-lived assets: | |
Long-lived assets, such as property, plant and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. |
14
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
3. | Significant accounting policies (continued): | ||
(i) | Goodwill | ||
Goodwill is the excess of the cost of an acquired business (DMR Food Corporation and My Organic Baby Inc.) over the net of the amount assigned to assets acquired less liabilities assumed. Goodwill is not subject to amortization. The carrying value is tested for impairment at least annually, and any excess over fair value will be charged to operation as impairment loss in the period. | |||
(j) | Stock-based compensation plan: | ||
The Company has stock-compensation plans, which are described in note 14. The Company accounts for all stock-based payments granted to employees and non-employees on or after January 1, 2002, using the fair value based method as per CICA Handbook Section 3870,Stock-Based Compensation and Other Stock-Based Paymentswhich requires entities to account for employee stock options using the fair value based method. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period. Consideration paid by employees on the exercise of stock options is recorded as capital stock. Stock-based payments to non- employees are measured at the fair value of the consideration received and are recognized as the options are earned. | |||
Consideration paid for stock on exercise of stock options is credited to capital stock. | |||
(k) | Cash and cash equivalents: | ||
Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of 90 days or less at the time of purchase. | |||
(l) | Use of estimates: | ||
The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant areas requiring the use of management estimates relate to the assessment of the fair market value of stock options and the carrying value of land and water sources. Actual results could differ materially from those estimates. | |||
(m) | Financial instruments: | ||
(i) | Fair value of financial instruments: | ||
The fair value of cash and cash equivalents, accounts receivable, bank indebtedness, and accounts payable and accrued liabilities corresponds to their carrying value due to their short-term nature. | |||
The carrying value of long-term debt and capital lease obligation approximates their fair value based upon the discount rates applied. |
15
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
3. | Significant accounting policies (continued): |
(ii) | Concentration of credit risk: | |
The Company grants credit to its customers in the normal course of business. Credit valuations are performed on a regular basis and the financial statements take into account an allowance for bad debts. At June 30, 2007, three customers represented 37% (June 30, 2006 – three customers represented 38.6%) of total accounts receivable. | ||
(iii) | Interest rate risk: | |
The US short-term bank credit facility bears interest at US prime rate plus 4% and the CA$ short term bank credit facility bears interest at CA$ prime rate plus 1.25%. | ||
The Company does not use derivative instruments to manage its exposure to interest rate risk. | ||
(iv) | Foreign exchange rate risk: | |
The majority of the Company’s revenues and selling costs, together with a material portion of its production costs are incurred in United States dollars. General and administration costs are incurred in Canadian dollars and the Company is therefore subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to manage its exposure to foreign exchange rate risk. |
(n) | Income taxes: | |
Income taxes are calculated using the liability method of accounting. Temporary differences arising from the difference between tax basis of an asset or a liability and its carrying value on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using income tax rates that are expected to apply to taxable income in the periods that the temporary differences are expected to reverse. A valuation allowance is recorded against any future tax asset if it is more likely than not the asset will not be realized. | ||
(o) | Advertising and marketing costs: | |
The Company expenses all advertising and marketing costs as incurred. For the six months ended June 30, 2007, the Company incurred marketing costs of $655,772 (2006 - $283,030). These costs are included in selling expenses. | ||
(p) | Loss per share: | |
Loss per share is computed by dividing the loss for the period by the weighted average number of common shares outstanding. Diluted loss per share is computed using the treasury method by including other potential common stock from exercise of stock options and warrants in the weighted average number of common shares outstanding for a period, if dilutive. Diluted loss per share is the same as basic loss per share since the exercise of stock options and warrants would be anti-dilutive |
16
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
3. | Significant accounting policies (continued): | |
(q) | Other significant accounting policies: | |
Effective January 1, 2007, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income; Section 3251, Equity; Section 3855, Financial Instruments – Recognition and Measurement; Section 3861 Financial Instruments – Disclosure and Presentation, and, Section 3865, Hedges, retroactively without restatement. These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide requirements for the recognition and measurement of financial instruments and on the use of hedge accounting. Section 1530 establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with generally accepted accounting principles. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated except to redefine amounts previously presented in shareholders’ equity as cumulative translation account to be accumulated other comprehensive loss. The adoption of these Handbook Sections had no impact on opening retained earnings. | ||
Under Section 3855, financial instruments must be classified into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments, including derivatives, are measured in the balance sheet at fair value except for loans and receivables, held-to- maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and recognition of changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts would be recorded in net income. | ||
Upon adoption of these new standards, the Company designated its cash, cash equivalents, and short-term investments as held-for-trading, which are measured at fair value. Accounts receivable and income taxes receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities. The Company had neither available-for-sale, nor held-to-maturity instruments during the six months ended June 30, 2007. The Company has not designated any financial liabilities as held-for-trading. |
17
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
4. | Acquisitions : |
On February 7, 2007, the Company completed the acquisition 100% of the shares of DMR Food Corporation operating under the name of Sweet Selection (“DMR”), a leading seller of organic and natural snack foods in Eastern Canada. The Company acquired the shares of DMR for an initial payment of CA$450,000 (US$380,000) in cash and warrants to purchase 3,000,000 of the Company’s common shares at a purchase price of US$4.00 per share within 3 years. If a gain of CA$2,550,000 is not realized by the holder from the sale of the warrant shares by February 7, 2008, the Company may be required to pay any shortfall up to a maximum of CA$ 2,550,000 (US$2,167,000). The amount of this corporate guarantee has been recorded as a current and long term liability, as applicable, by the Company. Should the Company ultimately not be required to pay any shortfall, the amount of recovery on the reduction of these liabilities will be recorded at that time. The debt is guaranteed by the Company. The results of operations of DMR Food Corporation have been consolidated from February 7, 2007 forward.
The following table summarizes the purchase consideration paid or payable and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price is preliminary and is subject to refinement. The Company may engage a third party for review of the value of goodwill acquired. The result of such review could materially alter the allocation of the purchase price of goodwill.
