UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

Or

 

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from: _____________ to _____________

 

Commission File Number:

  

BOREAL WATER COLLECTION, INC.

(Exact name of registrant as specified in its charter)

Nevada		98-0453421
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
Boreal Water Collection, Inc.
4496 State Road 42 North
Kiamesha Lake, NY		12751
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 845-794-0400

Copies of correspondence to:

Mrs. Francine Lavoie Boreal Water Collection, Inc. 4496 State Road 42 North Kiamesha Lake, NY 12751		Peter J. Wilke, Esq. 8117 W Manchester Ave, Suite 700 Playa del Rey, CA 90293

 

Securities to be registered pursuant to Section 12(b) of the Act:

		Name of each exchange on which
Title of each class to be so registered		each class is to be registered
Not Applicable		Not Applicable

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock
(Title of Class)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company x
(Do not check if a smaller reporting company)

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of July 7, 2014, there were 333,068,617 shares of the Registrant's Common Stock, $0.001 par value per share outstanding.

 

Boreal Water Collection Inc.

For The Quarterly Period Ended March 31, 2014

 

TABLE OF CONTENTS

  

		Page
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements -
Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013		1
Statement of Income for the three months ended March 31, 2014 and 2013 (unaudited)		2
Statement of Stockholders Equity as of  March 31, 2014 (unaudited) and December 31, 2013		3
Statement of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)		4
Notes to Financial Statements		5-16
ITEM 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations		17-19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		19
ITEM 4. Controls and Procedures		20
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings		21
ITEM 1A. Risk Factors		21
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
ITEM 3. Defaults upon Senior Securities		21
ITEM 4. Mine Safety Disclosures		21
ITEM 5. Other Information		21
ITEM 6. Exhibits		22
Signatures		23

  

 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Boreal Water Collection Inc.

BALANCE SHEETS

 

		March 31,				December 31,
		2014				2013
		(unaudited)
ASSETS
Current assets
Cash		$	48,385			$	63,420
Accounts receivable, less allowance for doubtful accounts of $2,506 at March 31, 2014 and December 31, 2013 respectively			73,300				99,624
Inventory			150,734				146,737
Prepaids			49,704				29,697
Deferred financing costs, net of accumulated amortization			72,730				116,368
Total current assets			394,854				455,847
Property and equipment, net of accumulated depreciation			2,677,510				2,735,727
Other assets
Security deposit			4,500				4,500
Total assets		$	3,076,863			$	3,196,074
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses		$	592,281			$	483,110
Line of credit			250,000				250,000
Current portion of capital lease payable			9,468				13,328
Loan payable - Other			50,000				50,000
Mortgage payable			900,000				900,000
Due to Related Party			302,461				297,640
Total current liabilities			2,104,210				1,994,078
Long-term liabilities
Accounts payable			11,000				14,000
Capital lease - net of current			6,922				7,893
Deferred tax liability			418,440				418,440
Total long-term liabilities			436,362				440,333
Total liabilities			2,540,572				2,434,411
Stockholders' equity
Common stock, $.001 par value; 600,000,000 shares authorized, 322,447,351 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively			322,447				322,447
Additional paid-in capital			2,912,685				2,912,685
Deficit accumulated since January 10, 2006 in connection with quasi reorganization			(2,698,841	)			(2,473,469	)
Total stockholders' equity			536,291				761,663
Total liabilities and stockholders' equity		$	3,076,863			$	3,196,074

 

The accompanying notes are an integral part of these financial statements.

 

 

Boreal Water Collection Inc. 

STATEMENTS OF OPERATIONS

(unaudited)

 

		Three months ended
		March 31,
		2014				2013
Sales		$	450,087			$	480,672
Cost of sales			410,894				427,673
Gross profit			39,193				52,999
Operating Expenses
Selling and general and administrative			131,847				151,056
Depreciation and amortization			102,112				115,861
Total expenses			233,959				266,917
Operating income (loss)			(194,766	)			(213,918	)
Other income (expense)
Rental income			1,350				2,575
Interest expense			(31,581	)			(27,770	)
Total other income (expense)			(30,231	)			(25,195	)
Net income (loss) before income taxes			(224,997	)			(239,113	)
Provision for income taxes (benefit)			375				–
Net income (loss)		$	(225,372	)		$	(239,113	)
Net loss per weighted share, basic and fully diluted		$	(0.001	)		$	(0.001	)
Weighted average number of common shares outstanding, basic and fully diluted			322,447,351				310,058,907

 

The accompanying notes are an integral part of these financial statements.

 

 

Boreal Water Collection Inc. 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

 

										Additional
		Common Stock								Paid-in				Retained
		Shares				Amount				Capital				Earnings				Total
Balance, December 31, 2012			310,158,889			$	310,159			$	2,839,973			$	(3,323,217	)		$	(173,085	)
Common shares issued for services			1,538,462				1,538				18,462								20,000
Common shares issued			10,750,000				10,750				54,250								65,000
Net income, December 31, 2013															849,748				849,748
Balance, December 31, 2013			322,447,351			$	322,447			$	2,912,685			$	(2,473,469	)		$	761,663
Net loss, March 31, 2014															(225,372	)			(225,372	)
Balance, March, 2014			322,447,351			$	322,447			$	2,912,685			$	(2,698,841	)		$	536,291

 

 

The accompanying notes are an integral part of these financial statements.

