ITEM 1. DESCRIPTION OF BUSINESS.
a) Company Background.
Iceberg Corporation of America (the "Company") was organized under the laws of the State of Nevada on July 3rd, 1989, under the name "D.V. Holdings, Inc." Until June of 1999, the Company conducted no business. On June 25, 1999, the Company consummated a reverse merger whereby it acquired 100% of the issued and outstanding common shares of Iceberg Industries Corporation ("Iceberg Industries") for total consideration of $3,631,848, based upon a share for share exchange at a ratio of 1.7 shares of the Company for each share of Iceberg Industries. As a result of the merger, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada changing its name to "Iceberg Corporation of America".
At the date of combination, the Company was a dormant public shell company with no identifiable assets. As such, the reverse takeover transaction was considered a capital transaction rather than a business combination. The purchase price for the Iceberg Industries shares was satisfied by the issuance of 1,251,762 Common Shares and 4,506,106 Special Common Shares of the Company. The Special Common Shares are held by Icecap Equity, Inc., an entity incorporated under the laws of the Province of Newfoundland, through its trustee James D. Smyth, to allow for the postponement of potential tax implications to Canadian resident shareholders of Iceberg Industries resulting from the reverse takeover transaction. The Special Common Shares have voting rights equal to the Company's Common Shares and may be exchanged at any time for a Common Share of the Company on an equivalent basis. Accordingly, the Special Common Shares are the economic equivalent of the Common Shares, and, in effect, give the Company full ownership and control of Iceberg Industries.
As a result of these transactions, the former shareholders of Iceberg Industries effectively controlled the Company through their share ownership. Under these circumstances, U.S. GAAP requires that Iceberg Industries be identified as the accounting acquirer. Accordingly, this annual report and the accompanying financial statements reflect, both prior and subsequent to the acquisition, the business of the acquired entity, Iceberg Industries. Historical shareholders' equity of Iceberg Industries has also been retroactively restated for the equivalent number of shares received in the reverse take over transaction.
Iceberg Industries, a development stage company, was incorporated under the laws of the province of Newfoundland, Canada on July 22, 1996. As a result of its acquisition of Iceberg Industries, the Company's principal activity is intended to be the commercial supply of premium beverage products, including iceberg water, beer and vodka, which utilize only water obtained from icebergs as the core ingredient. To date, Iceberg Industries has generated 30% of its revenue from bottling spring water and 57% from iceberg water with the balance of 13% from sales of vodka and beer. Iceberg Industries has invested $924,738 in the development of technology for the harvesting of icebergs and the production of premium water from icebergs. Iceberg Industries acquired a spring water bottling company on March 31, 1998, which gave it access to an existing water bottling line as well as trained staff who could be used to bottle the iceberg water product. It has subsequently developed substantial new production facilities and has recently focused its energies on product development, packaging, market research and market development. Management continues to commit significant efforts to these development activities, financial planning and raising the required capital to support ongoing research and development and marketing efforts.
The acquired company, Iceberg Industries, had previously received a Grant from the Canadian government for up to $400,000 in recognition of the company's attempt to increase employment in the St. John's, Newfoundland area; had secured an improvement loan from Hong Kong Bank in the amount of $165,000 to retrofit a ship for the company's business venture; and had secured a permit from the United States Food and Drug Administration (the "FDA") to "test market" Borealis Iceberg Water in the U.S. marketplace. This permit, attached hereto as Exhibit 10.4, was obtained when Iceberg Industries applied to the FDA for permission to sell Iceberg water in the United States. The permit allows Iceberg Industries to sell 150,000 cases of Iceberg water over a period of 15 months commencing with the first shipment of Iceberg water products. Subsequently, Iceberg Industries has applied for permission to sell Iceberg water products in all states and territories of the United States. As a result of this process, and in combination with jurisdictions that don't require permits to sell water, the Company is now permitted to sell water in forty-eight states and one territory. The Company has also submitted a citizens' petition to the FDA asking that Iceberg Water be included in the FDA's standards of identities. If this addition is granted we will no longer have to apply to have our temporary permit renewed on an annual basis.
The Company operates a processing plant in Trepassey, Newfoundland, and has long-term leases on the property upon which the facility is located and for purposes of office space at 16 Forest Road, St. Johns, Newfoundland.
b) Description of Business.
General Information on Icebergs.
Almost the entire extent of Greenland is covered by a huge glacial blanket over 700,000 square miles in area and more than 9,000 feet in maximum thickness. Icebergs are created where the glaciers meet the sea. Icebergs spend nearly three years at sea in the freezing Arctic waters of the North Atlantic before they arrive off the coast of Newfoundland and Labrador. This annual migration of thousands of icebergs to the rugged coastline of Newfoundland can pose a serious threat to ships. Countless ships and lives have been lost to these "phantoms of the north". Every year thousands of tourists flock to the rugged shores of Newfoundland and Labrador to witness one of nature's truly magnificent marvels, the migration of ancient icebergs. These massive white giants evoke powerful images and are unique to this geographic region. The continuing interest in the Titanic has helped reinforce consumer awareness and respect for these floating fresh water sanctuaries. Icebergs start their three- year journey to the coastline of Newfoundland from Greenland. Extensive records exist on iceberg prevalence throughout the season, dating back many years. These are compiled by the International Ice Patrol, an organization formed shortly after the sinking of the Titanic in 1912. The data provides a level of comfort that icebergs will be available. The International Ice Patrol reports the number of observed icebergs that drift south of the 48th parallel North, a point that crosses the northernmost tip of the Avalon Peninsula on the Northeast coast of Newfoundland. From 1983 to 1994 an average of 312 icebergs were sighted annually. For the period 1990-1995, iceberg conditions were much more severe, with an average of 876 spotted per year. In some years more than 1,500 have been observed. A single iceberg can weigh millions of metric tones. The Company's targeted harvest represents a very small portion of this amount.
The purity and quality of the iceberg water has been verified by independent laboratory analysis. Iceberg Industries selected water samples from several large volume producers of water products and engaged an independent lab, CANTEST, to compare various components of each water product. The results of this test indicated that Iceberg water was an excellent product and exceeded all of the tested products in 27 out of 28 elements that were measured. In the particular category, "Total Dissolved Solids", which is used by certain companies to promote their products, Iceberg water did not register on the measurement scale whereas a Canadian market leader measured 209 mg/L and a French market leader measured 301 mg/L.
Harvesting Icebergs.
Iceberg Industries was the first holder of a permit to harvest icebergs under the Government of Newfoundland and Labrador's water use policy. The technology for harvesting icebergs is unique to Iceberg Industries. Large icebergs fracture or "calve" into smaller pieces. Once the bergs have calved to a manageable size, the Iceberg Industries' harvesting process can begin. With the use of an ocean-going tug, an ice harvesting vessel fully equipped for harvesting and processing is carefully positioned alongside a suitable iceberg. Using a crane and hydraulic grapple, ice is retrieved, crushed, and deposited into a sterile melting tank. When full, the harvesting vessel is towed to the production facility in Trepassey, Newfoundland and the water is transferred into a land storage system.