Purchase consideration | |||||||
Cash Paid | $ | 381 | |||||
Purchase price guarantee | |||||||
Current portion | $ | 1,050 | |||||
Long term portion | 1,117 | 2,167 | |||||
Business combination expenses | 31 | ||||||
Allocation of purchase consideration | 2,579 | ||||||
Assets | $ | ||||||
Cash | 49 | ||||||
Accounts receivable | 642 | ||||||
Inventory | 378 | ||||||
Plant and equipment | 284 | ||||||
Other current assets | 33 | 1,386 | |||||
Liabilties | |||||||
Accounts payable | 726 | ||||||
Bank Loan | 169 | ||||||
Capital lease obligation | 202 | (1,097 | ) | ||||
Net identifiable assets | 289 | ||||||
Excess of purchase consideration over net identifiable | 2,290 | ||||||
assets-Goodwill and intangible assets | |||||||
$ | 2.579 |
Excess of purchase consideration over net identifiable assets consist of intangible assets acquired comprised of trademarks, customer relationships, proprietary trade methodologies and goodwill which will be allocated in our annual financial statements for the year ended December 31, 2007 accordingly. As such, no amortization relating to such intangible assets acquired has been recorded to date.
18
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
4. | Acquisitions (continued) : |
On May 24 2007, the Company completed the acquisition 100% of the shares of My Organic Baby Inc. (“MOB”), a leading seller of organic baby food in Canada. The Company acquired the shares of MOB for an initial payment of CA$400,000 (US$369,000) in cash, 200,000 restricted common shares, 215,000 non lock up restricted common shares of the company, and warrants to purchase 3,750,000 of the Company’s common shares at a purchase price of US$4.00 per share within 3 years. If a gain of CA$600,000 is not realized from the sale of restricted shares within two year, the Company will pay any shortfall, and if CA$3,750,000 is not realized by the holder from the sale of the warrant shares by November 24, 2008, the Company may be required to pay any shortfall up to a maximum of CA$ 3,750,000 (US$3,459,000). The amount of this corporate guarantee has been recorded as a long term liability, as applicable, by the Company. Should the Company ultimately not be required to pay any shortfall, the amount of recovery on the reduction of these liabilities will be recorded at that time. The debt is guaranteed by the Company. The results of operations of My Organic Baby Inc. have been consolidated from May 24, 2007 forward.
The following table summarizes the purchase consideration paid or payable and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price is preliminary and is subject to refinement. The Company may engage a third party for review of the value of goodwill acquired. The result of such review could materially alter the allocation of the purchase price of goodwill.
Purchase consideration | |||||||
Cash Paid | $ | 369 | |||||
Restricted shares – 200,000 common shares | 553 | ||||||
Non lock up shares – 215,000 common shares | 533 | ||||||
Purchase price guarantee | |||||||
Current portion | $ | - | |||||
Long term portion | 3,458 | 3,458 | |||||
Allocation of purchase consideration | 4,913 | ||||||
Assets | $ | ||||||
Cash | 21 | ||||||
Accounts receivable | 445 | ||||||
Inventory | 142 | ||||||
Plant and equipment | 21 | ||||||
Other current assets | 131 | 760 | |||||
Liabilties | |||||||
Accounts payable | 686 | (686 | ) | ||||
Net identifiable assets | 74 | ||||||
Excess of purchase consideration over net identifiable | |||||||
assets-Goodwill and intangible assets | 4,839 | ||||||
$ | 4,913 |
Excess of purchase consideration over net identifiable assets consist of intangible assets acquired comprised of trademarks, customer relationships, proprietary trade methodologies and goodwill which will be allocated in our annual financial statements for the year ended December 31, 2007 accordingly. As such, no amortization relating to such intangible assets acquired has been recorded to date.
19
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
5. | Bank indebtedness: |
The Company’s subsidiary, CC Beverage (US) Corporation (“CC Beverage”), has an operating line of credit with an unspecified term available with a United States bank, which bears interest at US prime rate plus 4%. The borrowing facility is collateralized by a first lien on all accounts receivable and inventories of CC Beverage. CC Beverage can borrow up to the lesser of $1,000,000 and 80% of trade accounts receivable outstanding less than 60 days (as at June 30, 2007 - $387,700, June 30, 2006 - $385,000). The weighted average interest rate for the period ended June 30, 2007 was 12.25% (June 30, 2006 – 11.66%); As at June 30, 2007 nil (June 30, 2006 - $50,000) has been drawn on this line of credit. This operating line of credit is also secured by a corporate guarantee from the Company. | |
The Company’s subsidiary, DMR Food Corporation (“o/a Sweet Selection”), has a demand operating loan facility of CA$$250,000, bearing interest at Royal Bank of Canada prime lending rate plus 1.25% per annum. The facility is secured by a general security agreement covering all assets of Sweet Selection as well as guarantee and postponement of claims in the amount of CA$$455,000 by Clearly Canadian Beverage Corp. The weighted average interest rate from February 7, 2007 to June 30, 2007 was 7.25%. As of June 30, 2007 $235,000 has been drawn on this line of credit. | |
6. | Accounts receivable: |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Trade accounts receivable, net of allowance of $43,000 | $ | 1,331 | $ | 597 | |||
(2006 - $53,000) | |||||||
Other receivables | 213 | 37 | |||||
$ | 1,544 | $ | 634 | ||||
7. | Inventories: |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Finished goods | $ | 1,358 | $ | 280 | |||
Raw Materials | 633 | 147 | |||||
$ | 1,991 | $ | 427 | ||||
20
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
8. | Property, plant and equipment and assets: |
Accumulated | June 30, | ||||||||||||
2007 | |||||||||||||
2007 | amortization | Write-down | Net | ||||||||||
Land and water sources | $ | 1,135 | $ | - | $ | - | $ | 1,135 | |||||
Buildings | 1,147 | 1,091 | - | 56 | |||||||||
Equipment | 1,671 | 1,254 | - | 417 | |||||||||
Leasehold improvements | 79 | 79 | - | - | |||||||||
Vehicle | 23 | 17 | - | 6 | |||||||||
4,055 | 2,441 | - | 1,614 |
Accumulated | December 31 | ||||||||||||