 

 

Boreal Water Collection, Inc.

STATEMENTS OF CASH FLOWS

(unaudited)

 

		Three Months Ended March 31,
		2014				2013
Cash flows from operations
Net income (loss)		$	(225,372	)		$	(239,113	)
Adjustment to reconcile net loss to net cash:
Depreciation and amortization			101,855				115,861
Changes in operating assets and liabilities:
Accounts receivable			26,324				27,949
Inventory			(3,997	)			(48,462	)
Prepaid expenses			(20,007	)			(51,913	)
Accounts payable and accrued expenses			109,172				129,004
Net cash used for operating activities			(12,025	)			(66,674	)
Cash flows from financing activities
Related party advances, net			4,821				3,720
Payments on note payable-other			(3,000	)			–
Payments on equipment loans			–				(7,500	)
Payments against loan payment - property taxes			–				(38,858	)
Payments on capital lease obligation			(4,831	)			(3,015	)
Increase in mortgage payable			–				21,818
Net cash used for financing activities			(3,010	)			(23,835	)
Net increase (decrease) in cash			(15,035	)			(90,509	)
Cash, beginning of period			63,420				146,372
Cash, end of period		$	48,385			$	55,863
Supplemental disclosures:
Cash paid during the year for:
Taxes		$	375			$	375
Interest		$	30,982			$	4,455
Non-cash investing and financing transactions:
Purchase of material handling equipment under a capital lease transaction		$	–			$	23,761

 

The accompanying notes are an integral part of these financial statements.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 1 – Description of Business and Corporate Information

 

Organization

 

Boreal Water Collection, Inc. (“Boreal” or the “Company”) was incorporated in the State of Nevada on August 21, 2001. The Company is trading on the OTC under the symbol (BRWC.PK).

 

The Company has operated under various names since incorporation, most recently Canadian Blue Gold, Inc. from October 2007 to March 2008, when the name was changed to Boreal Water Collection, Inc.

 

In April 2009, the Company acquired the assets of A.T. Reynolds and Sons, Inc., operating as Leisure Time Spring Water (“Leisure”) in Kiamesha Lake, New York. The Company is a personalized bottled water company specializing in premium custom bottled water, as a contract packer of bottled water focused on value-added products and services. The Company currently offers three types of water: spring water, distilled water, enhanced water, which is customized with minerals, oxygen, and fluoride, and a fourth type to be added, sparkling water. The Company was originally founded in 1884.

 

Accounting period

 

The Company has adopted an annual accounting period of January through December.

 

Note 2 – Summary of Significant Accounting Principles

 

Use of estimates

 

The preparation of financial statements is in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could significantly differ from those estimates.

 

Cash and cash equivalents

 

The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts.

 

Foreign currency translation

 

The Company complies with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Matters . Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 2 – Summary of Significant Accounting Principles (continued)

 

Revenue recognition

 

In accordance with the FASB ASC Topic 605, “Revenue Recognition,” the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. The Company recognizes revenue on the date the product is shipped, whether it is shipped f.o.b. destination or f.o.b. shipping point, due to the short distance and time it takes for the product to reach its final destination. Product is sold to customers on credit terms established on an individual basis. The credit factors used include historical performance, current economic conditions, and the nature and volume of the product. The company offers very few discounts, allowances, coupons, or other similar incentive programs. Net sales are determined after deduction of any promotional or other allowances in accordance with FASB ASC Topic 605-50. The Company offers its customers a right to return product previously shipped, and when the product is actually return, the customer’s account credited for the full value of the returned product. The Company’s normal shipping terms f.o.b. destination, which designates that the Company will pay shipping costs and remain responsible for the goods until the buyer takes possession and f.o.b. shipping point, which indicates that the buyer will pay for shipping costs and takes responsibility for the product when the product is shipped from the Company’s premise. New and certain large customers, which require the purchase of unique materials, are required to pay the Company in advance of production. This helps the Company avoid bad debts and scamming customers. These advances are recorded as deferred revenue. Revenue is recognized when the product is shipped to the customer; the deferred revenue account is then reduced accordingly.

 

Taxes collected from customers and remitted to governmental authorities are excluded from net sales. Freight-in is included in cost of sales and freight charged to customers is included in sales in the Company’s statements of operations. Delivery and related shipping costs are included in sales and general administrative expenses.

 

Accounts receivable

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. In accordance with FASB ASC Topic 210-20-45, the Company presents accounts receivable in its balance sheet net of promotional allowances only for customers that it allows net settlement. All other accounts receivable and related promotional allowances are shown on a gross basis.

 

Property and equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized. When items are sold or retired, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is included in operations.

 

The Company provides for depreciation and amortization over the following estimated useful lives:

 

Building		40  years
Land improvements		15  years
Machinery and equipment		5-7  years
Computer equipment		3  years
Office equipment		7  years
Trucks and trailers			5 years

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 2 – Summary of Significant Accounting Principles (continued)

 

Long-Lived Assets

 

In accordance with FASB ASC Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.