Bottling of "Iceberg Water" is conducted at the Company's plant in Trepassey. A 1999 expansion and renovation added an additional 6,400 square feet. In addition, a new bottling line was installed which gives Iceberg Industries the capacity to produce 1,800,000 cases of water on an annual basis. With the addition of a second labeler and extending the work week to seven days this production number can be increased to approximately 2,500,000 cases. Trepassey, Newfoundland is located on the ocean approximately two hours away from St. John's. St. John's is located on the shipping lanes to Europe and as such provides Iceberg Industries with an economical containerized shipping service to major markets. In addition, Newfoundland, which is located on the extreme East Coast of Canada, receives large quantities of goods by transport truck. There is not enough local export business to utilize all of these transport trucks on their return trips and as a result local exporters can receive favorable freight rates for the movement of goods. This provides some assistance to Iceberg Industries in making their products competitive in various markets outside of Newfoundland.
Iceberg Industries bottles its own Spring water and Iceberg water products at its Trepassey plant. Vodka production has been sub-contracted to a highly regarded manufacturing company in Ontario, Canada. A packaging arrangement has been negotiated for the production and bottling of Vodka with Commercial Alcohols Inc ("Commercial Alcohols")at their Brampton, Ontario facility.
Beer production has been sub-contracted to Moosehead Breweries Ltd ("Moosehead")located in Saint John, New Brunswick, Canada. No formal contracts have yet been signed with these companies.
Industry Information.
The bottled water industry has experienced tremendous growth over the last decade due to two major trends: rising concern about the safety of tap water and a general shift in the beverage market toward healthier, low calorie, non-alcoholic products. This trend continues. The North American bottled water market is currently a $5 billion wholesale market and, with a 1999 annual growth rate of 14%, is the fastest growing segment of the beverage industry. Management believes that the market in North America is still far from saturated, as domestic per capita consumption of bottled water is only a fraction of European consumption. The industry is also extremely fragmented, with the top 10 brands by volume accounting for only 45% of total industry sales. Industry analysts predict that bottled water sales in the United States will reach $6 billion by the year 2001.The United Kingdom and other European Union countries are also major consumers of bottled water, with per capita consumption in such countries as Germany, France and Italy being five to six times higher than that in Canada. Further market opportunities exist in Japan and other Asian countries. At the same time, the bottled water industry is highly competitive. There are hundreds of water bottlers, many of which operate on a regional basis due to relatively high transport costs. For a major portion of the market, competition on price is important. However, there are products positioned at the high end of the market that successfully receive a price premium. "Iceberg Water" is positioned here, as an ultra premium product, capitalizing on its ability to provide the unique experience of drinking pure water from icebergs hundreds of thousands of years old. It is promoted as an affordable treat.
Iceberg Industries' research and development efforts have positioned it as the world's first commercial supplier of a family of products, which utilize water, obtained from icebergs as the core ingredient. These "bergs", up to one hundred and fifty thousand years in age, yield a pristine source of natural drinking water. Protected from man and our polluted planet, these icebergs represent a unique category of drinking water. This is what separates Iceberg products from the pack: pre- civilization, pre-pollution, quality water. All Iceberg products are positioned in niche markets at the premium end of the price and quality spectrum. Marketing programs rely upon the powerful, pristine and emotive images of icebergs.
Iceberg water is considered a premium water product and as such the Company generally compares its retail price with Evian, a world leader in bottled water. The suggested retail price for 1 Litre of Iceberg water in the local market is US$1.15, although the retailer is at liberty to charge whatever price is appropriate. The price for 1 Litre of Evian water, a world leader, is priced at the same price in this marketplace.
Branding.
Iceberg Industries is committed to building brand equity. The product family will initially carry the brand name "BOREALIS". This helps support the cold, northern image and mystique surrounding the Company's products. Application has been made to have the name "Borealis" registered as a trademark in the United States. In Canada, "Borealis" will be used for water products only. The word "ICEBERG" will play prominently in the name used as a descriptive term for all products. Private label production is also possible for selected customers, with a further opportunity to build brand equity. To date, water has been produced for Canadian Pacific Hotels with the "BOREALIS" trade name retained. Product has also been produced for Loblaw's and Provigo, two large Canadian supermarket chains, and, although this was done under the President's Choice banner, it has helped create awareness of the availability of iceberg water. Iceberg Industries' initial family of products is:
* iceberg water * iceberg vodka * iceberg beer * natural spring water
New and exciting additions to the product line are currently in the planning process, including "ice tea" and other products that use water as a foundation.
Borealis Iceberg Water is a unique experience to be enjoyed and savoured. Taste tests conducted by prospective distributors have determined that iceberg water has the softest, most natural taste of any bottled water on the market.
Borealis Iceberg Vodka is an ultra-smooth, four-column distilled spirit. Iceberg water is used in both the distillation and blending processes.
Borealis Iceberg Beer is craft brewed in small batches for superior quality and consistency at a highly regarded Atlantic Canada brewery.
Market Positioning.
Iceberg Industries has created a new sector in the beverage industry. All products will be positioned at the premium end of the price and quality spectrums. Management believes that the Company's products, being unique and authentic, have many marketing advantages. Management believes it is critical to adopt this "premium" positioning strategy given the incremental harvesting, transport and processing costs relative to more conventional beverage producers.
Target Markets and Distribution.
The initial marketing thrust has been in Canada and the United States, with the United Kingdom as an additional key market. Thus far, marketing efforts have utilized established beverage marketing companies within these regions. The intention of the Company is to utilize these companies' expertise as well as take advantage of existing shelf space made available through these companies. Negotiations have been completed with the following key distributors:
Central Dairies ("Central"): Iceberg Industries has negotiated an arrangement with Central to represent our water products, both Spring water and Iceberg water, in Newfoundland, Nova Scotia, New Brunswick and Prince Edward Island commonly referred to as the Atlantic Provinces of Canada. Central is a division of Farmers Dairy Co-operative Society in Nova Scotia and is the largest dairy producer and distributor in Newfoundland. Our water products are a complimentary addition to their product line. No formal contract has been entered into for this arrangement.
Loblaw Companies Limited ("Loblaws"): Iceberg Industries has negotiated an arrangement with Loblaws for private label 1 litre and 500ml (12 Pak Box)"President's Choice" Iceberg water products which are being distributed through Loblaws' 450 store supermarket chain and their Provigo supermarket stores in Quebec. No formal contract has been entered into for this arrangement.
Better Beverage Importers Co. ("BBI"): Iceberg Industries has negotiated a contract with BBI to be our importer of record to distribute Iceberg vodka in the United States.
St. Killian Importing Co. Inc. ("St. Killian"): Iceberg Industries has negotiated a contract with St. Killian to represent Iceberg beer in the United States. The term of the contract is for a period of three years with a one-year renewal at that time.
Promotion.
