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, 2008
CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except for share and per share amounts)
June 30, 2008 | December 31, 2007 | |||||
(Unaudited) | (audited) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 2,664 | $ | 8,786 | ||
Accounts receivable (note 4) | 2,188 | 1,038 | ||||
Inventories (note 5) | 1,723 | 1,436 | ||||
Prepaid expenses and other current assets | 372 | 723 | ||||
6,947 | 11,983 | |||||
Property, plant and equipment (note 6) | 1,594 | 1,640 | ||||
Derivative (note 10) | 1,436 | 1,436 | ||||
Intangible assets (note 7) | 4,791 | 5,426 | ||||
Goodwill (note 7) | 1,682 | 1,693 | ||||
$ | 16,450 | $ | 22,178 | |||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities: | ||||||
Bank indebtedness (note 3) | $ | 74 | $ | 49 | ||
Accounts payable and accrued liabilities (note 8) | 2,919 | 4,273 | ||||
Capital lease obligation, current portion (note 9) | 35 | 36 | ||||
3,028 | 4,358 | |||||
Convertible note payable (note 10) | 5,996 | 5,442 | ||||
Capital lease obligation, net of current portion (note 9) | 123 | 155 | ||||
9,147 | 9,955 | |||||
Shareholders’ equity: | ||||||
Capital stock (notes 11 and 12): | ||||||
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 | ||||||
Issued – 23,716,877 (2007 – 20,597,702) common shares without par | ||||||
value | - | - | ||||
Outstanding – 23,697,577 (2007 – 20,560,402) common shares without par | ||||||
value | 84,196 | 84,047 | ||||
Variable multiple voting shares – NIL (2007 – 600,000) | ||||||
Contributed surplus | 19,453 | 18,033 | ||||
Accumulated other comprehensive income (loss) | 22 | 56 | ||||
Deficit | (96,368 | ) | (89,913 | ) | ||
7,303 | 12,223 | |||||
$ | 16,450 | $ | 22,178 | |||
Going concern (note 2(a)) | ||||||
Commitments and contingencies (note 13) | ||||||
Subsequent events (note 16) |
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
GEORGE REZNIK | Director |
BOBBY GENOVESE | Director |
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 | |||||
2008 | 2007 | 2008 | 2007 | |||||
$ | $ | $ | $ | |||||
Sales | 2,534 | 2,996 | 4,941 | 4,463 | ||||
Cost of sales | 2,242 | 2,422 | 4,382 | 3,533 | ||||
Cost of Product Recall | 323 | - | 234 | - | ||||
Gross profit | (31 | ) | 574 | 325 | 930 | |||
Expenses | ||||||||
Selling, general and administration expenses | 1,105 | 5,590 | 4,721 | 8,185 | ||||
Amortization of Capital and Intangible Assets | 351 | 6 | 647 | 12 | ||||
Interest income | (43 | ) | (84 | ) | (132 | ) | (147 | ) |
Other (income) expense | - | (6 | ) | - | (13 | ) | ||
Interest on short-term debt | 6 | 6 | 10 | 10 | ||||
Interest on long-term debt | - | 1 | - | 3 | ||||
Interest on acquisition debt | 92 | - | 125 | |||||
Foreign exchange loss | 114 | 649 | 114 | 649 | ||||
Interest on Convertible Debt | 513 | - | 1,420 | - | ||||
2,046 | 6,254 | 6,780 | 8,824 | |||||
Loss for Period | (2,077 | ) | (5,680 | ) | (6,455 | ) | (7,894 | ) |
Cumulative Translation Adjustment | 357 | 764 | (34 | ) | 659 | |||
Comprehensive Loss for the period | (1,720 | ) | (4,916 | ) | (6,489 | ) | (7,235 | ) |
Loss per share, basic and diluted | (0.07 | ) | (0.25 | ) | (0.27 | ) | (0.38 | ) |
Weighted average number of shares outstanding | 23,693,955 | 19,784,680 | 23,640,578 | 18,811,963 |
See accompanying notes to consolidated financial statement
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | �� | Number | Contributed | income | equity | |||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | Deficit | (deficiency) | ||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||
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 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | 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 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | 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 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | 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, | ||||||||||||||||||||||
Carryforward | 13,879,853 | 75,730 | - | - | - | 1,600,000 | 1,600 | 8,290 | (1,101 | ) | (77,055 | ) | 7,464 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | 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 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | Deficit | (deficiency) | ||||||||||||
$ | $ | $ | $ | $ | $$ | $ | ||||||||||||||||
Broughtforward | 19,367,488 | 80,661 | - | - | - | 600,000 | 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 | |||||||||||
Option exercised at US$1.75 per | ||||||||||||||||||||||
share on June 20, 2007 | 117,500 | 206 | - | - | - | - | - | - | - | - | 206 | |||||||||||
Carryforward | 20,546,942 | 83,190 | - | - | - | 600,000 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 13,924 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | Deficit | (deficiency) | ||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||
Broughtforward | 20,546,942 | 83,190 | - | - | - | 600,000 | 600 | 8,290 | (1,101 | ) | (77,055 | ) | 13,924 | |||||||||
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 | - | - | - | - | - | - | - | - | - | (62 | ) | (62 | ) | |||||||||
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 | ) | |||||||||
Shares issued for services on July 4 | ||||||||||||||||||||||
and 5, 2007 at US2.85 per share | 21,113 | 61 | - | - | - | - | - | - | - | - | 61 | |||||||||||
Option exercised at US$1.75 per | ||||||||||||||||||||||
share on July 16, 2007 | 32,768 | 58 | - | - | - | - | - | - | - | - | 58 | |||||||||||
Shares issued for services on August | ||||||||||||||||||||||
1, 2007 at US2.78 per share | 9,635 | 28 | - | - | - | - | - | - | - | - | 28 | |||||||||||
Option exercised at US$1.75 per | ||||||||||||||||||||||
share on August 16, 2007 | 116,399 | 204 | - | - | - | - | - | - | - | - | 204 | |||||||||||
Shares issued for settlement of | ||||||||||||||||||||||
acquisition liability – DMR Food | ||||||||||||||||||||||
Corporation at US$2.90 on August | ||||||||||||||||||||||