2006 | |||||||||||||
2006 | amortization | Write-down | Net | ||||||||||
Land and water sources | $ | 1,035 | $ | - | $ | - | $ | 1,035 | |||||
Buildings | 1,047 | 996 | 51 | - | |||||||||
Equipment | 1,157 | 953 | 86 | 118 | |||||||||
Leasehold improvements | 67 | 67 | - | - | |||||||||
3,306 | 2,016 | 137 | 1,153 |
Included in the table above are changes arising from the fluctuation in the exchange rate between the Canadian and US dollar. | |
Included in equipment are assets under capital lease having a net book value of $225,800 at June 30, 2007 | |
9. | Accounts payable and accrued liabilities |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Trade accounts payable | $ | 2,209 | $ | 1,062 | |||
Marketing fees | 346 | 304 | |||||
Other accrued liabilities | 546 | 242 | |||||
$ | 3,101 | $ | 1,608 |
21
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
10. | Short-term debt: |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Advance payable to 1068199 Ontario Ltd., bearing | |||||||
interest at 4.25% per annum and are repayable in | |||||||
monthly blended payments of CA$2,341 | 21 | - | |||||
Acquisition debt on the purchase of DMR Food | |||||||
Corporation (Note 4) | 1,050 | ||||||
$ | 1,071 | $ | - |
11. | Capital lease obligation: |
The Company has entered into lease arrangements to acquire computer equipment. The liability under the capital leases represents the minimum lease payments payable net of imputed interest at an average rate of 18% per annum and is secured by the computer equipment. | |
The Company’s subsidiary has entered into lease arrangements to acquire packaging equipment. The liability under the capital leases represent the minimum lease payments payable net of imputed interest at an average rate of 6.70% to 6.75% per annum and is secured by the packaging equipment. | |
The obligation’s under capital leases consists of: |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Minimum lease payments payable | $ | 258 | $ | 26 | |||
Portion representing interest to be recorded over the | |||||||
remaining term of the lease | (33 | ) | (5 | ) | |||
225 | 21 | ||||||
Current portion | (57 | ) | (8 | ) | |||
$ | 168 | $ | 13 |
22
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
11. | Capital lease obligation (continued): |
Future minimum annual lease payments as at June 30, 2007 under the capital lease are as follows: |
2007 | $ | 33 | ||
2008 | 68 | |||
2009 | 56 | |||
2010 | 54 | |||
2011 | 47 | |||
$ | 258 |
12. | Long-term debt: |
June 30, | December 31 | ||||||
2007 | 2006 | ||||||
Acquisition debt – DMR Food Corporation (note 4) | 1,359 | ||||||
Acquistion debt – My Organic Baby Inc. (Note 4) | 3,527 | ||||||
$ | 4,886 | - |
13. | Capital stock: |
Authorized: | |
Common shares-limited voting shares, unlimited number, without par value Preferred Shares: |
(a) | 2,000,000 class A Preferred Shares with special rights and restrictions: | |
The class A Preferred Shares include the right to dividends in the amount of 10% per annum payable quarterly in advance (payable by the issuance of common shares of the Company calculated at a share price equal to the ten day average closing price of the Company’s common shares on the OTC Bulletin Board market preceding the date of issuance of such dividend shares), the right to one vote for each class A Preferred Share on any vote of the common shares of the Company, and the right of conversion into common shares of the Company at a conversion price equal to the ten day average trading price of the Company’s common shares on the OTC Bulletin Board market preceding the date of conversion. | ||
(b) | 2,000,000 Class B Preferred Shares with special rights and restrictions: |
23
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
13. | Capital stock (continued): |
(b) | (continued): |
The Class B Preferred Shares include the right to dividends in the amount of 10% per annum payable, in the first year, in advance, by the issuance of common shares of the Company at a price of US$1.00 per share, and thereafter in advance in monthly cash installments. Each class B Preferred Share had the right to five votes on any vote of the common shareholders. The class B Preferred Shares were convertible, in whole but not in part, into such number of common shares of the Company as would equal 50% of the number of fully diluted common shares of the Company immediately prior to the conversion of the class B Preferred Shares. With the agreement of the class B shareholder, BG Capital Group Ltd., and the approval of the shareholders on March 16, 2006, the conversion ratio was fixed at 4.1 common shares and 0.8 Variable Multiple Voting Shares for each one class B preferred shares.
Variable Multiple Voting Shares
On March 16, 2006, a special general meeting of shareholders was held, and the shareholders approved (a) the re-designation of the common shares as “Limited Voting Shares” and (b) the creation of a class of “Variable Multiple Voting Shares.” Holders of Variable Multiple Voting Shares are entitled to multiple votes at all meetings of common shareholders, and the number of votes attached to each Variable Multiple Voting Share is equal to the greater of (i) ten and (ii) ten times a fraction the numerator of which is the number of issued common shares and the denominator of which is the number of issued common shares on March 16, 2006. At March 31, 2007, the 1,120,000 issued and outstanding Variable Multiple Voting Shares entitles the holder to 20,614,980 votes of meeting of Shareholders.
On February 27, 2006, March 28, 2006 and May 2, 2006, Global (GMPC) Holdings Inc. converted $200,000 (CA$222,570), $80,000 (CA$89,250) and $177,770 (CA$188,000) of principal amount of loans into common shares at conversion prices ranging from US$2.00 to US$2.62 per share. The Company issued 100,000, 40,000 and 88,885 shares respectively.
On May 12, 2006, the Company entered into an agreement to surrender all of the Series A, B, C and D warrants issued in connection with the December 28, 2005 private placement agreement. In consideration therefore certain of the investors were granted Series A warrants for the purchase of a total of 4,120,000 shares at a price of US$1.25, exercisable within two years following the effective date on which the warrants are registered pursuant to a registration statement filed with the US Securities and Exchange Commission.