The Company has focused on public relations as a major contributor to the awareness of Iceberg products. Press coverage on the Company and its activities has been favorable. It is the intention of the Company to take advantage of this situation as much as possible in order to capitalize on the editorial pieces and free press made available to the Company. This will be supplemented by expenditures on promotional materials as well as participation with distributors in joint promotional activities. Management believes that such activities as being the "official water" of the 1998 Canadian Commonwealth Games Team have tremendous ongoing promotional value.
Raw Material Transport.
Water will be primarily transported to the plant using an ice-harvesting vessel. Some road transport using tanker trucks is also anticipated during the harvesting season and for transportation to producers of beer and vodka. To date, the Company has used the services of independent, local carriers and national carriers to deliver water to its processing facility. No formal contracts have been negotiated but there are adequate for-hire truckers located in the area to meet any raw material transportation requirements.
Production.
It is not desirable for the Company to make the significant investment required to have all the required production capabilities in-house. The basic philosophy will be to make a series of strategic contractor arrangements for its products, other than water production. The Company's Trepassey plant has been bottling natural spring water since 1992. Trepassey is located 140 km south of the capital city of St. John's, Newfoundland. The plant is also used to bottle Iceberg Water. A 1999 expansion added an additional 6,400 square feet, more than doubling the size of the plant. This is required to meet the demand for Iceberg Water and to accommodate the growing local demand for spring water. Within the limited confines of the existing plant processing area some equipment enhancements were initiated in the spring of 1998. Additional enhancements were added with the plant expansion in order to meet growth in sales volume, enhance efficiencies, adhere to the rigid quality standards of the International Bottled Water Association and to reduce product costs.
Iceberg Vodka - A packaging arrangement has been negotiated for the production of vodka with Commercial Alcohols at their Brampton, Ontario facility. The Company will transport iceberg water to the distiller for blending with spirits and bottling under the Company's label. No formal contract has been negotiated with Commercial Alcohols at this time. Iceberg Industries supplies all of the water and packaging and the final product is then produced on a per unit fee basis.
Iceberg Beer - Excess capacity exists in the brewing industry. Arrangements have been made with Moosehead in Saint John, New Brunswick to produce an iceberg beer product. The Company will deliver iceberg water to Moosehead for the brewing and bottling of beer for national and international markets. No formal contract has been negotiated with Moosehead at this time. Iceberg Industries supplies all of the water and packaging and the final product is then produced on a per unit fee basis.
ITEM 2.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Information.
This report contains certain forward-looking statements and information. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear. Forward-looking statements, by their very nature, include risks and uncertainties. Accordingly, the Company's actual results could differ materially from those discussed herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the Company's control, include the following: our success in obtaining new customers; the volume and type of orders that are received from such customers; levels of, and ability to, collect accounts receivable; availability of trained personnel and utilization of the Company's capacity to complete work; competition and competitive pressures on pricing; availability, cost and terms of debt or equity financing; and economic conditions in the United States and in the regions served.
The Company's functional currency is the Canadian dollar as all Company operations have been conducted in Canada and are denominated in the Canadian dollar. Except for share and debenture investments in U.S. dollars, there has been minimal activity denominated in foreign currency through June 30, 2001. Therefore, there is no material currency risk or exposure to the Company in the period to June 30, 2001.
The Company's financial statements are translated into U.S. dollars using the current exchange rate as required by FAS 52. The accumulated currency translation adjustment is reported as other comprehensive income in the statement of shareholders' equity and was $8,984 to June 30, 2001. In the future, the Company intends to conduct operations in the U.S. and Europe. Currency risks and functional currency will be evaluated as future plans are formulated.
While the Company is still in its development stage, management has presented the statements of operations in the traditional format.
In order to support ongoing operating costs, the Company raised $1,526,000 through the issuance of convertible debentures during the year ended June 30 2001. The Company is continuing its strategy of funding development through additional debt and equity financing. These funds will be used to manage working capital requirements and to fund ongoing operational costs with a particular emphasis on marketing expenditures as the Company introduces its redeveloped products to the marketplace.
The Company reports sales of $817,070 and $737,300 for the year ended June 30 2001, and the year ended June 30 2000, respectively. These sales represent minimal revenue from bottling spring water and some iceberg water with initial shipments of beer and vodka. Management continues to focus its energies on product development, market research and market development, which includes the formation of alliances in various geographical areas. Currently the Company is in the final stages of the redevelopment of the Vodka and Water products and should be ready for test marketing by the second quarter.
General and administration expenses have decreased in the year ended June 30 2001 to $821,560 as compared with $1,205,936 for the year ended June 30 2000. This decrease is a result of reduced audit fees of $59,579, reduced travel expenses of $34,700 and reduced wages to management and administrative employees and consultants in the amount of $324,300. With some minor increases in other expenses overall costs decreased by 33%.
Research and development expenses decreased in the year ended June 30 2001 to $25,579 compared to $200,895 for the year ended June 30 2000. During the first six months of the new production operation, development costs were still being incurred to fine-tune our production and harvesting operations. The most recent year had less need for these types of expenditures and as a result, these expenses were reduced by 79%.
Sales and marketing expenses decreased in the year ended June 30 2001 to $660,201 as compared with $779,433 for the year ended June 30 2000. This decrease is a result of reduced advertising expenditures and reduction in our sales presence in the United States while our products were being redesigned. Overall, expenditures were reduced by 15%.
Depreciation and Amortization increased in the year ended June 30 2001 to $442,009 compared with $338,413 for the year ended June 30 2000.
Interest and bank charges increased in the year ended June 30 2001 to $1,159,443 compared with $71,642 for the year ended June 30 2000. The net increase of $1,087,971, comprised of an increase in short term interest expense of $12,173 and an increase in long-term interest expense of $1,075,618. The increase in long-term interest expense resulted from interest charges on the issuance of convertible debentures in the accumulated amount of $1,526,000. Included in the $1,075,618, an amount of $920,500 has been recorded as interest expense as a requirement of U.S. GAAP rules, resulting from a beneficial conversion feature of the new series of 6% convertible debentures and the charge required as a result of the reduction in the conversion price of some of the 10% convertible debentures.
Net loss for the year ending June 30 2001 was $2,911,191 ($.27 per share) compared to $2,469,882($0.26 per share) for the year ending June 30 2000. As mentioned previously, the Company had to record additional non-cash interest charges of $920,500 to comply with U.S. GAAP accounting rules. This amount has been reflected in the current financial statements with the result that the loss has been increased by $920,500 and the loss per share increased from $0.19 per share to $0.27 per share.
The Company has incurred significant operating losses since its inception and has an accumulated deficit of $8,841,856 at June 30 2001. The Company expects to incur further development costs to continue its product development and redevelopment, marketing efforts, and the Company's working capital deficiency at June 30, 2001,and limited revenue will not be sufficient to meet its development requirements. The Company's management recognizes this "going concern" issue and the need to generate additional revenues and/or resources, and has implemented several solutions to address this problem.
Primary to management's plans for solvency in the coming year is the sale of additional equity in the Company. Additional common stock and/or convertible debt will be marketed in the 1st and 2nd quarters of fiscal 2002 to sustain the Company's projected ongoing losses. There is substantial doubt regarding the Company's ability to continue as a going concern, and as such, the Company is substantially dependent upon its ability to generate sufficient equity financing and operating revenues to cover its operating costs.
