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TABLE OF CONTENTS
ItemPage
PROSPECTUS SUMMARY6
THE CORPORATION6
Description and General Development6
THE OFFERING6
GLOSSARY OF TERMS10
NAME AND INCORPORATION11
BUSINESS OF THE CORPORATION11
Overview of the Business of the Corporation11
History of the Corporation11
Subsidiaries of the Corporation12
Overview of the Ice Cream and Frozen Dessert Industry13
Licensing Activities14
SELECTED FINANCIAL INFORMATION16
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS17
Revenue, Cost of Sales and Gross Margin17
Expenses18
Net Loss18
Purchase of Capital Assets and Investment in License Agreement18
Liquidity and Capital Resources19
ASSET AND EARNINGS COVERAGE20
Asset Coverage20
DETAILS OF THE OFFERING20
USE OF PROCEEDS22
CONSOLIDATED CAPITALIZATION22
DESCRIPTION OF SHARE CAPITAL23
Common Shares23
Preferred Shares23
Redeemable Preferred Shares23
MANAGEMENT OF THE CORPORATION24
Background and Experience of Key Management25
EXECUTIVE COMPENSATION26
Compensation to Executive Officers26
Termination of Employment, Change in Responsibilities and Employment Contracts26
Compensation of Directors27
Stock Option Plan27
PRIOR SALES27
PRICE RANGE AND TRADING VOLUMES OF COMMON SHARES28
OPTIONS TO PURCHASE COMMON SHARES28
Stock Options Outstanding28
PRINCIPAL HOLDERS OF SECURITIES29
SHAREHOLDINGS OF DIRECTORS29
DIVIDEND RECORD AND POLICY30
PROMOTERS30
RISK FACTORS30
DILUTION32
ESCROWED SHARES32
CONFLICTS OF INTEREST33
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS34
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS34
MATERIAL CONTRACTS34
LEGAL PROCEEDINGS36
LEGAL MATTERS36
AUDITOR36
TRANSFER AGENT AND REGISTRAR36
PURCHASER'S STATUTORY RIGHTS37
CONTRACTUAL RIGHT OF ACTION FOR RESCISSION37
CERTIFICATESC-1
CERTIFICATE OF THE PROMOTERSC-1
CERTIFICATE OF THE AGENTC-2
PROSPECTUS SUMMARY
The following summary information must be read in conjunction with the more detailed information appearing elsewhere in this prospectus.
THE CORPORATION
Delicious Alternative Desserts Ltd. (the “Corporation”) was incorporated on April 5, 1994 under the Business Corporations Act (Alberta) as 605864 Alberta Inc. On April 19, 1994 the name was changed to Pacific 88 Investment Corp. On November 4, 1994 the name was changed to Ricochet Industries Inc. The Corporation was classified as a junior capital pool corporation until November 2, 1994 when it completed its major transaction, the acquisition of 100% of the issued and outstanding shares of Ricochet Products Inc. (formerly, Plasti-Guard Industries Inc.) (“Ricochet Products”). Effective January 1, 1997 the Corporation sold all of the issued and outstanding shares of Ricochet Products and on September 30, 1997 acquired all of the issued and outstanding shares of Delicious Alternative Desserts Inc. On July 21, 1997, the Corporation changed its name to Delicious Alternative Desserts Ltd.
Description and General Development
The Corporation manufactures or markets brand name products in the premium and super premium ice cream and frozen dessert markets.
The Corporation also has a wholly-owned subsidiary, Delicious Alternative Desserts Inc. (“DAD”). DAD has a wholly-owned subsidiary, Stoney Creek Dairies Limited (“Stoney Creek”) an ice cream manufacturing company with an annual production capacity of approximately 7,000,000 litres. Stoney Creek sells a product line within its regional market area of southern Ontario. Stoney Creek has a wholly-owned subsidiary, Frozen Cargo Distributors Ltd. (“Frozen Cargo”), a distribution company that distributes the products of Stoney Creek and third parties. See “Business of the Corporation”.