24
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
13. | Capital stock (continued): |
In May 2006, the Company completed a brokered private placement of 1,312,500 common shares issued at US$2.00 per share raising a total of $2,625,000. The Company paid broker’s fees of $183,050 and granted broker warrants to purchase 91,525 common shares at US$2.25 per share, vesting upon issuance and expiring in May, 2007. The Company paid an additional finders fee of $130,750 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until May 2007 to convert any or all of the finder’ fee into shares at a price of US$2.00 per share (maximum of 65,375 shares). | |
In July 2006, the Company completed a brokered private placement of 1,205,000 common shares issued at US$2.75 per share raising a total of $3,314,000. The Company paid broker’s fees of $259,462 and granted broker warrants to purchase 84,350 common shares at US$3.00 per share, vesting upon issuance and expiring in July, 2007. The Company paid an additional finders fee of $138,187 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until July, 2007 to convert any or all of the finder’s fee into shares at a price of US$2.75 per share (maximum of 50,250 shares). | |
In August 2006, the Company settled litigation with respect to its Blue Mountain Springs subsidiary. The terms of the settlement included the issuance of 624,314 shares with a fair value of $1,529,000. | |
In August 2006, the Company issued 140,000 common shares at US$2.30 per share to BG Capital, a controlling shareholder of the Company, under the terms of a management services contract now expired. | |
In August 2006, the Company completed a brokered private placement of 333,334 common shares issued at $3.00 per share, together with a warrant to purchase 333,334 common shares at $3.25 per share, vesting upon issuance and expiring in September, 2008, raising a total of $1,000,000. The Company paid broker’s fees of $70,000 and granted broker warrants to purchase 23,333 common shares at US$3.25 per share, vesting upon issuance and expiring in August, 2007. The Company paid an additional finders fee of $50,000 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until August, 2007 to convert any or all of the finder’s fee into shares at a price of US$3.00 per share (maximum of 16,666 shares). | |
In October 2006, the Company paid $94,246 to BG Capital in respect of dividends payable on class B Preferred Shares from May 12, 2006 to October 31, 2006. | |
In November 2006, BG Capital converted 400,000 Class B preferred shares for 1,640,000 common shares and 320,000 Multiple voting shares. In January, 2007, BG Capital converted 1,000,000 Class B preferred shares for 4,100,000 common shares and 800,000 multiple voting shares. |
25
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
13. | Capital stock (continued): | |
In March, 2007, the Company completed a brokered private placement of 1,166,333 common shares issued at $3.00 per share, together with a warrant to purchase 1,166,333 common shares at $3.25 per share, vesting on July, 2007 and expiring in March, 2009, raising a total of $3,499,000. The Company paid broker’s fees of $69,930 and granted broker warrants to purchase 23,333 common shares at US$3.25 per share, vesting on July, 2007 and expiring in March, 2009. The Company also paid a finders fees by issuing 90,000 common shares at $2.42 per share. | ||
In May, 2007, the completed the acquisition 100% of the shares of My Organic Baby Inc., the Company issued 200,000 restricted common shares and 215,000 non lock up restricted common shares (see note 4), and the Company also issued 215,000 common shares as consideration of employment agreement with the former officers and shareholders of My Organic Baby Inc. (see note 15(a). | ||
In June, 2007, the Company paid $61,150 to BG Capital in respect of dividends payable on class B Preferred Shares from November 1, 2006 to June 30, 2007. | ||
14. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares: | |
(a) | Stock options: | |
Under the April 29, 2005 stock plan, the Company may grant options to purchase up to 1,750,000 common shares of the Company, and under the 2006 equity incentive plan, the Company may grant options to purchase up to 10,000,000 common shares of the Company. Options may be issued under the stock option plan as determined at the sole discretion of the Company’s board of directors. Options may be issued for a term of up to 10 years at an exercise price to be determined by the Company’s board of directors, provided that the exercise price is not less than the average closing price of the Company’s shares for the 10 trading days proceeding the date on which the options are granted. All options vest immediately on issuance, or at the discretion of the Board of Directors. | ||
A summary of stock options granted by the Company is as follows: |
Weighted | |||||||
average exercise | |||||||
Number of options | price | ||||||
(000’s | ) | US$ | |||||
Options outstanding at December 31, 2005 | 1,617 | 1.77 | |||||
Granted | 2,216 | 1.79 | |||||
Expired | (18 | ) | 3.77 | ||||
Exercised | (1,307 | ) | 1.82 | ||||
Surrendered | - | - | |||||
Options outstanding at December 31, 2006 | 2,508 | 1.96 | |||||
Granted | 956 | 2.30 | |||||
Expired | - | - | |||||
Exercised | (505 | ) | 1.48 | ||||
Surrendered | (10 | ) | 2.77 | ||||
Options outstanding at June 30, 2007 | 2,949 | 2.18 | |||||
Options exercisable at June 30, 2007 | 1,723 | $ | 2.25 |
26
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
14. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): | |
(a) | Stock options (continued): | |
The number of options and their weighted average exercise price has been adjusted to reflect the ten for one consolidation of the common shares on May 2, 2005. | ||
For the 6 months ended June 30, 2007, the Company granted 955,658 options (June 30, 2006 – 2,122,000) under its stock option plans, of which options to acquire 609,166 shares (June 30, 2006 – 1,950,000) were granted to members of its Advisory Board, Directors and management. The fair value of the options granted for the 6 months ended June 30, 2007 is approximately $2.30 per share (June 30, 2006 $1.79). Stock based compensation expense of $1,221,000 has been recorded for the period (June 30, 2006 - $2,256,000). Stock based compensation of an additional $917,000. attributed to these grants has been allocated to services to be provided in the future. This amount will be recorded to contributed surplus and charged to operations over a one year period based on the estimated service life inherent in the grants. | ||