13, 2007 | 155,279 | 428 | - | - | - | - | - | - | - | - | 428 | |||||||||||
Restricted shares cancelled for | ||||||||||||||||||||||
purchase of My Organic Baby at | ||||||||||||||||||||||
$2.76 per share on September, | ||||||||||||||||||||||
2007 | (200,000 | ) | (553 | ) | - | - | - | - | - | - | - | - | (553 | ) | ||||||||
Paid-in capital – exercise of stock | ||||||||||||||||||||||
options for the 12 months ended | ||||||||||||||||||||||
September 30, 2007 | - | 1,449 | - | - | - | - | - | (1,449 | ) | - | - | - | ||||||||||
Fair value of stock options issued for | ||||||||||||||||||||||
the 12 months ended December | ||||||||||||||||||||||
31, 2007 | - | - | - | - | - | - | - | 1,991 | - | - | 1,991 | |||||||||||
Fair value of warrants issued for 12 | ||||||||||||||||||||||
months ended December 31, 2007 | - | (1,651 | ) | - | - | - | - | - | 1,651 | - | - | - | ||||||||||
Fair value of warrant for consulting | ||||||||||||||||||||||
agreement cancelled except for the | ||||||||||||||||||||||
warrant | - | - | - | - | - | - | - | 1,449 | - | - | 1,449 | |||||||||||
Fair value of warrant for convertible | ||||||||||||||||||||||
note payable | - | - | - | - | - | - | - | 2,576 | - | - | 2,574 | |||||||||||
Fair value of conversion option in | ||||||||||||||||||||||
convertible note payable | - | - | - | - | - | - | - | 2,419 | - | - | 2,419 | |||||||||||
Fair value of subordinated | ||||||||||||||||||||||
convertible note payable | - | - | - | - | - | - | - | 1,346 | - | - | 1,346 | |||||||||||
Carryforward | 20,695,596 | 82,943 | - | - | - | 600,000 | 600 | 18,033 | (1,101 | ) | (77,117 | ) | 23,358 |
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, 2008 and December 31, 2007, 2006
Class A | Class B | |||||||||||||||||||||
Common shares | preferred shares | preferred shares | Accumulated | |||||||||||||||||||
Share | other | |||||||||||||||||||||
Subscription | comprehensive | Shareholders’ | ||||||||||||||||||||
Number | Receivable | Number | Number | Contributed | income | equity | ||||||||||||||||
of shares | Amount | (payable) | of shares | Amount | of shares | Amount | surplus | (loss) | Deficit | (deficiency) | ||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||
Broughtforward | 20,695,596 | 82,943 | - | - | - | 600,000 | 600 | 18,033 | (1,101 | ) | (77,117 | ) | 23,358 | |||||||||
Shares issued for services on | ||||||||||||||||||||||
September 10, 2007 at US$2.47 | ||||||||||||||||||||||
per share | 10,862 | 27 | - | - | - | - | - | - | - | - | 27 | |||||||||||
Shares issued for consulting services | ||||||||||||||||||||||
on September 27, 2007 at US$2.11 | ||||||||||||||||||||||
per share | 228,310 | 482 | - | - | - | - | - | - | - | - | 482 | |||||||||||
Shares issued for consulting services | ||||||||||||||||||||||
on October 31, 2007 at $2.11 per | ||||||||||||||||||||||
share | 8,657 | 18 | - | - | - | - | - | - | - | - | 18 | |||||||||||
Conversion of $600,000 preferred | ||||||||||||||||||||||
shares to common shares on | ||||||||||||||||||||||
October 15, 2007 | 2.460,000 | 600 | - | - | - | (600,000 | ) | (600 | ) | - | - | - | - | |||||||||
Shares cancelled for consulting | ||||||||||||||||||||||
services on November 15, 2007 at | ||||||||||||||||||||||
USD$2.99 per share | (17,250 | ) | (52 | ) | - | - | - | - | - | - | - | - | (52 | ) | ||||||||
Shares issued for consulting services | ||||||||||||||||||||||
on November 15, 2007 at $1.64 per | ||||||||||||||||||||||
share | 14,612 | 24 | - | - | - | - | - | - | - | - | 24 | |||||||||||
Shares issued for consulting services | ||||||||||||||||||||||
on December 6, 2007 at $0.83 per | ||||||||||||||||||||||
share | 30,000 | 25 | - | - | - | - | - | - | - | 25 | ||||||||||||
Loss for the 12 months ended | ||||||||||||||||||||||
December 31, 2007 | - | - | - | - | - | - | - | - | - | (12,796 | ) | (12,796 | ) | |||||||||
Cumulative translation adjustment | - | (20 | ) | - | - | - | - | - | - | 1,157 | - | 1,137 | ||||||||||
Balance, December 31, 2007 | 23,430,787 | 84,047 | - | - | - | - | - | 18,033 | 56 | (89,913 | ) | 12,223 | ||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on January 28, 2008 at | ||||||||||||||||||||||
$0.46 per share | 156,124 | 73 | - | - | - | - | - | - | - | - | 73 | |||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on March 10, 2008 at | ||||||||||||||||||||||
$0.47 per share | 10,435 | 4 | - | - | - | - | - | - | - | - | 4 | |||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on March 10, 2008 at | ||||||||||||||||||||||
$0.73 per share | 24,768 | 18 | - | - | - | - | - | - | - | - | 18 | |||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on March 31, 2008 at | ||||||||||||||||||||||
$0.97 per share | 18,885 | 18 | - | - | - | - | - | - | - | - | 18 | |||||||||||
Loss for the 3 months ended March | ||||||||||||||||||||||
31, 2008 | - | - | - | - | - | - | - | - | - | (4,378 | ) | (4,378 | ) | |||||||||
Fair value of stock options issued for | ||||||||||||||||||||||
the 3 months ended March 31, | ||||||||||||||||||||||
2008 | - | - | - | - | - | - | - | 1,527 | - | - | 1,527 |
10
Cumulative translation adjustment | - | - | - | - | - | - | - | (391 | ) | - | (391 | ) | ||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on May 13,2008 at | ||||||||||||||||||||||
$0.94 per share | 19,178 | 18 | 18 | |||||||||||||||||||
Shares issued for convertible | ||||||||||||||||||||||
subordinated note payable interest | ||||||||||||||||||||||
payment on June 6,2008 at | ||||||||||||||||||||||
$0.95 per share | 19,400 | 18 | 18 | |||||||||||||||||||
Loss for the 3 months ended | ||||||||||||||||||||||
June 30,2008 | (2,077 | ) | (2,077 | ) | ||||||||||||||||||
Fair value of stock options issued for | ||||||||||||||||||||||
the 3 months ended June 30,2008 | (107 | ) | (107 | ) | ||||||||||||||||||
Cumulative Translation adjustment | 357 | 357 | ||||||||||||||||||||
Balance, June 30,2008 | 23,679,577 | 84,196 | - | - | - | - | - | 19,453 | 22 | (96,368 | ) | 7,303 |
See accompanying notes to consolidated financial statements.