The Company is negotiating the issuance of convertible debentures for proceeds of US$50,000 in the first quarter of fiscal 2002. Additional funds will be raised during the 2nd quarter of fiscal 2002. These funds will be used to fund ongoing costs. Capital commitments for the year ended June 30, 2002, are estimated at $50,000 and these additional funds will be sufficient to meet the Company's capital obligations until the various sales initiatives described herein are able to create significant cash flow. No additional facilities are needed to enable the Company to produce on a commercial basis.
The Company believes that its long-term debt is manageable due to the fact that it is owed primarily to government lenders interested in the viability of the Company (Atlantic Canada Opportunities Agency and the Trepassey Community Development Fund totalling $388,000) or because it is payable to Company "insiders". If the Company experiences shortages, it may be possible to renegotiate terms of repayment with the Government agencies and a deferral with officers and directors ($711,788 due to directors and officers).
RISK FACTORS
Market Risk.
There has already been significant and substantial interest in the Iceberg product line, however, as with any market and/or product, there are uncertainties, including:
New Product Risk.
There is a risk that consumer acceptance or ongoing interest may not be as widespread as expected.
Price Resistance Risk.
These products are premium products that demand a high price. There is a danger of price resistance in the consumer marketplace.
Harvesting Risk.
The data available to the Company indicates that the availability of ice from bergs will not be a problem. However, the data does not indicate the proximity of icebergs to the shore, which is a cost-sensitive condition for the Company. To safely and cost-effectively harvest icebergs, they must be close to shore to the point where the icebergs are actually aground or touching the bottom and generally in areas offering some protection from the open sea. The reported length of the season can also be misleading. Icebergs may be present but they must also be in a suitable location and in the process of breaking up in order to be harvested. The data currently available does not provide such detailed information. However, it is known that over the last three years, there were approximately 1,800 icebergs per year, which floated down from Northern Labrador and Greenland. Of this number, approximately 30-40% would migrate into the sheltered bays and coves where harvesting can take place. There can be no guarantee, however, as to how many of these icebergs actually reach close enough to shore and in sheltered locations where they can be safely and economically harvested.
Sub-Contractor Performance.
The Company relies upon sub-contracted vessels to assist in harvesting its ice supply. There is a risk of default or non- performance by these sub-contractors.
Processing Risk.
The extent of raw material handling before final production poses an element of risk. The Company's Quality Assurance/Quality Control (QA/QC) manager has developed and monitors procedures and ensures adherence to raw material and finished product specifications. Regular lab analysis is conducted at all stages of the process. The Company is moving to implement a Hazard Analysis of Critical Control Points ("HACCP") system and is pursuing ISO 9000 certification. As a member of the International Bottled Water Association, the Company also has access to technical resources and is subject to an annual independent review of the Company's manufacturing processes.
Financial Risk.
If the Company needs to raise additional funds in order to fund expansion, develop new or enhanced products, respond to competitive pressures or acquire complementary products, businesses or technologies, additional funds raised through the issuance of equity or convertible debt securities may dilute the percentage ownership of the present stockholders of the Company, and, in addition, such securities may have rights, preferences or privileges senior to those of the Company's Common Stock. The Company does not currently have any contractual restrictions on its ability to incur debt and, accordingly, the Company could incur significant amounts of indebtedness to finance its operations. Any such indebtedness could contain covenants, which would restrict the Company's operations. There can be no assurance that additional financing will be available on terms favorable to the Company, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to continue in business, or to a lesser extent, not be able to take advantage of acquisition opportunities, develop or enhance its products or respond to competitive pressures.
ITEM 3.
ITEM 3. DESCRIPTION OF PROPERTY
Iceberg Industries, a wholly-owned subsidiary of the Company, has an 11,200 square foot manufacturing facility at Trepassey, Newfoundland where its water products are processed and bottled. This facility is located on approximately 40 acres of Company-owned land, and the Company owns all of the equipment. Embedded within the 40-acre site is a small piece of real estate owned by the Town of Trepassey, which is specifically the size of and constitutes the site for the bottling plant. This parcel has been leased to the Company for a term of 99 years, with an annual rental or lease rate of $1.00. The Town is surrendering fee title on this parcel to the Company after the next batch of bottle labels are modified to show Trepassey as the source of the spring water. As of the date of this filing, the transfer has not occurred. The 40-acre parcel is encumbered by a first mortgage to Trepassey Community Development Fund in the amount of $80,105, with monthly payments of $664.
This property is, in the opinion of management, adequately covered by Insurance on the premises and its contents, under a policy issued by ING Halifax Insurance.
The Company also has long-term water rights leases in place with Basil James, an unrelated third-party landowner, for extraction of mineral water from a site directly adjacent to the Trepassey facility. The Company has these water rights for $67 per month for a period of 25 years, commencing January of 1992.
The Company maintains an office at 16 Forest Road, St. John's, Newfoundland, Canada, which it utilizes as its main corporate business office. This lease is from Standard Life Assurance Company, with an annual rental rate of $15,000 and floor space of approximately 1450 square feet. This property is also covered by insurance through Ing Halifax Insurance.
ITEM 4.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During June 1999, and closing on June 25, 1999, the Company consummated a reverse merger transaction whereby it acquired 100% of the issued and outstanding stock of Iceberg Industries for total consideration of $3,631,848, which was satisfied by the issuance of 5,757,859 shares of the Company's stock, consisting of 1,251,753 Common Shares and 4,506,106 Special Common Shares. This transaction was completed pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Internal Revenue Code section 368. As a result of these transactions, the former shareholders of Iceberg Industries effectively control the Company through their share ownership.
In September 1999, the Company completed a private placement under Rule 506 of Regulation D whereby it issued an aggregate of 600,000 restricted shares of the Company's Common Stock in exchange for $1,500,000, or $2.50 per share, which proceeds were intended to fund the Company's immediate working capital needs. As part of the offering price, the accredited investor also received 1,200,000 Share Purchase Warrants convertible into an equivalent number of shares of the Company's Common Stock at $2.50 per share. The first 600,000 Warrants expire on December 15, 2000; the next 600,000 Warrants expire on March 15, 2002. In addition, the investor received 150,000 stock options under the Company's employee stock option plan, which expire on December 31, 2009. The Term Sheet for the Private Placement is included herewith as Exhibit 10.11. Subsequently, the 1,200,000 outstanding Warrants were cancelled.
In June 2000, the Company completed a private placement under Rule 506 of Regulation D whereby it issued an aggregate of 1,000,000 restricted shares of the Company's Common Stock in exchange for $500,000, or $0.50 per share, which proceeds were intended to fund the Company's immediate working capital needs. As part of the offering price, the accredited investors also received 1,000,000 Share Purchase Warrants convertible into an equivalent number of shares of the Company's Common Stock from the date of the private placement Agreement to April 30, 2001, an amount of money per share equal to 125% of the closing bid for the Company's stock on the last trading day preceding the date of execution of the Agreement; and, from May 1, 2001 to April 30, 2002, an amount of money per share equal to 140% of the closing bid for the Company's stock on the last trading day preceding the date of execution of the Agreement.