The Company has estimated the fair value of each option on the date of grant using the Black-Scholes Options Pricing model using the following assumptions: |
June 30, 2007 | June 30, 2006 | ||
Risk-free interest rate | 4.84% to 5.12% | 4.38% to 4.82% | |
Expected life of options | 1 to 5 years | 1 to 5 years | |
Expected volatility in the market price of | |||
the shares | 91% to 205% | 107% to 185% | |
Expected dividend yield | 0.0% | 0.0% | |
Weighted average grant date fair value | $1.86 | $2.30 |
(b) | Stock based compensation: |
June 30, 2006 | ||
Stock based compensation (see note 14 (a)) | 1,222 | |
Stock based compensation – warrant (see note 15 (a)) | 1,132 | |
Stock based compensation – option (see note 15 (a)) | 1,012 | |
3,366 |
(c) | Warrants: | |
The following table summarizes information about common share purchase warrants granted in equity financings and acquisitions to date which remain outstanding at June 30, 2007. Each warrant entitles the holder to purchase one common shares at the exercise price indicated. |
Exercise | Balance, | Balance, | |||||
price | December 31, | June 30, | Expiry | ||||
per share | 2006 | Cancelled | Granted | Expired | Exercised | 2007 | date |
US$2.25 (CA$2.39) | 91,525 | - | - | (12,500) | (79,025) | - | May 2007 |
US$3.00 (CA$3.19) | 84,350 | - | - | - | - | 84,350 | July 2007 |
US$3.25 (CA$3.45) | 356,667 | - | - | - | - | 356,667 | September 2008 |
US$1.25 (CA$1.32) | 4,090,000 | - | - | - | (60,000) | 4,030,000 | December 2007 |
US$3.25 (CA$3.45) | - | - | 856,333 | - | - | 856,333 | July, 2009 |
US$3.25 (CA$3.45) | - | - | 333,333 | - | - | 333,333 | April, 2009 |
US$4.00 (CA$4.26) | - | - | 3,000,000 | - | - | 3,000,000 | February 2010 |
US$4.00 (CA$4.26) | - | - | 3,750,000 | - | - | 3,750,000 | May, 2010 |
US$2.00 (CA$2.13) | 1,000,000 | - | - | - | - | 1,000,000 | October 2010 |
US$2.00 (CA$2.13) | 100,000 | - | - | - | - | 100,000 | July 2011 |
5,722,542 | - | 7,939,666 | (12,500) | (139,025) | 13,510,683 |
27
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
14. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): |
In the six months ended June 30 2007, the Company granted warrants to acquire 1,189,666 shares in a private placement described in note 13. These warrants had a fair value of $1,651,000, which amount has been charged as a cost of the share capital raised. The Company also granted warrants to acquire 3,000,000 shares and 3,750,000 at a price of $4.00 per share, having a fair value of nil due to the Company guarantee of the acquisition price, in connection with its acquisitions of DMR Food Corporation and My Organic Baby Inc.. | ||
(c) | Shareholders’ rights plan: | |
The Company has a Shareholders’ Rights Plan which is contained within a Rights Agreement dated October 1, 1990, and a Supermajority Amendment, which forms part of the Company’s articles. The Rights Plan expires on December 31, 2009. | ||
In general terms, the rights issuable under the Rights Plan permit shareholders to purchase the Company’s shares at 50% of the market price at the time of the occurrence of certain Triggering Events. Generally, a Triggering Event is where a party (Acquiring Person) endeavours to merge, amalgamate, acquire assets or acquire greater than 20% of the voting shares of the Company without the approval of the Company’s directors. An Acquiring Person who causes the Triggering Event to occur is specifically excluded from acquiring shares under the adjustment formula provided for in the Rights Agreement. The rights adjustment does not occur where an offer to acquire shares is determined to be a Qualified Offer. A Qualified Offer is an offer for all outstanding shares on terms determined by a majority of the Company’s directors as being in the best interest of the Company and its shareholders. |
15. | Commitments and contingencies: | |
(a) | Consulting contracts: | |
On November 1, 2005, the Company entered into a consulting agreement with a five-year term and recognized the expense related to the consulting agreement over the five-year term. As partial consideration under the consulting agreement, we issued warrants to purchase 1,000,000 of our common shares at an exercise price of $2.00 per share. The fair value of these warrants was $1,904,000, as determined using the Black-Scholes valuation method. On May 24, 2007, both parties terminated the consulting agreement and as result of the termination of agreement, the Company expensed remaining amount, total expenses for 6 months ending June 30, 2007 is $1,459,800. However, the cancellation of the consulting agreement did not cancel the warrants issued in connection with the consulting agreement. These warrants remain outstanding until October 31, 2010. We determined that the fair value of the outstanding warrants was $1,130,900, as determined using the Black-Scholes valuation method. We expensed the fair value of the warrants, and recorded the corresponding amount in equity, as of June 30, 2007. |
28
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
15. | Commitments and contingencies (continued): |
On June 5, 2006, the Company entered into marketing and consulting agreement with a term of three years. The Company issued options to purchase 1,075,000 common shares of the Company at $1.75 per share as consideration. The fair value of the option as determined using the Black-Scholes method was $2,999,000. The Company is recognizing the expense related to the agreement over the three year term of the agreement. During the 6 months ended June 30, 2007, the Company expensed $1,011,400 with respect to these options. | ||
On May 24, 2007, the Company entered into a employment agreements with former officers and shareholders of My Organic Baby Inc. for a term of three years. The Company issued 215,000 common shares at $2.48 per share as consideration. The Company expense $533,200 relating to the agreement (June 30, 2006 - $Nil). | ||
(b) | Dispute with D. Bruce Horton and Continental Consulting Ltd.: | |
In August 1999, a claim was filed against the Company in the Supreme Court of British Columbia by D. Bruce Horton and his company, Continental Consulting Ltd. (Continental). Mr. Horton is claiming compensation from the Company for allegedly constructively dismissing him as an officer of the Company. Continental is claiming compensation from the Company alleging that the Company terminated its management agreement without cause. Mr. Horton and Continental are claiming an aggregate of $2,060,000 (CA$2,400,000) plus interest and costs. The Company does not accept Mr. Horton’s and Continental’s allegations, and has filed statements of defence and has further filed counterclaims against Mr. Horton and Continental for monies owed and damages. The Company has recorded an accrual based on its expected costs. | ||