 

Fair Value of Financial Instruments

 

The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying balance sheet at March 31, 2014 and December 31, 2013.

 

Inventories

 

Inventory is valued at the lower of cost or market, cost being determined by the first-in, first-out (FIFO) method. Inventory costs include direct material, direct labor and a systematic allocation of fixed and variable overhead. Obsolete items are carried at estimated net realizable value.

 

Prior to December 31, 2012, the company charged director labor and variable and fixed production expenses to cost of sales and only included direct material costs in its finished goods inventory. Effective December 31, 2012, the Company now includes in finished goods inventory, in addition to direct material costs, direct labor and applied variable and fixed factory overhead costs.

 

Cost of sales

 

Cost of sales, includes normal direct costs, such as direct labor, freight, purchases of raw materials (caps, water, bottles, boxes, wrapping, ingredients, etc.), adjusted for inventory at the end of each reporting period. Costs of sales also includes indirect costs, such as salary costs for maintenance personnel, supervisors, operation of the quality control lab, equipment and building maintenance, miscellaneous warehouse expenses, licenses and taxes, and payroll taxes and other benefit costs for direct labor and indirect labor personnel.

 

Selling and General Administrative Expenses

 

Selling and general administrative expenses include those type of costs normally included in this functional classification: sales salaries, delivery salaries, repairs, payments made to outside sales representatives, travel related costs, and benefit costs, salaries paid administrative and executive personnel, insurance, benefit costs, office supplies, professional fees, subcontract costs taxes, bank charges, stock-based compensation, postage and shipping, telephone and related communications costs, and similar costs.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 2 – Summary of Significant Accounting Principles (continued)

 

Earnings per share

 

The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic earnings per common share ("EPS") calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.

 

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes”, which requires accounting for deferred income taxes under the asset and liability method. Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.

 

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the Company’s consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the consolidated financial statements as appropriate. 

 

In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders’ equity. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better consolidated financial statement comparability among different entities. Management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2009. Any potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, state and local tax laws.  The Company's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

    

Interest and Penalty Recognition on Unrecognized Tax Benefits 

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other operational expenses. No interest expense or penalties have been recognized as of and for the year ended December 31, 2013.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 2 – Summary of Significant Accounting Principles (continued)

 

Comprehensive Income

 

The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components. FASB ASC Topic 220 requires the Company’ to reflect as a separate component of stockholders’ equity items of comprehensive income.

 

Stock-Based Compensation 

 

The Company complies with FASB ASC Topic 718 “Compensation – Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period). No compensation costs are recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Based on restricted stock awards granted to employees during the three months ended March 31, 2014 and 2013, the Company recorded $ 0 and $0 respectively, as compensation expense under FASB ASC 718.

 

Nonemployee awards

 

The fair value of equity instruments issued to a nonemployee is measured by using the stock price and other measurement assumptions as of the date of either: (i) a commitment for performance by the nonemployee has been reached; or (ii) the counterparty’s performance is complete. Expenses related to nonemployee awards are generally recognized in the same period as the Company incurs the related liability for goods and services received. The Company recorded stock compensation of $0 and $0 during the three months ended March 31, 2014 and 2013, respectively.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

  

Note 2 – Summary of Significant Accounting Principles (continued)

 

Valuation of Investments in Securities at Fair Value – Definition and Hierarchy

 

In accordance with GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

The fair value hierarchy is categorized into three levels based on the inputs as follows:

 

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access.

 

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.

 

Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

 

Valuation Techniques

 

The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the year.

 

Government Bonds

 

The fair value of sovereign government bonds is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs that include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issuer, maturity and seniority.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

  

Note 2 – Summary of Significant Accounting Principles (continued)

 

Certificate of Deposits

 

The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.

 

Recently Adopted Accounting Pronouncements

 

In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The main purpose of this Update is to clarify that the disclosures regarding offsetting assets and liabilities per ASU 2011-11 apply to derivatives including embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and lending transactions that are offset or subject to a master netting agreement. Other types of transactions are not impacted. This Update is effective for fiscal years beginning on or after January 1, 2013 and for all interim periods within that fiscal year. The Company does not expect this update to impact the Company’s financials since it does not have instruments noted in the update that are offset.

 

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The main purpose of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified in its entirety to net income. Furthermore, information about amounts reclassified out of accumulated other comprehensive income must be shown by component. This update is effective prospectively for reporting periods beginning after December 15, 2012 for public companies. The Company does not expect this update to impact its financials since it does not have any comprehensive income items.  However, if any are noted in the future, the appropriate disclosures will be incorporated.

 

In March 2013, the FASB issued Accounting Standards Update No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05). ASU 2013-05 provides guidance on releasing cumulative translation adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity. ASU 2013-05 is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on our financial position, results of operations or cash flows.

 

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740) which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exits. The update is effective for years beginning after December 15, 2013. The Company does not expect the implementation of this standard to have a material impact on its financial position or results of operations.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission (the "SEC") did not or are not believed by management to have a material impact on the Company's present or future financial statements.