In August 2000, the Company completed a private placement under Rule 506 of Regulation D whereby it issued convertible debentures in exchange for $761,000 which proceeds were intended to fund the Company's immediate working capital needs. As part of the offering price, the accredited investors will be entitled to convert their debenture into an equivalent number of shares of the Company's Common Stock at $0.50 per share. Subsequently, $561,000 of the total debenture was modified to reduce the conversion price to $0.25 per share. As part of the offering price, the accredited investors who convert will receive share purchase warrants convertible into an equivalent number of shares of the Company's Common Shares at $0.625 per share. These warrants expire eighteen months after the conversion date of the convertible debenture to equity. A commission of 4% was paid in connection with the issuance of the convertible debenture. Subsequently, in May 2001 $561,000 of these convertible debentures were registered under Form SB-2.
In November 2000, the Company completed a private placement under Rule 506 of Regulation D whereby it issued convertible debentures for proceeds of $100,000. The proceeds were intended to fund the Company's immediate working capital needs. As part of the offering price, the accredited investors will be entitled to convert their debenture into an equivalent number of shares of the Company's Common Stock at $0.50 per share. As part of the offering price, the accredited investors who convert will receive share purchase warrants convertible into an equivalent number of shares of the Company's Common Shares at $0.625 per share. These warrants expire eighteen months after the conversion date of the convertible debenture to equity.
In January 2001, the Company completed a private placement under Rule 506 of Regulation D whereby it issued convertible debentures for proceeds of $665,000.The total debenture was prepared based on raising $5,000,000 under various terms and conditions. However, due to changing market conditions, the original debenture was replaced with a new series of convertible debentures to raise this $665,000.This amount will be used to fund working capital needs and the redevelopment of the Company's vodka and water products for introduction into the US marketplace. Subsequently in May 2001, these convertible debentures were registered under Form SB-2.
Except as noted herein, no compensation or commissions were paid to any person in connection with the issuance of the shares, and no underwriter, broker or dealer participated in such a sale. Each issuee in the transactions described above made a written representation to the Company that he was acquiring the Company's stock for investment purposes and not with a view to the resale or redistribution thereof. Each stock certificate issued contains a restrictive legend. Each of the above transactions was deemed by the Company to be exempt from registration under Section 4(2) of the Securities Act of 1933, and Rule 145 (17 CFR Section 230.145) as a transaction not involving any public offering.
As of the date of this report, 10,960,814 of the issued and outstanding shares of the Company's Common Stock and Special Common Stock could potentially be eligible for sale as free trading or under Rule 144 promulgated under the Securities Act of 1933, as amended, subject to certain limitations included in the Rule:
In summary, Rule 144 applies to affiliates (that is, control persons) and non-affiliates when they resell restricted securities (those purchased from the issuer or an affiliate of the issuer in non-public transactions). Non-affiliates reselling restricted securities, as well as affiliates selling restricted or non-restricted securities, are not considered to be engaged in a distribution and, therefore, are not deemed to be underwriters as defined in Section 2(a)(11), if six conditions are met:
(1) Current public information must be available about the issuer unless sales are limited to those made by non-affiliates after two years.
(2) When restricted securities are sold, generally there must be a one-year holding period.
(3) When either restricted or non restricted securities are sold by an affiliate after one year, there are limitations on the amount of securities that may be sold (144(e)); when restricted securities are sold by non-affiliates between the first and second years, there are identical limitations; after two years, there are no volume limitations for resales by non-affiliates (144(k)).
(4) Except for sales of restricted securities made by non- affiliates after two years, all sales must be made in brokers' transactions as defined in Section 4(4) of the Securities Act of 1933, as amended, or a transaction directly with a "market maker" as that term is defined in Section 3(a)(38)of the 1934 Act.
(5) Except for sales of restricted securities made by non- affiliates after two years, a notice of proposed sale must be filed for all sales in excess of 500 shares or with an aggregate sales price in excess of $10,000.
(6) There must be a bona fide intention to sell within a reasonable time after the filing of the notice referred to in (5)above.
Furthermore, Rule 145, which applies when a merger, share exchange or similar reorganization of a company takes place, would limit the ability of holders of restricted securities to sell their shares through the public market. All securities received as a result of a transaction subject to Rule 145 would be restricted for a minimum of one year from the date on which the consideration for these shares was exchanged, which would be June 25, 1999 for a large majority of the shareholders of the Company. Once the one-year period has elapsed, the holders are subject to the normal restrictions and exemptions set forth in Rule 144.
Based upon the Company's knowledge of the dates of acquisition of the various securities of the Company, there are currently 10,960,814 shares of the 11,064,480 potentially tradable restricted shares, which could be immediately sold, after all Icecap Equity Inc. shares are converted to shares of the company, under Rule 144 of the Securities Act.
ITEM 5.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except for acts or omissions which involve intentional misconduct, fraud or known violation of law or for the payment of dividends in violation of Nevada Revised Statutes, there shall be no personal liability of a director or officer to the Company, or its stockholders for damages for breach of fiduciary duty as a director or officer. The Company may indemnify any person for expenses incurred, including attorneys fees, in connection with their good faith acts if they reasonably believe such acts are in and not opposed to the best interests of the Company and for acts for which the person had no reason to believe his or her conduct was unlawful. The Company may indemnify the officers and directors for expenses incurred in defending a civil or criminal action, suit or proceeding as they are incurred in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount of such expenses if it is ultimately determined by a court of competent jurisdiction in which the action or suit is brought determined that such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
Indemnification of Directors, Officers, Employees and Agents
So far as permitted by the Nevada Business Corporation Act, the Company may indemnify its directors and officers against expenses and liabilities they incur to defend, settle or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or to have engaged in wilful misconduct. Section 78.751(1) of the Nevada Revised Statutes (NRS) authorizes a Nevada corporation to indemnify any director, officer, employee, or corporate agent who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation due to his or her corporate role. Section 78.751(1) extends this protection against expenses, including attorney's fees, judgements, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 78.751(2) of the NRS also authorizes indemnification of the reasonable defence or settlement expenses of a corporate director, officer, employee or agent who is sued, or is threatened with a suit, by or in the right of the corporation. The party must have been acting in good faith and with the reasonable belief that his of her actions were not opposed to the corporation's best interests. Unless the court rules that the party is reasonably entitled to indemnification, the party seeking indemnification must not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or agent is successful on the merits or otherwise in defending any action or proceeding referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of the NRS requires that he or she be indemnified against expenses, including attorneys fees, actually and reasonably incurred by him in connection with the defense.
Section 78.751(4) of the NRS limits indemnification under Section 78.751(1) and 78.751(2) to situations in which either (i) the stockholders; (ii) the majority of a disinterested quorum of directors; or (iii) independent legal counsel determine that indemnification is proper under the circumstances.