11
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, 2008 and 2007
Unaudited | Unaudited | |||||||
For the 3 months ended | For the 6 months ended | |||||||
June 30 | June 30 | June 30 | June 30 | |||||
2008 | 2007 | 2008 | 2007 | |||||
$ | $ | $ | $ | |||||
Cash flows from operating activities | ||||||||
Loss for the period | (2,077 | ) | (5,680 | ) | (6,455 | ) | (7,894 | ) |
Items not involving cash (note 14(a)) | 593 | 2,229 | 2,793 | 3,643 | ||||
Changes in non-cash working capital balances | ||||||||
related to operations (note 14(b)) | (1,351 | ) | 1,163 | (2,439 | ) | 795 | ||
(2,835 | ) | (2,288 | ) | (6,101 | ) | (3,456 | ) | |
Cash flows from financing activities | ||||||||
Proceeds from issuance of capital stock and | ||||||||
warrants | - | 1,612 | - | 4,429 | ||||
Increase (decrease) in bank indebtedness | (125 | ) | 40 | 25 | 66 | |||
Dividend paid on class B preferred shares | - | (61 | ) | - | (61 | ) | ||
Repayment of long-term debt | (15 | ) | (14 | ) | (30 | ) | (20 | ) |
(140 | ) | 1,577 | (5 | ) | 4,414 | |||
Cash flows from investing activities | ||||||||
Cash used in acquisition of DMR Food | ||||||||
Corporation | - | (342 | ) | |||||
Cash used in acquisition of My Organic Baby | ||||||||
Inc. | - | (348 | ) | - | (348 | ) | ||
Purchase of property, plant and equipment | - | (27 | ) | - | (27 | ) | ||
- | (375 | ) | - | (717 | ) | |||
Effect of exchange rates on cash and cash | ||||||||
equivalents | 193 | 559 | (16 | ) | 642 | |||
Increase (decrease) in cash and cash | ||||||||
equivalents | (2,782 | ) | (527 | ) | (6,122 | ) | 883 | |
Cash and cash equivalents - Beginning of | ||||||||
period | 5,446 | 6,677 | 8,786 | 5,267 | ||||
Cash and cash equivalents - End of period | 2,664 | 6,150 | 2,664 | 6,150 | ||||
Interest paid | 249 | 7 | 891 | 13 | ||||
Income taxes paid | - | - |
Supplementary cash flow information(note 14(c))
See accompanying notes to consolidated financial statements.
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, 2008 |
1. | Nature of operations: | |
The Company produces, distributes and markets alternative beverage products, healthy snack food products and organic baby food products. The Company’s products are sold principally in the United States and Canada. | ||
2. | 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 $6,455,000 for the six months ended June 30, 2008 (June 30, 2007 - $7,894,000). At June 30, 2008 it has working capital of $2,664,000 (June 30, 2007 - $6,150,000). Operations for the six months ended June 30, 2008 have been funded primarily from cash reserves raised by the issuance of capital stock and convertible notes. Management is of the opinion that its cash and cash equivalents of $2.664 million at June 30, 2008 will provide sufficient working capital to meet the Company’s cash requirements until the fourth quarter of 2008. | ||
Management has continued to take steps to try to improve the Company’s financial results and cash flow which includes 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. | ||
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). |
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, 2008 |
2. | Significant accounting policies (continued): | |
(c) | Basis of presentation: | |
These consolidated financial statements include the accounts of Clearly Canadian Beverage Corporation (o/a Clearly Canadian Brands) 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) and My Organic Baby Inc. | ||
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. Bill and hold revenue recognized must also meet the following criteria: |
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, 2008 |
2. | Significant accounting policies (continued): |
(e) | Revenue recognition (continued): |
(1) | The risk of ownership has passed to the customer | |
(2) | The customer has made a fixed commitment to purchase the goods in writing | |
(3) | The customer requests that the transaction be on a bill and hold basis | |
(4) | The customer has a fixed schedule for the delivery of product | |
(5) | The customer has retained specific performance obligations | |
(6) | The products have been segregated from the Company’s inventory and are not subject to being used to fill other orders | |
(7) | The products have been completed and ready for shipment | |
(8) | The company expects the customer to pay under its normal billing and credit terms | |
(9) | The Company does not expect risk of loss due to a decline in the market value of goods | |
(10) | The customer’s custodial risk is insurable and insured | |
(11) | There are no exceptions to the customer’s commitment to accept and pay for the products sold |
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. | ||
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. | ||
(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. |
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, 2008 |
2. | Significant accounting policies (continued): | |
(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. | ||
(i) | Goodwill: | |
Goodwill is the excess of the cost of an acquired business over the net of the amounts 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 operations as impairment loss in the period. | ||
(j) | Intangible assets: | |
Intangible assets acquired are initially recognized and measured at cost. Intangible assets with finite useful lives are amortized over their estimated useful lives. The amortization methods and estimated useful lives of intangible assets are reviewed annually. Intangible Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. |
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, 2008 |
2. | Significant accounting policies (continued): | ||
(k) | Stock-based compensation plan: | ||
The Company has stock-compensation plans, which are described in note 12. 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. | |||
(l) | 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. | |||