THE OFFERING
Special Warrants: This Prospectus qualifies for distribution 16,753,881 Common Shares issuable upon the exercise of 16,753,881 outstanding Special Warrants which were previously issued by the Corporation to investors pursuant to exemptions prescribed under the Securities Act (Alberta) and the Securities Act (Ontario). Each Special Warrant entitles the holder thereof to acquire, subject to adjustment and certain events, one Common Share at no additional cost to the holder until 4:30 p.m. (Calgary, Alberta time) on the earlier of (i) five business days after the date of the issuance of a final receipt for this Prospectus by the securities commission of the jurisdiction in which a Special Warrant holder resides; and (ii) October 31, 1998 (the “Expiry Time”).
Any Special Warrants not exercised prior to the Expiry Time shall be deemed to have been exercised at the Expiry Time without any further action on the part of the holder. Any Common Shares issued as a result of the exercise of Special Warrants prior to the date upon which a receipt for this Prospectus has been obtained from the last of the Qualifying Jurisdictions to issue such receipt will not be qualified by this Prospectus and will be subject to applicable hold periods. No additional proceeds will be received by the Corporation upon the exercise of Special Warrants. In the event a receipt for the Prospectus is not received in the jurisdiction in which a Warrantholder resides by October 31, 1998, he or she will be entitled to 1.1 Common Shares upon the conversion of each Special Warrant issued. See “Details of the Offering” and “Prior Sales”.
Debentures: This Prospectus also qualifies for distribution 7,608,696 Common Shares issuable upon the conversion of Debentures having an aggregate face value of $3,500,000 which were previously issued by the Corporation to investors pursuant to exemptions prescribed under the Securities Act (Ontario) on June 25, 1998. This prospectus only qualifies those Common Shares issued on conversion of Debentures prior to the expiry of 60 days from the date final receipts are received herefor. Any Debentures converted following the expiry of the 60 day period will be subject to the resale restrictions contained in the applicable securities legislation. The Debentures are due on June 4, 2001 and were issued under a Trust Indenture dated June 5, 1998 made between the Corporation and the Trustee. The holder of each Debenture has the right, at the holder's option, at any time prior to the close of business on June 4, 2001 to convert the principal amount of such Debenture into Common Shares at a conversion rate equal to one Common Share of the Corporation for each $0.46 of the principal of the Debenture if so converted on or prior to June 4, 2000; and at a conversion rate equal to one Common Share for each $0.60 of the principal of the Debenture if so converted on or after June 5, 2000. The Debentures bear no interest, but when they mature, the Corporation must pay to the holders of the outstanding Debentures cash equal to the aggregate face value of the Debentures held by such holder and a restructuring fee equal to 14% of the aggregate face value of the Debentures held by such holder calculated and compounded per annum from June 5, 1998 until the date of maturity. No restructuring fee is due on Debentures converted pursuant to the Trust Indenture. On certain conditions the Corporation can force conversion of the Debentures.
Use of Proceeds: The net proceeds from the offering will be used as follows:
Expansion and Renovation of Manufacturing Facility $5,105,000
Equipment 1,985,000
Working Capital 1,819,154
Computer Systems 300,000
Licensing Fees 610,000
Total Planned Expenditure $9,819,154
Risk Factors: The business of the Corporation entails certain risks and consequently investment in the Common Shares should be considered speculative. Prospective investors should carefully review the following factors, together with other information contained elsewhere in this Prospectus:
1. Plant Renovation and Expansion - The Corporation has entered into and intends to enter into agreements with various third parties which will allow the Corporation to manufacture and distribute several different brands of ice cream and frozen dessert products. Some of these agreements are conditional on the Corporation expanding or modifying its current dairy and manufacturing facility. Should the Corporation, for any reason, be unsuccessful in renovating its facility in a timely manner, it could lose its rights under the agreements.