Pursuant to Section 78.175(5) of the NRS, the corporation may advance an officer's or director's expenses incurred in defending any action or proceeding upon receipt of an undertaking. Section 78.751(6)(a) provides that the rights to indemnification and advancement of expenses shall not be deemed exclusive of any other rights under any bylaw, agreement, stockholder vote or vote of disinterested directors. Section 78.751(6)(b) extends the rights to indemnification and advancement of expenses to former directors, officers, employees and agents, as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has the right to indemnity, Section 78.752 allows the corporation to purchase and maintain insurance on his or her behalf against liability resulting from his or her corporate role.
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to officers, directors or persons controlling the Company pursuant to the foregoing, the Company has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
PART F/S
Financial Statements.
The following financial statements are attached to this report and filed as a part hereof.
Audited Consolidated Financial Statements as of June 30, 2001 with comparative figures for the year ended June 30 2000, and for the six months ended June 30,
Unaudited Consolidated Financial Statements as of June 30, 1999
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Independent Auditors' Report
To the Board of Directors and Shareholders of Iceberg Corporation of America
We have audited the accompanying consolidated balance sheets of Iceberg Corporation of America (a development stage company) and subsidiaries as of June 30, 2001 and June 30, 2000, and the related consolidated statements of operations, shareholders' (deficiency) equity and cash flows for the years ended June 30, 2001 and June 30, 2000, for the six months ended June 30, 1999 and for the period from July 22, 1996 (inception) to June 30, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Iceberg Corporation of America and subsidiaries as of June 30, 2001 and June 30, 2000, and the results of their operations and their cash flows for the years ended June 30, 2001 and June 30, 2000, for the six months ended June 30, 1999 and for the period from July 22, 1996 (inception) to June 30, 2001, in conformity with generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Iceberg Corporation of America is a development stage company engaged in the development, production and commercial marketing of premium beverage products, which utilize iceberg water as a core ingredient. As discussed in Note 1 to the consolidated financial statements, the deficiency in working capital at June 30, 2001 and the operating losses since inception raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
St. John's, Newfoundland, Canada Deloitte & Touche LLP September 7, 2001 Chartered Accountants
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES (a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
_________ (all amounts in U.S. dollars)
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES (a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
_________ (all amounts in U.S. dollars)
Change Format
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES Notes to the Consolidated Financial Statements (all amounts in U. S. dollars)
1. Description of business and basis of presentation
Description of business
Iceberg Industries Corporation ("Iceberg Industries"), a development stage company, was incorporated under the laws of the province of Newfoundland, Canada on July 22, 1996. As more fully described in Note 3(a), Iceberg Corporation of America ("the Company"), a dormant public shell company, acquired Iceberg Industries effective June 25, 1999. The acquisition by the Company resulted in the former shareholders of Iceberg Industries acquiring control of the Company and, accordingly, this transaction has been treated as a reverse takeover and is deemed in substance a capital transaction, rather than a business combination. Under this basis of accounting in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), Iceberg Industries has been identified as the accounting acquirer. The financial statements prior to the aforementioned acquisition are those of Iceberg Industries since, under a reverse takeover transaction, comparative figures become those of the accounting acquirer.
The Company's principal activity is intended to be the commercial supply of premium beverage products, including iceberg water, beer and vodka, which primarily utilize water obtained from icebergs as the core ingredient. To date, however, the Company has only generated minimal revenue from bottling spring water and some iceberg water, beer and vodka. The Company has invested heavily in the development of technology for the harvesting of icebergs and the production of premium water from icebergs. It has developed substantial production facilities and has recently focused its energies on product development, packaging, market research and market development. Management continues to commit significant efforts to these development activities, financial planning and raising the required capital to support the ongoing research and development.
Basis of presentation
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred significant operating losses since inception and has an accumulated deficit of $8,841,856 at June 30, 2001. The Company expects to incur further development costs to continue its product development and marketing initiatives. The Company's working capital deficiency at June 30, 2001 and limited revenue will not be sufficient to meet its development requirements. Management recognizes that the Company must generate additional resources. Management's plans include the sale of additional debt and equity securities, the pursuit of business alliances for the production and marketing of product and the ongoing development of markets for its products.
No assurance can be given that the Company will be successful in raising sufficient additional capital or entering into business alliances that will enable it to achieve profitability or positive cash flow.
2. Significant accounting policies
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation. Such consolidated financial statements include, as appropriate, the financial position and results of operations of acquired businesses since the date of such respective acquisitions.
Change in fiscal year
The Company changed its financial reporting year end from December 31 to June 30 effective January 1, 1999 to more closely align its fiscal reporting to its business cycle.
Reporting currency and foreign currency translation
The Company reports its consolidated financial statements in U.S. dollars. The functional currency of the Company's major operations to date conducted by Iceberg Industries is the Canadian dollar. Canadian dollar denominated amounts have been translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted average exchange rate for each period for revenues, expenses and gains and losses. Translation adjustments are recorded as a separate component of other comprehensive income. Gains and losses resulting from foreign currency transactions are included in the results of operations.
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less when purchased.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined on a first-in, first-out basis. Inventory balances include the following:
June 30, June 30, 2001 2000 --------- ---------
Raw materials $ 199,232 $ 255,154 Finished goods 168,339 326,470 --------- --------- $ 367,571 $ 581,624 ========= =========
Government grants
The Company applies government grants received related to the purchase of property, plant and equipment to the cost of those assets. Grants received in advance of the acquisition of the related property, plant and equipment are deferred until the asset has been acquired.
2. Significant accounting policies (Continued)
Property, plant and equipment
Property, plant and equipment are recorded at historical cost less government grants received. Property, plant and equipment are depreciated over their useful lives using the declining balance method at the following annual rates:
Plant 4% Tank farm 10% Furniture and equipment 20% - 30% Vehicles 30%
Repairs and maintenance are expensed as incurred. Expenditures that result in the enhancement of the value of the facilities involved are treated as additions to property, plant and equipment. Cost of property, plant and equipment disposed of and the related accumulated depreciation are removed from the related accounts, and a gain or loss, if any, is recognized.
Goodwill
Goodwill is the excess of the purchase price over the fair value of the identifiable net assets acquired in business combinations accounted for as purchases. Goodwill is amortized on a straight-line basis over the periods benefited.
Impairment of long-lived assets
The Company evaluates its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Fair value of financial instruments
The Company has evaluated fair values of its financial instruments based on the current interest rate environment, related market values and current pricing of financial instruments with comparable terms. The carrying values of financial instruments are considered to approximate fair value, except as otherwise indicated in Note 7.
2. Significant accounting policies (Continued)
Revenue recognition
Revenue associated with the sale of goods has been recognized upon shipment at which time the benefits of ownership and the risk of loss passes to the customer.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.
Research and development
Research and development costs are expensed as incurred.