(m) | 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 warrants, the allocation of proceeds to components of convertible debentures, valuation of derivatives and impairment testing of goodwill and intangible assets. Actual results could differ materially from those estimates. | |||
(n) | 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. |
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, 2008 |
2. | Significant accounting policies (continued): | ||
(n) | Financial instruments (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, 2008, two customers represented 49% (June 30, 2007 – three customers represented 37%) of total accounts receivable. | |||
(iii) | Interest rate risk: | ||
The Canadian dollar short term bank credit facility bears interest at Canadian 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: | ||
A significant amount of the Company’s 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. | |||
(o) | 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 that the asset will not be realized. | |||
(p) | Advertising and marketing costs: | ||
The Company expenses all advertising and marketing costs as incurred. For the six months ended June 30, 2008, the Company incurred marketing costs of $577,000 (June 30, 2007 - $656,000). These costs are included in selling expenses. |
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, 2008 |
2. | Significant accounting policies (continued): | |
(q) | 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 | ||
(r) | 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 3861Financial 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. |
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, 2008 |
2. | Significant accounting policies (continued): | |
(r) | Other significant accounting policies (continued): | |
Under Section 3855, financial instruments must be classified into one of 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 does not have either available-for-sale, or held-to-maturity instruments during the six months ended June 30, 2008. The Company has not designated any financial liabilities as held-for-trading. |
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, 2008 |
3. | Bank indebtedness: |
The Company’s subsidiary, DMR, 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 DMR as well as guarantee and postponement of claims in the amount of CA$455,000 by the Company. The average interest rate from January 1, 2008 to June 30, 2008 was 6.42%. As of June 30, 2008 $75,000 (June 30, 2007 – $235,000) had been drawn on this line of credit. | |
4. | Accounts receivable: |
June 30, | December 31, | ||||||
2008 | 2007 | ||||||
Trade accounts receivable, net of allowance of $221,000 | |||||||
(2007 - $210,000) | $ | 2,079 | $ | 863 | |||
Other receivables | 109 | 175 | |||||
$ | 2,188 | $ | 1,038 |
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, 2008 |
5. | Inventories: |
June 30, | December 31, | ||||||
2008 | 2007 | ||||||
Finished goods | $ | 1,014 | $ | 1,226 | |||
Raw materials | 709 | 210 | |||||
$ | 1,723 | $ | 1,436 |
6. | Property, plant and equipment and assets: |
Accumulated | June 30, 2008 | ||||||||||||
2008 | amortization | Write-down | Net | ||||||||||
Land and water sources | $ | 1,184 | $ | - | $ | - | $ | 1,184 | |||||
Buildings | 1,198 | 1,139 | - | 59 | |||||||||
Equipment | 1,726 | 1,380 | - | 346 | |||||||||
Leasehold improvements | 79 | 79 | - | - | |||||||||
Vehicle | 5 | - | - | 5 | |||||||||
$ | 4,192 | $ | 2,598 | $ | - | $ | 1,594 |
December 31, | |||||||||||||
Accumulated | 2007 | ||||||||||||
2007 | amortization | Write-down | Net | ||||||||||
Land and water sources | $ | 1,192 | $ | - | $ | - | $ | 1,192 | |||||
Buildings | 1,206 | 1,147 | - | 59 | |||||||||
Equipment | 1,632 | 1,250 | - | 382 | |||||||||
Leasehold improvements | 79 | 77 | - | 2 | |||||||||
Vehicles | 5 | 5 | |||||||||||
$ | 4,114 | $ | 2,474 | $ | - | $ | 1,640 |
Included in equipment are assets under capital lease having a value of $221,200 and accumulated amortization of $56,295 with a net book value of $164,905 at June 30, 2008 (2007 - $208,000).
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, 2008 |
7. | Goodwill and other intangible assets: |
(a) | Intangible assets as at June 30, 2008 are as follows: |
DMR Food | My Organic | ||||||||||||
Corp. | Baby Inc. | Accumulated | June 30, 2008 | ||||||||||
June 30, 2008 | June 30, 2008 | amortization | Net | ||||||||||
Distributor relationships | $ | 485 | $ | 645 | $ | 112 | $ | 1,018 | |||||
Trademarks, copyright | |||||||||||||
and brands | 425 | 751 | 115 | 1,061 | |||||||||
Other intangible assets | 1,072 | 2,048 | 408 | 2,712 | |||||||||
$ | 1,982 | $ | 3,444 | $ | 635 | $ | 4791 |
DMR Food | My Organic | ||||||||||||
Corp. | Baby Inc. | Accumulated | December 31, | ||||||||||
2007 | |||||||||||||
December 31, | December 31, | Amortization | Net | ||||||||||
2007 | 2007 | ||||||||||||
Distributor relationships | $ | 559 | $ | 715 | $ | 144 | $ | 1,130 | |||||
Trademarks, copyright | 489 | 834 | 147 | 1,176 | |||||||||
and brands | |||||||||||||
Other intangible assets | 1,291 | 2,341 | 512 | 3,120 | |||||||||
$ | 2,339 | $ | 3,890 | $ | 803 | $ | 5,426 |
Propriety trade secrets, distribution relationship, supplier agreements, trademarks, copyright and brands are amortized over a period of 6 years based on third party valuation. The amortization expense for the period ended June 30, 2008 was $635,000 (June 30, 2007 – nil). | ||
(b) | Goodwill as at June 30, 2008 is as follows: |
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, 2008 |
DMR Food | My Organic | |||||||||
Corp. | Baby Inc. | |||||||||
June 30, 2008 | June 30, 2008 | Total | ||||||||
Goodwill | $ | 362 | $ | 1,320 | $ | 1,682 |
DMR Food | My Organic | |||||||||
Corp. | Baby Inc. | |||||||||
December 31, | December 31, | Total | ||||||||
2007 | 2007 | |||||||||
Goodwill | $ | 364 | $ | 1,329 | $ | 1,693 |
The company performs annual impairment test for goodwill. As of June 30, 2008, the company did not complete its impairment tests.