 

Concentration of Credit Risk

 

The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes the Company is not exposed to any significant credit risk related to cash and cash equivalents.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 3 – Going Concern

 

The accompanying financial statements have been prepared assuming that the company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business Currently, the Company has a minimum cash balance available for the payment of ongoing operating expenses, and its operations is not providing a source of funds from revenues sufficient to cover its operational costs to allow it to continue as a going concern. The continued operations of the Company is dependent upon generating profits from operations and raising sufficient capital through placement of its common stock or issuance of debt securities, which would enable the Company to carry out its business plan. In the event we do not generate sufficient funds from revenues or financing through the issuance of our common stock or from debt financing, we may be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition and results of operations.

 

The accompanying financial statements do not include any adjustments that might be required should the company be unable to recover the value of its assets or satisfy its liabilities

 

Note 4 – Inventory

 

Inventory consists of the following categories:

 

		March 31,				December 31,
		2014				2013
Raw materials		$	128,730			$	126,364
Finished Goods			22,004				20,373
Total		$	150,734			$	146,737

 

Note 5 – Property and Equipment

 

Equipment consists of the following categories at March 31, 2014 and December 31, 2013:

 

		March 31, 2014				December 31, 2013
Building		$	2,000,000			$	2,000,000
Land			324,000				324,000
Leasehold improvements			41,621				41,621
Furniture & fixtures			16,997				16,997
Computer equipment			26,169				26,169
Machinery and equipment			1,087,893				1,087,893
Transportation equipment			50,250				50,250
			3,546,930				3,546,930
Less: accumulated depreciation			869,420				811,203
Total		$	2,677,510			$	2,735,727

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 6 – License

 

On December 17, 2007, the Company entered into an exclusive licensing agreement (“Agreement”) with a Canadian bottle water company to distribute, sell, advertise, promote, and market under private label, its products in the United States., with an original cost of $2.0 million. The Agreement was subsequently revised and replaced with a new Agreement on June 16, 2008 at a cost of $1.022 million. The Company’s president and CEO is the principal shareholder of the Canadian company. The license is being amortized over a five year period from June 16, 2008.

 

At March 31, 2014 and December 31, 2013, the license has been fully amortized. 

 

Note 7 – Stockholders’ Equity

  

On April 16, 2013, the Company issued 1,538,462 shares of its $0.001 par value common stock for services rendered.

 

On September 11, 2013, the Company issued 10.75 million shares of its $0.001 par value common stock to a third party investor for a cash payment of $65,000, which was received in a previous year and presented on the balance sheet as a deposit on purchase of common shares.

 

Note 8 – Income Taxes

 

At December 31, 2012, the Company had approximately $3.9 million of net operating losses (“NOL”) carry-forwards for federal and state income purposes. These losses are available for future years and expire through 2032. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.

 

The tax effects of temporary differences and carry forwards that give rise to deferred tax assets and liabilities consist of the following:

 

		March 31,				December 31,
		2014				2013
Deferred tax assets:
Net operating loss carryforwards		$	1,040,000			$	960,000
Other temporary differences			–				–
Deferred tax assets			1,040,000				960,000
Less: Valuation allowance			(1,040,000	)			960,000	)
Net deferred tax asset		$	–			$	–
Deferred tax liabilities:
Difference between book and tax basis of assets acquired in bargain asset purchase		$	(418,440	)		$	(418,440	)
Net deferred tax assets (liabilities)		$	(418,440	)		$	(418,440	)

  

The Company has taken a full valuation allowance against the other timing differences and the deferred asset attributable to the NOL carry-forwards of approximately $1,040,000 and $960,000 at March 31, 2014 for the year ended December 31, 2013, respectively, due to the uncertainty of realizing the future tax benefits.

 

The Company did not pay any income taxes during the three months ended March 31, 2014 or the year ended December 31, 2013.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

  

Note 9 – Line of Credit

 

During 2009, the Company obtained a line of credit with a commercial bank in the amount of $250,000. The line of credit is secured by the Company’s accounts receivable and inventory. At March 31, 2014, the Company owed $250,000 against the line of credit at an annual interest rate of 5.25%.

 

Note 10 – Short-Term Debt

 

Under the terms of the May 31, 2011 Agreement, the Company was required to make monthly principal payments of $15,000 plus all accrued and unpaid interest on the debt obligation. The Company was also assessed a forbearance fee of $19,000, and it was required to provide evidence acceptable to the commercial bank that the Company and Sullivan County had agreed to a payment plan for real estate taxes that were in arrears as of the date of the Agreement. The interest rate based on 90-day Libor rate of 4.0% did not change as a result of the Forbearance Agreement. All loan documents and the Security Agreement remained in full force and effect in accordance with the original terms. Under the terms of the October 3, 2011 Agreement, the commercial bank waived the $15,000 monthly principal payments, but not the interest payments. An additional $19,000 forbearance fee was assessed. All other terms of the original note obligation and the May 31, 2011 Agreement remained in full force and effect. The interest rate based on 90-day Libor rate of 4.625% did not change as a result of this Forbearance Agreement. Under the terms of the April 3, 2012 Agreement, the commercial bank assessed an additional forbearance fee of $19,000, continued to waive the monthly $15,000 principal payment, but not the monthly interest payments. All other terms of the original note obligation and the May 31, 2011 Agreement remained in full force and effect. The 90-day Libor rate of 4.5% did not change as a result of this Forbearance Agreement. The company continued to accrue interest on this obligation until such time as a refinancing plan was finalized.