Recent accounting pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. In the event the Company acquires goodwill subsequent to June 30, 2001 it will not be amortized. SFAS No. 142 addresses the initial recognition and measurement of intangible assets and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle which is charged directly to retained earnings. Any impairment loss incurred subsequent to initial adoption of SFAS No. 142 is recorded as a charge to current period earnings. The Company will adopt SFAS No. 142 on July 1, 2001 and, at that time, will cease amortizing goodwill that resulted from business combinations completed prior to the adoption of SFAS No. 141. Goodwill is currently being amortized at approximately $73,000 annually and will have an expected net carrying value of approximately $120,000 at the date of adoption of this standard.
Financial Accounting Standards Board also issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The Company has not yet determined the effect, if any, of this new standard on its financial statements.
3. Acquisitions
Effective June 25, 1999, the Company acquired 100% of Iceberg Industries for total consideration of $3,631,848 based upon a share for share exchange at a ratio of 1.7 shares of the Company for each share of Iceberg Industries. At the date of combination, the Company was a dormant public shell company with no identifiable assets other than cash. As such, the reverse takeover transaction was considered a capital transaction rather than a business combination. The purchase price for the Iceberg Industries' shares was satisfied by the issuance of 1,251,753 common shares and 4,506,106 special common shares of the Company. The special common shares have voting rights equal to the Company's common shares and may be exchanged at any time for a common share of the Company on an equivalent basis. Accordingly, they are the economic equivalent of the common shares.
As a result of these transactions, the former shareholders of Iceberg Industries effectively control the Company through their share ownership. Under these circumstances, U.S. GAAP requires that Iceberg Industries be identified as the accounting acquirer. Accordingly, the financial statements prior to the acquisition are those of Iceberg Industries. Historical shareholder's equity of the Company has also been retroactively restated for the equivalent number of shares received in the reverse takeover transaction.
Format Change
4. Property, plant and equipment
Property, plant and equipment is comprised of the following:
Format Change
5. Short term borrowings
The Company has a credit facility arrangement with its commercial Bankers with an operating line of credit of $100,000, bearing interest at the Bank's prime rate plus 2%. Prior approval is obtained from the commercial Banker when this credit facility is exceeded. Short term borrowings are secured by a general assignment of book debts and a charge over inventory.
6. Due to shareholders
Demand notes payable to shareholders have no set terms of repayment and bear interest at rates which range between 5% and 10%. A $300,000 demand loan from one of the shareholders is secured by an assignment of equipment. The balance of the notes are unsecured.
7. Long term debt
2001 2000 ------ -------
Subordinated convertible debentures, bearing interest at U.S. bank prime plus 1.5%, interest payable on the principal sum outstanding on a semi-annual basis, maturing June 2002 to October, 2005. The debentures are convertible at $0.25 to $0.50 for one common share and one common share warrant which is exercisable at $0.625 within 18 months of the conversion date. $761,000 $ -
Convertible debentures, bearing interest at 6%, interest payable at maturity, maturing April, 2002. The debentures are convertible at $0.05822 for one common share. 665,000 -
Atlantic Canada Opportunities Agency, non-interest bearing, unsecured debt, repayable in monthly installments commencing December 2000 and maturing 2006 308,058 338,570
Subordinated convertible debenture, bearing interest at 6%, interest payable on the principal sum outstanding on a semi-annual basis maturing November, 2005. The debenture is convertible at $0.50 for one common share and one common share warrant which is exercisable at $0.625 within 18 months of the conversion date. 100,000 -
Hongkong Bank of Canada, term loan bearing interest at prime plus 3%, repayable in blended monthly installments, maturing 2004, secured by certain assets of the Corporation, and limited guarantees of certain shareholders 99,869 126,080
Trepassey Community Development Fund, term loan bearing interest at 5%, repayable in blended monthly installments, maturing 2015, secured by certain assets of the Corporation 80,105 83,168
John Deere Credit, capital lease bearing interest at 10.2%, repayable in blended monthly instalments, maturing 2004, secured by equipment 40,793 55,526
Caterpillar Financial Services, capital lease bearing interest at 8.1%, repayable in blended monthly instalments, maturing 2006, secured by equipment 36,339 -
Bank of Nova Scotia, term loan repair during the year - 13,830
Other - 1,497 ------------ ----------- 2,091,164 618,671 Current portion 1,292,909 96,831 ------------ ----------- $ 798,255 $ 521,840 ============ ===========
During the year the Company re-priced the conversion option on previously issued subordinate convertible debentures from an exercise price of $0.50 to $0.25 on 2,044,000 shares. The trading value of common stock on that date was $0.375. The Company recorded $255,500 as a charge to interest expense and as a credit to additional paid in capital with respect to the $761,000 convertible debenture.
The Company also recorded a beneficial conversion feature of $665,000 as a charge to interest expense and as a credit to additional paid-in capital with respect to the $665,000 convertible debenture.
Principal repayments over the next five years as of June 30, 2001 are as follows:
Fiscal Year Amount ----------- -------- 2002 $ 782,000 2003 121,000 2004 122,900 2005 954,200 2006 54,900 Thereafter 56,164 --------- Total $2,091,164
As noted above, the Company received governmental assistance in the form of non-interest bearing notes. In addition, the Company's long term debt is not subject to any significant restrictive debt covenants.
The fair value of long term debt has been estimated to be $2,040,000 and $550,000 at June 30, 2001 and June 30, 2000, respectively.
8. Share capital
During the year, authorized common stock was increased from 25,000,000 to 100,000,000 shares.
9. Income taxes
The Company has reported its income tax expense in the statement of operations to include the following components:
Year Year Six Months Ended Ended Ended June June June 30, 2001 30, 2000 30, 1999 ----------- ---------- ----------
Current tax expense $ - $ - $ - Deferred tax benefit 477,048 729,159 649,497 Valuation allowance (477,048) (729,159) (649,497) ----------- ---------- ---------- $ - $ - $ - =========== ========== ==========
Deferred tax assets are summarized as follows:
June 30, June 30, 2001 2000 ----------- ----------
Non-capital losses $2,206,159 $1,840,944 Share issue costs 24,634 38,869 Property, plant and equipment 140,342 128,362 Eligible capital expenditures 257,856 143,768 ----------- ---------- 2,628,991 2,151,943 Valuation allowance (2,628,991) (2,151,943) ----------- ---------- $ - $ - =========== ==========
The Company has recorded a full valuation allowance against its deferred tax assets because it believes it is more likely than not that sufficient taxable income will not be realized during the carry forward period to utilize the deferred tax assets. Realization of the future tax benefits related to the deferred tax assets is dependent upon many factors, including the Company's ability to generate taxable income in Canada within the loss carryforward periods.
For Canadian federal and Newfoundland provincial tax purposes, the Company's net operating loss carryforwards are subject to certain limitations on utilization in the event of changes in ownership.