(c) | Ordinary course business proceedings: | |
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. Management is of the opinion that such claims will not have a material adverse effect on the Company’s future operations or financial position. | ||
(d) | With respect to the long-term indebtedness assumed by the purchaser of the private label co-pack bottling business during the year ended December 31, 2001, the Company’s subsidiary, CC Beverage, still remains as the primary borrower; however, the purchaser is under an obligation to obtain a release of such indebtedness. The purchaser holds a letter of credit with a United States bank to secure the long-term indebtedness. The Company has assessed its liability under this guarantee and determined the fair value to be nil. |
29
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
16. | Supplementary cash flow information: |
Unaudited | Unaudited | |||||||||
For the 3 months ended | For the 6 months ended | |||||||||
June 30, | June 30, | June 30, | June 30, | |||||||
2007 | 2006 | 2007 | 2006 | |||||||
$ | $ | $ | $ | |||||||
a) | Items not involving cash | |||||||||
Amortization of property, plant and | ||||||||||
equipment | 8 | 28 | 12 | 60 | ||||||
Stock-based compensation (see note 14(b)) | 2,035 | 1,387 | 3,366 | 2,256 | ||||||
Gain on sale of investment | - | - | - | (201 | ) | |||||
Services paid in stock | 94 | 343 | 140 | 343 | ||||||
Loss on settlement of debt | - | 93 | - | 158 | ||||||
Interest accretion | - | 30 | - | 120 | ||||||
2,137 | 1,881 | 3,518 | 2,736 | |||||||
b) | Changes in non-cash working capital | |||||||||
balances related to operations | ||||||||||
Accounts receivable | (379 | ) | (393 | ) | 176 | (647 | ) | |||
Inventories | (479 | ) | (206 | ) | (1,044 | ) | (88 | ) | ||
Prepaid expenses, deposits and other | ||||||||||
assets | (288 | ) | (84 | ) | (419 | ) | (54 | ) | ||
Prepaid contracts | 1,917 | 77 | 2,012 | 190 | ||||||
Accounts payable and accrued liabilities | 392 | 35 | 70 | 582 | ||||||
1,163 | (571 | ) | 795 | (17 | ) | |||||
c) | Non-cash investing and financing | |||||||||
activities | ||||||||||
Conversion of class B preferred shares to | ||||||||||
common shares | - | - | 1,000 | - | ||||||
Warrant granted in connection with private | ||||||||||
placement financing | 1,358 | - | 1,651 | - | ||||||
Liabilities recorded in connection with | ||||||||||
DMR Food Corporation acquisition | - | 1,944 | - | |||||||
Liabilities recorded in connection with My | ||||||||||
Organic Baby Inc acquisition | 3,102 | 3,102 | - | |||||||
Common shares issued for settlement of | ||||||||||
debt | - | 233 | 573 | 573 |
30
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
17. | Segmented information: |
The presentation of the segmented information is based on the way that management organizes the business for making operating decisions and assessing performance. The Company operates solely as a beverage, snack food and organic baby food business , selling flavoured water, carbonated beverages, natural and organic snack foods and organic baby foods products. Management uses geographic areas to monitor the business. The “other” segment represents sales outside North America. Management evaluates the performance of each segment based on the earnings (loss) from operations before the write-down of property, plant and equipment. | |
The transactions between segments are measured at the exchange value, which is the amount of consideration established and agreed to by each segment. |
Unaudited | Unaudited | ||||||||||||
For the 3 months ended | For the 6 months ended | ||||||||||||
June 30, 2007 | June 30, 2006 | June 30, 2007 | June 30, 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
Sales | |||||||||||||
Canada | |||||||||||||
Total sales | 1,671 | 539 | 2,452 | 755 | |||||||||
United States | |||||||||||||
Total sales | 1,325 | 2,134 | 2,011 | 3,620 | |||||||||
Less: Sales to other segments | (49 | ) | (37 | ) | (62 | ) | (83 | ) | |||||
Sales to external customers | 1,276 | 2,097 | 1,949 | 3,537 | |||||||||
Other | |||||||||||||
Sales to external customers | 49 | 37 | 62 | 83 | |||||||||
Total sales to external customers | 2,996 | 2,673 | 4,463 | 4,375 | |||||||||
Sales to external customers by product line | |||||||||||||
Beverage | 1785 | 2673 | 2704 | 4,375 | |||||||||
Snack Products | 1,002 | 1,550 | - | ||||||||||
Organic baby product | 209 | 209 | - | ||||||||||
2,996 | 2,673 | 4,463 | 4,375 | ||||||||||
Interest expense on short-term and long- | |||||||||||||
term debt | |||||||||||||
Canada | 6 | 37 | 10 | 128 | |||||||||
United States | 1 | 11 | 3 | 21 | |||||||||
7 | 48 | 13 | 149 | ||||||||||
Amortization | |||||||||||||
Canada | 6 | 28 | 12 | 60 | |||||||||
United States | - | - | - | - | |||||||||
6 | 28 | 12 | 60 |
31
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
Unaudited | Unaudited | ||||||||||||
For the 3 months ended | For the 6 months ended | ||||||||||||
Loss before income taxes, amortization of | |||||||||||||
intangible assets and write-down of | June 30, 2007 | June 30, 2006 | June 30, 2007 | June 30, 2006 | |||||||||
property, plant and equipment | $ | $ | $ | $ | |||||||||
Canada | (5,570 | ) | (2,385 | ) | (7,559 | ) | (4,202 | ) | |||||
United States | (18 | ) | (239 | ) | (210 | ) | (466 | ) | |||||
Other | - | - | - | - | |||||||||
(5,588 | ) | (2,624 | ) | (7,769 | ) | (4,668 | ) | ||||||
Loss for the period before income taxes | (5,588 | ) | (2,624 | ) | (7,769 | ) | (4,668 | ) |
June 30, 2007 | June 30, 2006 | ||||||
$ | $ | ||||||
Assets | |||||||
Canada | 17,143 | 8,766 | |||||
United States | 2,323 | 666 | |||||
Other | 28 | 28 | |||||
19,494 | 9,460 | ||||||
Assets held for sale | |||||||
Canada | - | - | |||||
United States | - | - | |||||
- | - | ||||||
Total assets | 19,494 | 9,460 | |||||
Property, plant and equipment additions | |||||||
Canada | 27 | 24 | |||||
United States | - | - | |||||
27 | 24 |
With respect to third parties, the Company has two customer (June 30, 2006 - two customers) that represent more than 10% of sales as noted below. Sales are on an unsecured open account basis under specific credit terms. The agreements allow the Company to make alternative distribution arrangements within the relevant territories under certain conditions, including a business failure of a distributor.