 

In August 2013 the Company successfully completed negotiations with its Bank to accept $625,000 in satisfaction of its obligations on the mortgage. The difference between the $1.9 mortgage obligation (plus interest) and the $625,000 accepted in satisfaction of the mortgage is shown on the statements of operations as an extraordinary gain from extinguishment of debt. Concurrently the Company secured a new $900,000 mortgage with a “Lender.” This new mortgage bears interest at 12% per annum and is due and payable on August 27, 2014. The new mortgage requires the Company to make monthly interest only payments of $9,000. Under the terms of the new mortgage, the Company has the option to extend the maturity date of the new mortgage for one year providing it pays the Lender a fee of $54,000.

 

During June 2013, a third party loaned the Company $50,000 bearing interest at 6.8% and maturing June 2014. During June 2014, the third party has agreed to extend the maturity date six months until November 2014.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 11 – Related Party

 

At March 31, 2014 and December 31, 2013, the Company owed a related party approximately $302,000 and $298,000, respectively, for ongoing operating and purchase transactions with the related party company.

 

For the three months ended March 31, 2014 and 2013 the Company made purchases from the third party of $12,924 and $41,456, respectively and made sales to the related party of $0 and $36,063, respectively

 

Note 12 – Commitments and Contingencies

 

The Company is party to a forty year exclusive agreement (“Agreement”), with an original effective date of November 1, 1995, modified on April 25, 2000, to reduce certain minimum guarantee and compensation provisions of the Agreement. The Agreement provides that the Company shall draw not less than seven million (7,000,000) gallons or water from certain springs on an annual basis. During the remainder of the first twenty-five (25) years of the Agreement, the Company pays one cent ($0.01 per gallon for the first five million (5,000,000) gallons of water drawn and three-fourth of one cent ($0.0075) for all gallonage thereafter, but not less than $65,000 per year regardless of the actual gallonage drawn, payable in monthly installments of $5,416. In event that drought or other conditions reduce the capacity of the springs, so that the springs cannot meet the minimum guarantee, the minimum guarantee shall be reduced in accordance with an agreed to formula. For the last fifteen years of the agreement, which expires October 31, 2035, the Agreement provides that the Company shall pay one and one-quarter cents ($0.0125) per gallon for the first five million (5,000,000) gallons and for gallons thereafter the Company shall pay one cent ($0.01) per gallon, with an annual minimum of $82,500, payable in monthly installments of $6,875. The Company is responsible for all maintenance and repairs, utilities, and capital improvement costs incurred in connection with the water collection facility, which includes storage tanks, a pump building, piping, and other related equipment necessary for and related to the harvesting of water from the springs. The Agreement also provides that the owner of springs may sell water from the springs under certain conditions, provided, however, that the charge per gallon sold shall not be less than the price per gallon paid by the Company, with such proceeds divided equally between the Company and the owner. The Company has an option of first refusal in the event that the owner enters into an agreement for the sale of all or a portion of the real property, which includes the springs located on the real property. Upon execution of a valid binding contract between the owner and a third party, which contract shall be made subject to the terms of the option, the owner shall provide the Company a copy of the contract and it shall have thirty (30) days from date of delivery or mailing within which to exercise its option by delivering to the owner a check in the amount of the contract deposit, in which event the owner and the Company shall be bound by the contract sale.

 

 

Boreal Water Collection, Inc.

Notes to Financial Statements

March 31, 2014

(Unaudited)

 

Note 12 – Commitments and Contingencies (continued)

 

The future minimum payments due under the terms of the Agreement are as follows:

 

Years Ending
December 31,
	2014			$	32,500
	2015				65,000
	2016				65,000
	2017				65,000
	2018				65,000
	Thereafter				1,324,167
				$	1,616,667

  

Note 13 – Litigation

 

A “Summons with Notice” (but not a Complaint), naming BRWC, Mrs. Lavoie and Mr. Cortellazi, who was a Canadian citizen trying to buy controlling interest in the Company during 2011, as defendants, was filed on March 14, 2012 in the Sullivan County,

 

New York Supreme Court (and later served on BRWC and Mrs. Lavoie) by counsel for plaintiffs (the proposed CEO and former Boreal employee, who were brought into the negotiations by Mr. Cortellazi, to assist him in his effort to buy controlling interest of the Company from Mrs. Lavoie). The index number of the court filing is 2012-676. The Company and Mrs. Lavoie have retained counsel.

 

A Complaint was served, seeking damages totaling $53,600 plus $15,000 in attorney’s fees, alleging violations of Article 11 of New York’s General Obligations Law. Defendants BRWC and Mrs. Lavoie filed an Answer and Counterclaims, dated September 24, 2012. Counterclaims were filed against Cortellazi, who admitted his role in the scheme, and others for fraud, defamation and slander, and damages, including punitive damages and attorney’s fees (See statement of changes in stockholders’ equity for reference to 3.0 million shares not previously recognized).