At June 30, 2001, the Company had accumulated income tax losses of $5,813,100 available in Canada for carryforward to reduce taxable income of future years. The loss carryforwards expire as follows:
Fiscal Year Amount ----------- ----------------- 2002 $ 293,700 2003 474,900 2004 160,500 2005 963,800 2006 1,084,800 2007 1,730,400 2008 1,105,000 ----------------- Total $ 5,813,100
The principal items accounting for the difference between income taxes computed at the Canadian statutory rate and the provision for income taxes are as follows:
Year Year Six Months Ended Ended Ended June 30, June 30, June 30, 2001 2000 1999 ----------- -------- ----------
Canadian statutory rate 37.0% 37.0% 37.0% Amounts not deductible for tax purposes (1.7)% (1.4)% (7.9)% Eligible capital expenditures (0.0)% (0.0)% (7.3)% Depreciation (8.8)% (4.3)% (1.4)% Operating losses not benefitted (26.5)% (31.3)% (20.4)% ----------- -------- --------- - - - =========== ========= ========= 10. Commitments and contingencies
As of June 30, 2001, the future minimum lease payments under non-cancelable operating leases with initial terms of one or more years are as follows:
Amount ---------------- 2002 $ 15,100 2003 5,400 2004 1,300 2005 900 2006 900 ---------------- Total $ 23,600
Rental expense on office space operating leases was $27,000, $32,000 and $15,900 during the years ended June 30, 2001 and June 30, 2000 and for the six months ended June 30, 1999 respectively.
Pursuant to a joint venture agreement to harvest glacial water in Greenland, the Company agreed to fund the construction of docking facilities in an amount not to exceed $2 million.
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on its financial condition, results of operations, or cash flows.
11. Loss per share
Basic loss per share is computed by dividing net loss by the weighted-average number of shares outstanding during each period. The weighted-average number of shares prior to the June 25, 1999 reverse takeover transaction disclosed in Note 3 has been retroactively restated for the equivalent number of shares of common stock of the Company. The special common shares are included in the calculation as common shares as they are the economic equivalent of common shares. Diluted loss per share is equivalent to basic loss per share as the inclusion of outstanding options and warrants would be anti-dilutive.
12. Stock options
Employee stock options
The Company has a Stock Option Plan (the "Plan"), under which options to purchase common shares of the Company may be granted to key employees, including officers and directors. Options granted are exercisable within the times determined by the Board of Directors as specified in each option agreement. The Company is authorized to issue 2,390,000 shares under the Plan. A summary of the activity under the Plan is set forth below:
(2001) Weighted Average Number Exercise of Shares Price ---------- ----------
Outstanding at beginning of year (2001) 600,000 $ 0.625 Granted 1,690,000 $ 0.114 Exercised (80,000) $ 0.240 ---------- ---------- Outstanding at end of year 2,210,000 $ 0.290
(2000) Weighted Average Number Exercise of Shares Price ---------- ----------
Outstanding at the beginning of year (2000) - - Granted 850,000 $ 0.625 Exercised (250,000) $ 0.625 ---------- ---------- Balance, June 30, 2000 600,000 $ 0.625
As of June 30, 2001 there were 940,000 options exercisable at exercise prices ranging from $0.625 to $0.080, or $0.290 on average. The 2,210,000 options have a weighted average remaining contractual life of 9.7 years.
Share purchase warrants
In June 2000, the Company completed a private placement of 1,000,000 restricted shares of the Company's common stock in exchange for $500,000. As part of the offering, the investors received 1,000,000 share purchase warrants convertible into an equivalent number of shares of the Company's common stock from May 1, 2001 to April 30, 2002, at a price per share equal to 140% of the closing bid for the Company's stock on the last trading day preceding the date of execution of the agreement.
In September 2000, the Company raised $761,000 as part of a $5,000,000 subordinated convertible debenture private placement. These debentures are convertible at $0.25 to $0.50, or $0.299 on average, for one common share and one share purchase warrant convertible into one share of the Company's common stock, which is exercisable at $0.625. If fully converted, this agreement would result in the issuance of 2,544,000 shares and 2,544,000 share purchase warrants.
Share purchase warrants (Continued)
In December 2000 the Company raised $100,000 through a subordinated convertible debenture private placement. These debentures are convertible at $0.50 for one common share and one share purchase warrant convertible into one share of the Company's common stock, which is exercisable at $0.625. If fully converted, this agreement would result in the issuance of 200,000 shares and 200,000 share purchase warrants.
In February 2001, the Company raised $665,000 through a convertible debenture private placement. These debentures are convertible at $0.05822 into 11,249,737 common shares at the option of the holder to April, 2002
13. Subsequent event
In August, 2001, the Company raised $100,000 from a shareholder as an unsecured demand note. This loan has no maturity date and carries an interest rate of 10%. As part of the arrangement, the shareholder received 650,000 share purchase warrants. Each warrant is convertible into an equivalent number of shares of the Company's common stock at $0.15 per share to June 30, 2002.
Unaudited Consolidated Financial Statements as of June 30, 1999
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES (a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED _________ (all amounts in U.S. dollars)
ICEBERG CORPORATION OF AMERICA AND SUBSIDIARIES (a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED _________ (all amounts in U.S. dollars)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements presented for comparative purposes have been prepared by the Corporation in accordance with the rules and regulations of the Securities and Exchange Commission. Accounting policies utilized in the preparation of financial information herein presented are the same as set forth in the Corporation's annual financial statements. Certain disclosures and information normally included in financial statements have been condensed or omitted. In the opinion of the management of the Corporation, these financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements.
PART III
Exhibit Index
The following documents were filed as part of the Company's Form 10 filing, as amended, and are incorporated herein by reference.
3.1 Articles of Incorporation, filed July 3, 1989
3.2 Amendment to Articles of Incorporation, filed November 9, 1998
3.3 Amendment to Articles of Incorporation, filed June 24, 1999
3.4 Bylaws
10.1 Land Lease for Company Facility at Trepassey, commencing July 16, 1992 and extending for 99 years
10.2 Business Development Agreement between Company and ATLANTIC CANADA OPPORTUNITY AGENCY, dated April 9, 1998
10.3 Grant for $600,000 from Human Resources Development of Canada, dated June 23, 1998
10.4 US Food and Drug Administration Permit to test market product in United States, issued November 6, 1998
10.5 Office Lease for facilities at 16 Forest Road, St. Johns, Newfoundland, commencing December 1, 1998
10.6 Purchase Offer for Securities of Iceberg Industries, initiated May 3, 1999
10.7 Notice of Change in Purchase Offer for Securities of Iceberg Industries, dated May 28, 1999
10.8 Hong Kong Bank Loan Agreement for $249,900, dated May 8, 1998, with guarantees
10.9 Permit to Harvest Icebergs, granted by government of Newfoundland and Labrador, effective June 17, 1999
10.10 Distribution Agreement with Transtrade International, effective August 16, 1999
10.11 Private Placement Contract under Rule 144A for $1,500,000, executed July 9, 1999
27 Financial Data Schedule
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
ICEBERG CORPORATION OF AMERICA
Date: September 27, 2001 By: /s/ Paul Benson Paul Benson, President & Director
Date: September 27, 2001 By: /s/ Ron Stamp Ron Stamp, Vice President & Director
Date: September 27, 2001 By: /s/ Lewis Stoyles Lewis Stoyles, Vice President & Director