8. | Accounts payable and accrued liabilities: |
June 30, | December 31, | ||||||
2008 | 2007 | ||||||
Trade accounts payable | $ | 2,060 | $ | 2,896 | |||
Marketing fees | 89 | 350 | |||||
Other accrued liabilities | 770 | 1,027 | |||||
$ | 2,919 | $ | 4,273 |
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, 2008 |
9. | 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 represents 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 Company’s obligations under the capital leases consist of: |
June 30, | December 31, | ||||||
2008 | 2007 | ||||||
Minimum lease payments payable | $ | 194 | $ | 228 | |||
Portion representing interest to be recorded over the | |||||||
remaining term of the lease | (36 | ) | (37 | ) | |||
158 | 191 | ||||||
Current portion | (35 | ) | (36 | ) | |||
$ | 123 | $ | 155 |
Future minimum annual lease payments as at June 30, 2008 under the capital lease are as follows:
2008 | $ | 30 | ||
2009 | 57 | |||
2010 | 57 | |||
2011 | 50 | |||
$ | 194 |
10. | Convertible note payable: |
June 30, | December 31, | ||||||
2008 | 2007 | ||||||
Senior convertible notes payable | $ | 9,360 | $ | 9,360 | |||
Subordinated convertible note payable | 2,405 | 2,421 | |||||
Discount on senior and subordinated convertible note | (5,769 | ) | (6,339 | ) | |||
payable | |||||||
$ | 5,996 | $ | 5,442 |
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, 2008 |
10. | Convertible note payable (continued): |
On September 26, 2007, the Company entered into a securities purchase agreement with institutional investors to sell senior convertible notes (the “Senior Convertible Notes”) for $9.36 million maturing on September 26, 2027 and to issue five year share purchase warrants to purchase 4,017,162 common shares of the Company (The “Series E Warrants” and the “Series F Warrants”). The 2,008,581 Series E Warrants are exercisable at an initial exercise price of $2.33 per shares (subject to future adjustment) and the 2,008,581 Series F Warrants are exercisable at an initial exercise price of $2.56 per share (subject to future adjustment). The Company paid an approximate 4% financing fee to the placement agent in the financing. The company received net proceeds from the financing of approximately $9 million after the payment of the financing fee. The Company also issued to the placement agent 500,000 share purchase warrants exercisable at an initial price of $2.33 per share on the same terms as the Series E Warrants. | |
The primary features of the Senior Convertible Notes are: (i) interest at 9% per annum for year 1 to 3 and at 18% per annum for year 4 to maturity, payable monthly in cash, or, subject to volume and ownership limitations and in the Company’s discretion, common shares based on a 10% discount to the then market price, (ii) convertible at any time by the holders at the conversion price (initially $2.33 per share, subject to future adjustment), (iii) during year 1 to 2, provided the market price of the company’s common share is double the conversion price, the Company can, subject to volume and ownership limitations, call the Senior Convertible Notes, (iv) in year 3 and beyond, the Company can, subject to volume and ownership limitation, force conversion of the Senior Convertible Note at the lower of the initial conversion price or at a 15% discount of the then market price and so long as the Company is converting the Senior Convertible Notes, the interest rate remains at 9%; and (v) in year 4 and to maturity the Senior Convertible Notes can be called by the note holders. | |
The Company used the relative fair value approach to value the Senior Convertible Notes based on their value (i) without the conversion feature (ii) with the conversion option and (iii) with the warrants. Based on this volatility assumption (52%) and credit spread assumption (12%), the Company calculated the fair value of the convertible notes, the straight note value, conversion option value and call option value. | |
The fair value of the Senior Convertible Notes based on the above approach was $4,365,000 ($9,360,000 less discount on Senior Convertible Notes of $4,995,000). The fair value of the call option (embedded derivative) was $2,000 and $1,436,000 at September 26 and December 31, 2007, respectively. The company amortized the discount over 3 year, and as of December 31, 2007 the company accreted $214,000. |
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, 2008 |
10. | Convertible note payable (continued): |
The Company is required to pay liquidated damages in cash to the Senior Convertible Note holders if (i) a registration statement registering the common shares underlying the Senior Convertible Notes is not declared effective by the Securities and Exchange Commission on or before January 23, 2008 (an “Effectiveness Failure”) or (ii) after a registration statement has been declared effective by the Securities and Exchange Commission, sales of “registrable securities” cannot be made by a note holder (a “Maintenance Failure”). | |
The amount of liquidated damages is calculated as follows: (A) 2% of the aggregate purchase price paid for the Senior Convertible Notes, the Series E Warrants and the Series F Warrants on each of the following dates: (i) the day of an Effectiveness Failure; (ii) the initial day of a Maintenance Failure; (iii) on the 30thday after the day of an Effectiveness Failure (pro rated for periods totaling less than 30 days); and (vi) on the 30th day after the initial day of a Maintenance Failure (pro rated for periods totaling less than 30 days) and (B) 1% of the aggregate purchase price paid for the Senior Convertible Notes, the Series E Warrants and the Series F Warrants on each of the following dates: (i) on every 30thday following the 31stfirst day following such Effectiveness Failure (pro rated for periods totaling less than 30 days) until such Effectiveness Failure is cured; and (ii) on every 30thday following the 31stday following such Maintenance Failure (pro rated for periods totaling less than 30 days) until such Maintenance Failure is cured. In the event we fail to timely make these liquidated damages payments, these amounts will bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. | |
Up to February 1, 2008, the Company had paid the holders of the Senior Convertible Notes $187,200 on account of these penalties. As of June 30, 2008, the registration statement relating to the Senior Convertible Notes was still not declared effective by the Securities and Exchange Commission and the Company is required to pay liquidated damages. The actual amount of liquidated damages payments will depend on the actual effective date of the registration statement and may be more or less than our estimated amount. | |
On September 26, 2007, Company also completed a CDN $2,450,000 vendor take back debt financing from the vendors of DMR Food Corporation and My Organic Baby, Inc. through the sale of subordinated convertible notes (the “Vendor Notes”). The primary features of the Vendor Notes are the same as the Senior Convertible Notes with the exception that the interest is at 9% from year 1 to maturity, there are no restrictions on the Company’s ability to pay, with respect to interest or conversation or call of the Vendor Notes, in common shares and there are no provisions for liquidated damages in the event the shares issuable under the Vendor Notes are not registered. | |
The Company valued the Vendor Notes based on using the Black-Scholes method, volatility assumption of 52%, and credit spread of 12% over 20 years. Based on these factors the fair value is $1,077,000 ($2,421,000 less discount on the Vendor Notes of $1,344,000).. |
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, 2008 |
11. | Capital stock: | |
Authorized: | ||
Common Shares – unlimited number authorized, 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: | |
The Class B Preferred Shares includes 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 has the right to five votes on any vote of the common shareholders. The Class B Preferred Shares are 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 Share. |
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 June 30, 2008, the 1,600,000 issued and outstanding Variable Multiple Voting Shares entitles the holder to 39,783,340 votes at a meeting of shareholders.