 

In October 2013, the parties to this action reached a settlement in the amount of $30,000, which provided that the Company would make monthly cash payments of $1,000 per month over a 30 month period of time and also reissue three million shares in exchange for the same shares in Gambino’s possession

 

The Company may be defendant in various suits and claims that arise in the normal course of business. In the opinion of management, the ultimate disposition of these other suits and claims will have no material effect on the Company’s financial position, liquidity, or results of operations.

  

Note 13 – Subsequent Event

 

During May and June 2014, the Company entered into a series of unsecured convertible promissory note agreements ("Notes") with JSJ Investments, Inc. ("JSJ" or "holder"). The principal amount for these two Notes total $131,256 with interest from 12% to 15% per annum. The maturity dates are November 2014. There is a 150% cash redemption premium on the principal amount only, upon approval by JSJ. The Note is convertible into the Company’s common stock. The conversion amount is the Note principal plus default interest, if any. The company also entered into another unsecured promissory note dated May 25, 2014 for $68,082 with interest at 12% per annum. This note for $68,082 was immediately converted into the company’s stock of 10,621,266 shares at an exercise price of $0.00641 per share.

 

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

THE DISCUSSION IN THIS SECTION CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR OUR FUTURE PERFORMANCE. WORDS SUCH AS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "MAY" AND SIMILAR EXPRESSIONS OR VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.

 

IN EVALUATING SUCH STATEMENTS, YOU SHOULD CONSIDER VARIOUS RISK FACTORS, INCLUDING BUT NOT LIMITED TO, THE INHERENT DIFFICULTY IN OPERATING A “GOING CONCERN;” THE EFFECT IF THERE WERE TO BE SIGNIFICANT CHANGES IN MANAGEMENT PERSONNEL; POTENTIAL PRODUCT LIABILITY ISSUES; DIFFICULTY IN MEETING COMPETITOR CHALLENGES SUCH AS THE INTRODUCTION OF NEW PRODUCTS; INCREASED RESEARCH AND DEVELOPMENT AND/OR EQUIPMENT ACQUISITION COSTS; CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR THE INDUSTRY IN WHICH THE COMPANY COMPETES; CHANGES IN THE QUALITY AND/OR SOURCES OF RAW MATERIALS; MAJOR GOVERNMENT REGULATION CHANGES AND/OR ISSUE(S); FLUCTUATIONS IN WORK FORCE QUALITY AND AVAILABILITY; LABOR DISRUPTIONS (SUCH AS RAW MATERIAL, CONTAINER MANUFACTURE, PRODUCT TRANSPORTATION STOPPAGES OR SLOWDOWNS); ANY OF WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

 

A.	RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2013

 

We are a calendar year corporation and report our financial information on both a quarterly and annual basis. Our management team is dedicated to building valuable, long-term relationships with existing and new customers. This dedication, developing and nurturing long-term relationships with our customers, old and new, drives our sales, marketing, customer service activities. We remain committed to providing our customers with a quality product, competitively priced, and delivered or made available for pickup on the dates specified in each sales order, because we recognize that long-term relationships are based on mutual trust between the supplier and the customer.

 

Comparison of three months ended March 31, 2014 to the three months ended March 31, 2013

 

The Company reported a net loss of $225,372 and $239,113 for the quarterly periods ended March 31, 2014 and 2013, respectively, an decrease in net loss of $13,741, or 5.7%. The details of this decrease in net loss are discussed in the paragraphs below.

 

For the quarters ended March 31, 2014 and 2013, we reported sales of $450,087 and $480,673, a decrease of $30,586, or 6.4%. This decrease is attributable to decreases in one gallon sales of $33,353, transportation sales of $3,393, pallets sales of $1,109 and miscellaneous sales of $671, partially offset by increases in label sales of $6,763 and co-packing sales of $1,177. The decrease in sales of our one gallon product resulted from the loss of a large customer, The increase in co-packing sales and label sales resulted from our sales strategy to (i) increase sales of the Boreal brands to both new customers and existing customers, (ii) selective price increases, (iii) improve our distribution network and (iv) aggressively grow our co-packing and label business.

 

For the quarters ended March 31, 2014 and 2013, cost of sales and the gross profit percentages were 91% and 89% and the gross profit percentages were 9% and 11%, respectively. The increase in cost of sales and the resulting decrease in gross profit is a direct result of lower sales as explained above.

 

Selling and general administrative expenses decreased $18,834, or 12.5% to $131,847 for the quarterly period ended March 31, 2014 from $151,056 reported for the comparable period in 2013. As a percentage of sales, selling and general administrative expenses decreased to 29.2% for the quarter ended March 31, 2014 from 31.4% for the same period in 2013. Direct selling expenses decreased $11,142, to $49, 518 in the quarterly period ended March 31, 2014 from $38,377 reported for the comparable period in 2013. Direct selling expenses are comprised of delivery, advertising, and related travel costs.