June 30, | June 30, 2006 | ||||||
2007 | |||||||
Customer A | 14% | 34% | |||||
Customer B | - | 17% | |||||
Customer C | 26% | - |
32
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America: |
As disclosed in the summary of significant accounting policies, these consolidated financial statements are prepared in accordance with Canadian GAAP which differs in certain respects from those principles and practices the Company would have followed had its consolidated financial statements been prepared in accordance with US GAAP.
Under US GAAP, the Company would report its consolidated financial statements as follows:
June 30, 2007 | December 31, 2006 | ||||||||||||
Canadian | US | Canadian | US | ||||||||||
GAAP | GAAP | GAAP | GAAP | ||||||||||
Consolidated balance sheets | $ | $ | $ | $ | |||||||||
Assets: | |||||||||||||
Current assets | 10,400 | 10,400 | 6,861 | 6,861 | |||||||||
Non-current assets (note a) | 9,094 | 9,094 | 2,232 | 2,232 | |||||||||
19,494 | 19,494 | 9,093 | 9,093 | ||||||||||
Liabilities: | |||||||||||||
Bank indebtedness | 235 | 235 | - | - | |||||||||
Accounts payable and accrued | |||||||||||||
liabilities | 3,101 | 3,101 | 1,608 | 1,608 | |||||||||
Capital lease obligation | 57 | 57 | 8 | 8 | |||||||||
Short-term debt | 1,071 | 1,071 | - | - | |||||||||
4,464 | 4,464 | 1,616 | 1,616 | ||||||||||
Capital lease obligation | 168 | 168 | 13 | 13 | |||||||||
Long-term debt (note c) | 4,886 | 4,886 | - | - | |||||||||
9,518 | 9,518 | 1,629 | 1,629 | ||||||||||
Shareholder’s equity (deficiency): | |||||||||||||
Capital stock | 82,872 | 82,872 | 77,330 | 77,330 | |||||||||
Share subscription receivable | - | - | - | - | |||||||||
Contributed surplus (note c) | 12,286 | 12,570 | 8,290 | 8,574 | |||||||||
Cumulative translation account | (296 | ) | (296 | ) | (1,101 | ) | (1,101 | ) | |||||
Deficit | (84,886 | ) | (85,170 | ) | (77,055 | ) | (77,339 | ) | |||||
9,976 | 9,976 | 7,464 | 7,464 | ||||||||||
19,494 | 19,494 | 9,093 | 9,093 |
33
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America(continued): |
June 30, 2007 | June 30, 2006 | ||||||
Loss for the year under Canadian GAAP | $ | (7,769 | ) | $ | (4,668 | ) | |
Difference in interest accretion under US | |||||||
GAAP (note c) | - | - | |||||
Loss for the year under US GAAP | (7,769 | ) | (4,668 | ) | |||
Gain on long-term investment (note a) | - | (195 | ) | ||||
Foreign currency translation adjustments | (1 | ) | 1 | ||||
Comprehensive loss under US GAAP | |||||||
(note d) | $ | (7,770 | ) | $ | (4,862 | ) | |
Basic and diluted loss per share under | |||||||
US GAAP | $ | (0.42 | ) | $ | (0.60 | ) | |
Weighted average number of shares | |||||||
outstanding | 18,811,963 | 8,086,057 |
No differences arise between US and Canadian GAAP in the presentation of the cash flow statement.
(a) | Unrealized holding gains (losses): | |
Under US GAAP, the long-term investments in publicly traded companies would be shown at fair market value. Unrealized holding gains or losses are recorded in other comprehensive income. Under Canadian GAAP, such long-term investments are recorded at cost less any impairment in value that is other than temporary. The difference between the carrying value and the fair market value of these investments was nil at December 31, 2006 (2005 - $195,000; 2004 - $14,000), as the gain was realized during the year ended December 31, 2006. | ||
(b) | Intangible | |
Excess of purchase consideration over net identifiable assets consist of intangible assets acquired comprised of trademarks, customer relationships, proprietary trade methodologies and goodwill which will be allocated in our annual financial statements for the year ended December 31, 2007 accordingly. As such, no amortization relating to such intangible assets acquired has been recorded to date. (see note 4) | ||
(c) | Convertible debentures: | |
During 2002, under US GAAP, the proceeds of $424,000 for the convertible debenture were allocated between the debt and detachable warrants based upon fair value using the Black- Scholes model. The fair value of the warrants, $155,000, and the balance of $269,000 were allocated to the liability component and the beneficial conversion feature. |
34
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America(continued): |
(c) | Convertible debentures (continued): | |
Value was allocated to the beneficial conversion feature associated with the convertible debenture. Based upon the allocated proceeds, the intrinsic conversion price was less than the commitment price. As a result, $155,000 was attributed to the beneficial conversion feature and the balance of $115,000, at the date of issuance of the convertible debenture, was recorded as the liability component. The amount was fully accreted in the prior year. The conversion feature expired December 2004 and $155,000 has been reclassified to contributed surplus as a result. | ||
On December 1, 2003, the terms of the convertible debenture were modified. As a result of the modification and the differences in allocations, as discussed above, a loss on settlement of $104,000 resulted under US GAAP. The discount accreted over the term of the modified debt resulting in an interest recovery of $34,666 in the year ended December 31, 2005 (2004 - $34,000). | ||
(d) | Comprehensive income (loss): | |
Comprehensive income is defined as the change in equity from transactions and other events and circumstances other than those resulting from investments by owners and distributions to owners. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). As of June 30, 2006, the Company’s accumulated other comprehensive income was solely represented by the cumulative translation adjustment of $296,000, which is separately shown as separate component of the equity in the balance sheet above. | ||
(e) | Stock-based compensation: | |
Effective January 1, 2005, the Company adopted FAS 123,Share-Based Payment, using the modified prospective application transition method. Under this transition method, the fair value basis of accounting for stock based compensation has been applied to all new grants after January 1, 2005, and to prior grants only in the case where the grants awarded are modified, repurchased or cancelled. There are no grants with unearned service life as at the adoption date. | ||
Effective January 1, 2006, the Company adopted FAS 123(R),Share-Based Payment. FAS 123(R) requires the Company to estimate forfeitures of stock-based awards at the time the award is issued. Under Canadian GAAP, the Company accounts for forfeitures as they occur. For the year ended December 31, 2006, this difference did not have a material impact on recognized compensation expense. |