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, 2008 |
11. | Capital stock (continued): |
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 thereof, 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. In September 2007, the expiration date of the Series A warrants was extended to December 2010. | |
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. | |
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. | |
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. |
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, 2008 |
11. | Capital stock (continued): | |
In October 2006, the Company paid $94,246 to BG Capital in respect of dividends payable on the 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 Variable 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 Variable Multiple Voting Shares. | ||
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 Company completed the acquisition of 100% of the shares of My Organic Baby Inc. and in connection therewith, the Company issued 415,000 common shares of which 200,000 were surrendered when the Company entered into a securities purchase agreement with the former shareholders of My Organic Baby Inc. The Company also issued 215,000 common shares in connection with employment agreements with the former officers and shareholders of My Organic Baby Inc. | ||
In June, 2007, the Company paid $61,150 to BG Capital in respect of dividends payable on the Class B Preferred Shares from November 1, 2006 to June 30, 2007. | ||
12. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares: | |
(a) | Stock options: | |
Under the April 29, 2005 stock plan, the Company may grant options to purchase up to 1,750,000 common shares of the Company, and under the 2006 equity incentive plan, the Company may grant options to purchase up to 10,000,000 common shares of the Company. Options may be issued under the stock option plan as determined at the sole discretion of the Company’s board of directors. Options may be issued for a term of up to 10 years at an exercise price to be determined by the Company’s board of directors, provided that the exercise price is not less than the average closing price of the Company’s shares for the 10 trading days proceeding the date on which the options are granted. All options vest immediately on issuance, or at the discretion of the Company’s board of directors. |
30
CLEARLY CANADIAN BEVERAGE CORPORATION |
Notes to Consolidated Financial Statements |
(Unaudited) |
(Tabular amounts expressed in thousands of United States dollars, except where indicated) |
Six months ended June 30, 2008 |
12. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): | |
(a) | Stock options (continued): | |
A summary of stock options granted by the Company is as follows: |
Weighted | |||||||
Number of | average | ||||||
options | exercise price | ||||||
(000’s | ) | US$ | |||||
Options outstanding at December 31, 2005 | 1,617 | 1.77 | |||||
Granted | 2,216 | 1.79 | |||||
Expired | (18 | ) | 3.77 | ||||
Exercised | (1,307 | ) | 1.82 | ||||
Options outstanding at December 31, 2006 | 2,508 | 1.96 | |||||
Granted | 1,869 | 2.51 | |||||
Expired | (10 | ) | 2.35 | ||||
Exercised | (653 | ) | 1.54 | ||||
Surrendered | (10 | ) | 2.75 | ||||
Options outstanding at December 31, 2007 | 3,704 | $ | 2.34 | ||||
Expired | (7 | ) | 6.42 | ||||
Options Outstanding at March 31,2008 | 3,697 | $ | 2.33 | ||||
Expired | (3 | ) | 6.50 | ||||
Options Outstanding at June 30,2008 | 3,694 | 2.28 | |||||
Options exercisable at June 30,2008 | 2,475 | $ | 2.20 |
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, 2008 |
12. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): | |
(a) | Stock options (continued): | |
For the period ended June 30, 2008, the Company granted nil options (June 30, 2007 – 955,658) under its stock option plans, of which options to acquire nil shares (June 30, 2007 – 609,166) were granted to members of its Advisory Board, board of directors and management. Stock based compensation expense of $1,368,000 has been recorded for the period ended June 30, 2008. (June 30, 2007 – 1,897,000). | ||
The Company has estimated the fair value of each option on the date of grant using the Black- Scholes Options Pricing model and based on the following assumptions: |
June 30,2008 | June 30,2007 | ||||||
Risk-free interest rate | - | 4.84% to 5.12% | |||||
Expected life of options | - | 1 to 5 years | |||||
Expected volatility in the market | |||||||
price of the shares | - | 91% to 205% | |||||
Expected dividend yield | - | 0.0% | |||||
Weighted average grant date fair | |||||||
value | - | $ | 1.86 |
(b) | Stock based compensation: |
June 30, | June 30, | ||||||
2008 | 2007 | ||||||
Stock based compensation | |||||||
(note 12 (a)) | $ | 1,368 | $ | 1,897 | |||
Stock based compensation – option | |||||||
(note 13 (a)) | 52 | 2,035 | |||||
$ | 1,420 | $ | 3,932 |
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, 2008 |
12. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): | |
(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, 2008. Each warrant entitles the holder to purchase one common share at the exercise price indicated. |
Exercise | Balance, | Balance, | |||||
Price | December 31, | Mach 31, | Expiry | ||||
per share | 2007 | Granted | Cancelled | Expired | Exercised | 2008 | Date |
US$3.25 (CA$3.26) | 356,667 | - | - | - | - | 356,667 | September 2008 |
US$3.25 (CA$3.26) | 856,333 | - | - | - | - | 856,333 | July, 2009 |
US$3.25 (CA$3.26) | 333,333 | - | - | - | - | 333,333 | April, 2009 |
US$2.00 (CA$2.00) | 1,000,000 | - | - | - | - | 1,000,000 | October 2010 |
US$1.25 (CA$1.25) | 4,030,000 | - | - | - | - | 4,030,000 | December 2010 |
US$2.00 (CA$2.00) | 100,000 | - | - | - | - | 100,000 | July 2011 |