 

General administrative expenses decreased $29,776, or 26.6%, to $82,238 for the three month period ended March 31, 2014 from $112,304 reported for the comparable period in 2013. The decrease in general and administrative expenses is attributable to decreases in professional fees of $25,885, salaries of $3,887, late fees of $1,669, payroll taxes of $1,059, miscellaneous expenses of $1,031 and office supplies of $742, partially offset by increases of $4,297 in insurance, bank fees, utilities and dues.

 

 

For the three month period ended March 31, 2013 and 2012, we reported interest expense of $31,581 and $27,770, respectively an increase of $3,811. Debt obligations and interest paid against these debt obligations are discussed in Note 8-9 to our financial statements for the three month periods ended March 31, 2014 and 2013.

 

Other income totaled $1,350 and $2,575 for the three month periods ended March 31, 2014 and 2013, respectively, a decrease of $1,225.

 

For the three month periods ended March 31, 2014 and 2013, the Company did not pay any federal income taxes.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2014, the Company had an accumulated deficit since January 10, 2006 (the date of quasi reorganization) of $2,698,841. Liquid assets at March 31, 2014 consisted primarily of cash and cash equivalents of $48,385. Current liabilities of $2,104,210 exceeded current assets by $1,709,356. Historically, we have financed our business through cash generated from ongoing operations, proceeds from sale of common stock to third party investors, borrowings from financial institutions, advances received from related parties, and officers of the Company. The company is currently pursuing financing alternatives.

 

Cash decreased $15,035 to $48,385 at March 31, 2014, as compared to $63,420 at December 31, 2013, which results from the following:

 

Net loss		$	(225,372	)
Adjustments to reconcile net loss to net cash			101,855
Changes in operating assets and liabilities			111,492
Net cash used by operating activities			(12,025	)
Investing activities			–
Financing activities			(3,010	)
Net decrease in cash		$	(15,035	)

 

Cash used by our operating activities for the three months ended March 31, 2014 was approximately $12,025, comprised of a net loss of $225,372, noncash reconciling adjustments of $101,855, changes in operating assets and liabilities of $111,492.

 

The $111,492 change in operating assets and liabilities is primarily attributable to increases in accounts payable and accrued expenses of $109,172 and accounts receivable of $26,324, partially offset by decreases in prepaid expenses of $ 20,007 and inventory of $3,997.

 

Cash used for financing activities was approximately $3,010, comprised of advances from related parties of $4,821, partially offset by payments for capital leases of $4,831 and payments on note payable of $3,000.

 

Under the terms of the May 31, 2011 Agreement, the Company was required to make monthly principal payments of $15,000 plus all accrued and unpaid interest on the debt obligation. The Company was also assessed a forbearance fee of $19,000, and it was required to provide evidence acceptable to the commercial bank that the Company and Sullivan County had agreed to a payment plan for real estate taxes that were in arrears as of the date of the Agreement. The interest rate based on 90-day Libor rate of 4.0% did not change as a result of the Forbearance Agreement. All loan documents and the Security Agreement remained in full force and effect in accordance with the original terms. Under the terms of the October 3, 2011 Agreement, the commercial bank waived the $15,000 monthly principal payments, but not the interest payments. An additional $19,000 forbearance fee was assessed. All other terms of the original note obligation and the May 31, 2011 Agreement remained in full force and effect. The interest rate based on 90-day Libor rate of 4.625% did not change as a result of this Forbearance Agreement. Under the terms of the April 3, 2012 Agreement, the commercial bank assessed an additional forbearance fee of $19,000, continued to waive the monthly $15,000 principal payment, but not the monthly interest payments. All other terms of the original note obligation and the May 31, 2011 Agreement remained in full force and effect. The 90-day Libor rate of 4.5% did not change as a result of this Forbearance Agreement. The company continued to accrue interest on this obligation until such time as a refinancing plan was finalized.

 

 

In August 2013 the Company successfully completed negotiations with its Bank to accept $625,000 in satisfaction of its obligations on the mortgage. The difference between the $1.9 mortgage obligation (plus interest) and the $625,000 accepted in satisfaction of the mortgage is shown on the statements of operations as an extraordinary gain from extinguishment of debt. Concurrently the Company secured a new $900,000 mortgage with a “Lender.” This new mortgage bears interest at 12% per annum and is due and payable on August 27, 2014. The new mortgage requires the Company to make monthly interest only payments of $9,000. Under the terms of the new mortgage, the Company has the option to extend the maturity date of the new mortgage for one year providing it pays the Lender a fee of $54,000.

 

During June 2013, a third party loaned the Company $50,000 bearing interest at 6.8% and maturing June 2014. During June 2014, the third party has agreed to extend the maturity date six months until November 2014.

 

During May and June 2014, the Company entered into a series of unsecured convertible promissory note agreements ("Notes") with JSJ Investments, Inc. ("JSJ" or "holder"). The principal amount for these two Notes total $131,256 with interest from 12% to 15% per annum. The maturity dates are November 2014. There is a 150% cash redemption premium on the principal amount only, upon approval by JSJ. The Note is convertible into the Company’s common stock. The conversion amount is the Note principal plus default interest, if any. The company also entered into another unsecured promissory note dated May 25, 2014 for $68,082 with interest at 12% per annum. This note for $68,082 was immediately converted into the company’s stock of 10,621,266 shares at an exercise price of $0.00641 per share.