35
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America(continued): |
(e) | Stock-based compensation (continued): | |
For 2004, recognized compensation expense for the Company’s stock option plans had been determined based on the fair value at the grant date for awards under those plans consistent with the provisions of FAS 123(R), the Company’s loss for the year and loss per share under US GAAP would have been as follows: |
2004 | ||||
Loss in accordance with US GAAP, as reported | $ | (5,471 | ) | |
Employee stock option expense | (23 | ) | ||
Proforma loss in accordance with US GAAP | $ | (5,494 | ) | |
Proforma loss per share, basic and diluted in accordance with US | ||||
GAAP, in dollars | $ | 7.09 |
Under Canadian GAAP, the Company adopted the new provisions of the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3870 onStock-Based Compensation and Other Stock-Based Payments, which requires companies to adopt the fair value based method for all stock-based awards granted on or after January 1, 2002. As a result, the Company is required to expense stock options issued to employees and directors. The Company has applied the new provisions retroactively by a charge to retained earnings and a corresponding increase to contributed surplus in the amount of $525,000 on January 1, 2004 with respect to employee stock options granted in 2003 and 2002. | ||
(f) | Rental paid under operating leases: | |
US GAAP requires disclosure of the total expense related to rentals paid under operating leases. The total amount included in the operating statements for the six months ended June 30, 2007, 2006 and 2005 was $64,000, $39,000, and $105,000 respectively. | ||
(g) | Recent accounting pronouncements: | |
In February, 2006, the FASB issued FAS 155,Accounting for Certain Hybrid Financial Instruments, effective for FAS 155 amends FAS No. 140, Accounting for transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statements resolves issued addressed in Statement 133 implementation Issue No. D1,Application of Statement 133 to Beneficial Interest in Securitized Financial Assets. The Company does not believe the adoption of FAS 155 will have a material effect on its consolidated financial position or results of operations. |
36
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America(continued): |
(g) | Recent accounting pronouncements (continued): | |
In March 2006, the FASB issued FAS 156,Accounting for Servicing of Financial Assets - an amendment of FASB 140, effective as of the beginning of our 2007 fiscal year.FAS 156 amends FASB 140,Accounting for Transfer and Servicing Assets and Extinguishment of Liabilities, with respect to the accounting for separately recognized assets and servicing liabilities. The Company does not believe the adoption of FAS 156 will have a material effect on its consolidated financial position or results of operations. | ||
In September 2006, the FASB issued FAS 157,Fair Value Measurements, effective for financial statements for fiscal years beginning after November 15, 2007.FAS 157 defines value, establish a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosure about fair value measurement. This Statement applies under other accounting pronouncements that require or permit fair value measurements. The Company does not believe the adoption of FAS 157 will have a material effect on its consolidated financial position or results of operations. | ||
On February 2007, the FASB issued FAS 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115, effective for financial statements for fiscal years beginning after November 15, 2007. FASB 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company does not believe the adoption of FAS 159 will have a material effect on its consolidated financial position or results of operations. | ||
In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions including whether to file or not to file a return in a particular jurisdiction. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact, if any, of adopting FIN 48 on our financial position, results of operations and cash flows. |
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CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2007 |
18. | Reconciliation to accounting principles generally accepted in the United States of America(continued): |
(g) | Recent accounting pronouncements (continued): | |
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB 108), to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires the quantification of misstatements based on their impact to both the balance sheet and the income statement to determine materiality. The guidance provides for a one-time cumulative effect adjustment to correct for misstatements for errors that were not deemed material under the Company’s prior approach but are material under the SAB 108 approach. SAB 108 is effective for the fiscal year ending December 31, 2006. The adoption of SAB 108 did not have a material effect on the Company’s financial position or results of operations. |
19. | Correction of Error |
In 2008, the Company became aware of certain errors to the consolidated financial statements. It was determined that the Company did not convert the goodwill and intangible assets and the guaranteed acquisition debt from Canadian dollars to US dollars as of June 30, 2007, and the company should not have recorded a discount or interest accretion on the guaranteed acquisition debt. As a result, the Company has amended and reissued its previously issued consolidated financial statements for the quarter ended June 30, 2007.
The effect on the consolidated statement of operations and the consolidated balance sheet for the quarter ended June 30, 2007, is as follows:
As Previously | |||||||||
Reported | Change | Restated | |||||||
6 months ended | |||||||||
June 30, 2007 | |||||||||
Consolidated Statement of Operations: | |||||||||
Interest on acquisition debt | $ | 125 | $ | (125 | ) | $ | - |
As Previously | |||||||||
Reported | Change | Restated | |||||||
Consolidated Balance Sheet: | |||||||||
Goodwill and intangible assets | $ | 6,550 | $ | 930 | $ | 7,480 | |||
Short term debt | $ | 1,161 | $ | (90 | ) | $ | 1,071 | ||
Long term debt | $ | 4,031 | $ | 855 | $ | 4,886 | |||
Accumulated other comprehensive loss | $ | (337 | ) | $ | 41 | $ | (296 | ) | |
Deficit | $ | (85,010 | ) | $ | 124 | $ | (84,886 | ) |
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