US$2.33 (CA$2.33) | 2,508,581 | - | - | - | - | 2,508,581 | September 2012 |
US$2.56 (CA$2.57) | 2,008,581 | - | - | - | - | 2,008,581 | September 2012 |
11,193,495 | - | - | - | - | 11,193,495 |
Warrants activity during the period ended June 30, 2008 and December 31, 2007, 2006 is as follows:
Number of | ||||
warrants | ||||
Balance, December 31, 2005 | 21,025,000 | |||
Granted | 4,752,542 | |||
Expired | (25,000 | ) | ||
Cancelled | (20,000,000 | ) | ||
Exercised | (30,000 | ) | ||
Balance, December 31, 2006 | 5,722,542 | |||
Granted | 12,456,828 | |||
Expired | (96,850 | ) | ||
Cancelled | (6,750,000 | ) | ||
Exercised | (139,025 | ) | ||
Balance, December 31, 2007 | 11,193,495 | |||
Balance, March 31, 2008 | 11,193,495 | |||
Balance June 30,2008 | 11,193,495 |
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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, 2008 |
12. | Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued): | |
(c) | Warrants (continued): | |
In the year ended December 31, 2007, the Company granted warrants to acquire 1,189,666 shares in a private placement described in note 12. 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 $5,625,000 due to the Company’s guarantee of the acquisition price, in connection with its acquisitions of DMR Food Corporation and My Organic Baby Inc. These warrants were all surrendered in September, 2007 when the Company entered into a share purchase agreement with the former shareholders of DMR Food Corporation and My Organic Baby Inc. The Company granted warrants to institutional investors to acquire 4,017,162 shares and to the placement agent in the financing to acquire 500,000 shares at a price as described in note 10. In September, 2007, the Company also extended the warrant to acquire 4,030,000 at a price of $1.25 from December, 2007 to December, 2010. | ||
(d) | 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. |
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, 2008 |
13. | 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 $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 $1,449,000, as determined using the Black- Scholes valuation method. We expensed the fair value of the warrants, and recorded the corresponding amount in equity. | ||
On June 5, 2006, the Company entered into marketing and consulting agreement with a term of three years. As partial consideration under this agreement, the Company issued options to purchase 1,075,000 common shares at $1.75 per share. The Company has recognized the expense related to this agreement over the three year term of the agreement. During the six months ended June 30, 2008, the Company revalued the options and expensed $52,000 (June 30, 2007 – expensed $1,011,400) with respect to these options. | ||
On May 24, 2007, the Company entered into employment agreements with former officers and shareholders of My Organic Baby Inc. for a term of three years. As partial consideration under these agreements, the Company issued 215,000 common shares at $2.48 per share as consideration. The Company expensed $533,200 relating to these agreements. | ||
(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. |
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, 2008 |
13. | Commitments and contingencies (continued): | |
(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. |
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, 2008 |
Unaudited | Unaudited | ||||||||
For the 3 months ended | For the 6 months ended | ||||||||
June 30, | June 30, | June 30, | June 30, | ||||||
2008 | 2007 | 2008 | 2007 | ||||||
$ | $ | $ | $ | ||||||
14. | Supplementary Cash Flow Information | ||||||||
a) | Items not involving cash | ||||||||
Amortization of property, plant and | |||||||||
equipment and Intangibles | 360 | 8 | 656 | 12 | |||||
Stock-based compensation | (107 | ) | 2,035 | 1420 | 3,366 | ||||
Gain on sale of investment | - | - | - | - | |||||
Services paid in stock | - | 94 | - | 140 | |||||
Settlement of Interest paid in Stock | 36 | 149 | |||||||
Interest accretion on convertible debenture | |||||||||
and short-term debt | 304 | 92 | 568 | 125 | |||||
593 | 2,229 | 2,793 | 3,643 | ||||||
b) | Changes in non-cash working capital | ||||||||
balances related to operations | |||||||||
Accounts receivable | (839 | ) | (379 | ) | (1,149 | ) | 176 | ||
Inventories | (24 | ) | (479 | ) | (287 | ) | (1,044 | ) | |
Prepaid expenses, deposits and other | |||||||||
assets | (119 | ) | (288 | ) | 351 | (419 | ) | ||
Prepaid contracts | - | 1,917 | - | 2,012 | |||||
Accounts payable and accrued liabilities | (369 | ) | 392 | (1,354 | ) | 70 | |||
(1,351 | ) | 1,163 | (2,439 | ) | 795 | ||||
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 | - | - | - | 573 | |||||
- | 4,460 | - | 8,270 |
37
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, 2008 |
15. | 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, 2008 | June 30, 2007 | June 30, 2008 | June 30, 2007 | ||||||
$ | $ | $ | $ | ||||||
Sales | |||||||||
Canada | |||||||||
Total sales | 2,127 | 1,671 | 4,189 | 2,452 | |||||
United States | |||||||||
Total sales | 407 | 1,325 | 752 | 2,011 | |||||
Less: Sales to other segments | (18 | ) | (49 | ) | (37 | ) | (62 | ) | |
Sales to external customers | 389 | 1,276 | 715 | 1,949 | |||||
Other | |||||||||
Sales to external customers | 18 | 49 | 37 | 62 | |||||
Total sales to external customers | 2,534 | 2,996 | 4,941 | 4,463 | |||||
Sales to external customers by product line | |||||||||
Beverage | 634 | 1,785 | 1,224 | 2,704 | |||||
Snack Products | 1,113 | 1,002 | 2,183 | 1,550 | |||||
Organic baby product | 787 | 209 | 1,534 | 209 | |||||
2,534 | 2,996 | 4,941 | 4,463 | ||||||
Interest expense on short-term and long- | |||||||||
term debt | |||||||||