 

Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Currently, we have a minimum cash balance available for the payment of ongoing operating expenses, and our operations is not providing a source of funds from revenues sufficient to cover our operational costs to allow it to continue as a going concern. The continued operations of the Company is dependent upon generating profits from operations and raising sufficient capital through placement of our common stock or issuance of debt securities, which would enable the us to carry out our business plan.

 

The company currently is consuming cash reserves at the rate of approximately $40,000 per month assuming current levels of revenue. In the ensuing months, should the company be unsuccessful in significantly increasing sources of revenue it will be forced to find additional capital to support operations and fund its growth

 

In the event we do not generate sufficient funds from revenues or financing through the issuance of our common stock or from debt financing, we may be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects,

 

At March 31, 2014, we owed $250,000 to a commercial bank against a revolving line of credit of $250,000. The line of credit is secured by the Company’s accounts receivable and inventory, and carried an interest rate of 5.25% at March 31, 2014.

 

Critical Accounting Policies and Procedures and Recent Accounting Pronouncements

     

The Company’s critical accounting policies and procedures and recent accounting pronouncements are set forth in the Notes to our Financial Statements.

 

Off-Balance Sheet Arrangements

 

None

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company does not invest in market risk sensitive instruments. At times, the Company's cash equivalents consist of overnight deposits with banks and money market accounts. The Company's objective in connection with its investment strategy is to maintain the security of its cash reserves without taking market risk with principal.

 

 

Item 4. Controls and Procedures

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer/chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

The Chief Executive Officer/Chief Financial Officer of the Company has evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that these disclosure controls and procedures are effective.  There were no changes in our internal control over financial reporting during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.

 

 
PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The “Cortellazi, et al Matter:”

 

A “Summons with Notice” (but not a Complaint), naming BRWC, Mrs. Lavoie and Mr. Cortellazi, who was a Canadian citizen trying to buy controlling interest in the Company during 2011, as defendants, was filed on March 14, 2012 in the Sullivan County,

 

New York Supreme Court (and later served on BRWC and Mrs. Lavoie) by counsel for plaintiffs (the proposed CEO and former Boreal employee, who were brought into the negotiations by Mr. Cortellazi, to assist him in his effort to buy controlling interest of the Company from Mrs. Lavoie). The index number of the court filing is 2012-676. The Company and Mrs. Lavoie have retained counsel.

 

A Complaint was served, seeking damages totaling $53,600 plus $15,000 in attorney’s fees, alleging violations of Article 11 of New York’s General Obligations Law. Defendants BRWC and Mrs. Lavoie filed an Answer and Counterclaims, dated September 24, 2012. Counterclaims were filed against Cortellazi, who admitted his role in the scheme, and others for fraud, defamation and slander, and damages, including punitive damages and attorney’s fees (See statement of changes in stockholders’ equity for reference to 3.0 million shares not previously recognized).

 

In October 2013, the parties to this action reached a settlement in the amount of $30,000, which provided that the Company would make monthly cash payments of $1,000 per month over a 30 month period of time and also reissue three million shares in exchange for the same shares in Gambino’s possession

 

The Company may be a defendant in various suits and claims that arise in the normal course of business. In the opinion of management, the ultimate disposition of these other suits and claims, if any, will not likely materially affect the Company’s financial position, liquidity, or results of operations.

 

ITEM 1A. RISK FACTORS.

 

We have elected to be treated as an Emerging Growth Company (EGC) for all purposes under Section 107(a) of the Jobs Act.  Accordingly, we will not be providing risk factors in this 10-Q report.

 

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES.

     

The following shares were issued pursuant to Section 4(2) of the Securities Act of 1933.

 

On April 16, 2013, the Company issued 1,538,462 shares of its $0.001 par value common stock for services rendered.

 

On September 11, 2013, the Company issued 10.75 million shares of its $0.001 par value common stock to a third party investor for a cash payment of $65,000, which was received in a previous year and presented on the balance sheet as a deposit on purchase of common shares.

 

Item 3. Defaults Upon Senior Securities

 

NONE

 

Item 4. Mine Safety Disclosures

 

Not applicable 

 

Item 5. Other Information

 

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subjected to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

 

 
Item 6. Exhibits

 

EXHIBIT
NUMBER		DESCRIPTION
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS XBRL		Instance Document
101.SCH XBRL		Taxonomy Extension Scheme
101.CAL XBRL		Taxonomy Extension Calculation Linkbase
101.DEF XBRL		Taxonomy Extension Definition Linkbase
101.LAB XBRL		Taxonomy Extension Label Linkbase
101.PRE XBRL		Taxonomy Presentation Linkbase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Boreal Water Collection LLC
	By:	/s/ Francine Lavoie
	Name:	Francine Lavoie
	Title:	Principal Executive Officer, Principal Financial Officer, Controller and Sole Member of the Board of Directors
	Date:	July 10, 2014