Canada | 249 | 6 | 891 | 10 | |||||
United States | 1 | 3 | |||||||
249 | 7 | 891 | 13 |
Amortization/Depreciation | |||||||||
Canada | 351 | 6 | 647 | 12 | |||||
United States | - | - | - | - | |||||
351 | 6 | 647 | 12 | ||||||
Other Items | |||||||||
Interest Income | |||||||||
Other (Income) Expense | |||||||||
Interest on Short Term |
38
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, 2008 |
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, 2008 | June 30, 2007 | June 30, 2008 | June 30, 2007 | |||||
property, plant and equipment | $ | $ | $ | $ | |||||
Canada | (1,871 | ) | (5,662 | ) | (6,130 | ) | (7,684 | ) | |
United States | (206 | ) | (18 | ) | (325 | ) | (210 | ) | |
Other | - | - | |||||||
(2,077 | ) | (5,680 | ) | (6,455 | ) | (7,894 | ) | ||
Loss for the period before income taxes | (2,077 | ) | (5,680 | ) | (6,455 | ) | (7,894 | ) |
June 30,2008 | June 30,2007 | ||||||
Assets: | |||||||
Canada | $ | 15,852 | $ | 16,213 | |||
United States | 570 | 2.323 | |||||
Other | 28 | 28 | |||||
Total assets | $ | 16,450 | $ | 18,564 | |||
Property, plant and equipment additions: | |||||||
Canada | $ | - | $ | 27 | |||
Goodwill: | |||||||
Canada | $ | 1,682 | $ | - |
With respect to third parties, the Company has three customers (June 30, 2007 - 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, 2008 | June 30, 2007 | ||
Customer A | 14% | ||
Customer B | 10% | ||
Customer C | 26% | ||
Customer D | 30% | ||
Customer E | 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, 2008 |
16. | Subsequent events: | |
(a) | In September 2007, the Company issued Senior Convertible Notes and related warrants (see note 10). Each note and warrant carries a full ratchet anti-dilution provision. If the Company issues any convertible or equity securities at any time in the future (subject to certain exceptions including stock option grants and issuances in connection with certain acquisition transactions) at a price less than the applicable conversion price or exercise price, then the conversion price and exercise price will be automatically adjusted down to that lesser price. Any such adjustment will further dilute our shareholders. | |
The Company and the holders of the Senior Convertible Notes were involved in a dispute (see previous filings) as to whether the full-ratchet anti-dilution provision had been triggered and whether the Company was obligated to adjust the conversion price of the Notes and the exercise price of the warrants to $0.46 per share. | ||
Effective August 1, 2008, the Company settled this dispute by entering into a Consent, Waiver and Amendment agreement with the holders of the Senior Convertible Notes. This primary features of this agreement are (i) the conversion price of the Senior Convertible Notes has been reduced to $1.75 per share, (ii) in the event the trading price of the Company’s common shares is lower than $1.75 as of July 31, 2009, the conversion price with respect to 33% of the unconverted principal amount of the Senior Convertible Notes as of July 31, 2009 (less any amounts called by a third-party option holder in the previous 12 months) will be further reduced to the then current trading price of our common shares, (iii), in the event the trading price of the Company’s common shares is lower than $1.75 as of July 31, 2010 the conversion price with respect to 33% of 67% of the Senior Convertible Notes as of July 31, 2010 (less any amounts called by a third-party option holder in the previous 12 months) will be further reduced to the then current trading price of our Common shares, (iv) the exercise price of the Series E, Series F and Placement Warrants has been changed to $1.75 (resulting in a pro rata increase in the number of common shares issuable under the Warrants to 5,612,549 common shares from 4,017,162 common shares, (v) the maturity date of the Senior Convertible Notes was changed to September 26, 2011 from September 26, 2027, which may be extended in certain circumstances by the holders of the notes, (vi) the anti-dilution provisions of the Senior Convertible Notes are no longer triggered if the Company pays interest in common shares to the holders of the CDN $2,450,000 convertible notes issued in 2007 to the vendors of DMR Food Corporation and My Organic Baby, Inc. (the “Vendor Notes”), (vii) the Company’s obligation to register the common shares underlying the Senior Convertible Notes and the Series E, Series F and Placement Warrants has been suspended, provided that the holders of the notes are permitted to sell their securities pursuant to SEC Rule 144 (viii) all accrued and unpaid penalties (described in previous Company filings) related to the said registration of the common shares have been waived, (ix) the Company is permitted to amend the Vendor Notes to incorporate the changes made in this agreement. | ||
(b) | In April 2008, the Company signed a Letter of Intent to acquire Sarasam Food Corp., a rapidly expanding brand of kosher hot dogs, sausages and other meat products operating under the name Baldwin Street Kosher. The Company expects to complete this acquisition in the 3rdquarter of 2008 without requiring any further financing or dilution of the Company’s common shares. |
(c) | In August 2008, the Company signed a Letter of Intent to acquire Crofters Food Ltd., one of North America's largest organic jam companies. The acquisition of this rapidly growing manufacturer, producer and marketer of organic jams and spreads will significantly increase the revenues of Clearly Canadian Brands. The letter contemplates completion of this acquisition in the first quarter of 2009. Upon closing of this acquisition, Clearly Canadian Brands will require additional financing and there may be a dilutive effect on the Company’s common shares. |
40