2. Licensing Agreements - The Corporation's current business strategy is based upon its ability to conclude agreements with the owners of ice cream and frozen food brand name products to manufacture and distribute those products in Canada and elsewhere in the world. The Corporation anticipates entering into several further agreements of this nature. Failure for any reason to conclude these agreements will represent a set-back in the Corporation's plans for growth.
3. Past Performance - The Corporation's manufacturing and distribution entities, Stoney Creek and Frozen Cargo, have a long operating history. At the time they were acquired by DAD, they were marginally unprofitable with approximately 4.5 million dollars in annual sales and in 1997 Stoney Creek operated at approximately 30% of capacity. Since the Corporation acquired DAD it has operated at a loss. As a result it has no earnings coverage.
4. Competition - The Corporation is in an industry which is subject to competition from competitors that have far greater financial resources than the Corporation. Such competition, together with any new competitors to the industry, may adversely affect the Corporation's earnings and ability to expand.
5. Key Personnel - The operations of the Corporation are highly dependant upon the participation of its key personnel, particularly Mr. Harrison, the President of the Corporation and Mr. Murray, Chairman of the Corporation. The loss of their services may materially effect the ability of the Corporation to grow and expand.
6. Absence of Operating History - DAD, the marketing entity of the Corporation, has no history of operations. Its success will be dependant on its ability to manufacture and market its products successfully, discharge its obligations under various licenses and secure additional licenses. The Corporation's abilities in this regard are as yet untested and may not be assured.
7. Put Options - The Corporation is subject to Put Options with Ben & Jerry's and with the Debentureholders. These Put Options may only be exercised by Ben & Jerry's and the Debentureholders in certain circumstances. If the Put Options are exercised and the Corporation is unable to find buyers for its Common Shares, the Corporation, itself, will be obligated to acquire the Common Shares at the then market price. This could potentially have a significant adverse effect on the Corporation's capital and operations.
8. Management - The Corporation is subject to a broad range of covenants contained in agreements with Ben & Jerry's and the Debentureholders that restrict the ability of management to sell equity, grant security, acquire businesses or companies or do a range of other things without the approval of the other party to the agreement. These covenants may have the effect of restricting the ability of management and the directors of the Corporation to respond to difficulties or opportunities.
9. Dilution - The Corporation intends to issue treasury shares to finance acquisitions and to fund expansions of the Corporation's business. Control of the Corporation may change and subscribers may suffer further dilution of their investment.
10.Year 2000 Compliance - Much of the Corporation's operations are highly dependent on the proper operation of software and hardware. The Corporation has conducted a management audit of its computer systems and hardware. As the Corporation has almost completely upgraded its manufacturing facility with the proceeds of the offering qualified hereunder it has ensured that with all of the software and hardware it has acquired for its facility is certified as Year 2000 compliant. The Corporation has replaced its telephone system and other systems that are not Year 2000 compliant. The Corporation will be replacing its financial systems software and hardware in the next several months in favour of a system that is certified Year 2000 compliant. The Corporation expects that within the next six months it will have adequately addressed its internal Year 2000 issues.
Obviously, the Year 2000 compliance or lack thereof by the Corporation's suppliers, business partners and distributors could adversely effect the Corporation. The Corporation intends to bring the Year 2000 issues to the attention of these parties and to encourage them to make whatever changes are necessary to deal with the issue. At this point, the Corporation cannot make an informed assessment of the financial or operational impact that the Year 2000 issue may have on the Corporation as a consequence of Year 2000- related difficulties experienced by third parties with whom the Corporation does business.
GLOSSARY OF TERMS
In this prospectus, the following abbreviations and terms have the indicated meaning, unless the context otherwise requires:
“Ballantrae” means Ballantrae Capital Corp.
“Ben & Jerry's” means Ben & Jerry's Homemade, Inc.;
“Common Shares” means the common shares of the Corporation;
"Corporation" means Delicious Alternative Desserts Ltd.;
“DAD” means Delicious Alternative Desserts Inc.;
“Debentureholder” means the legal or beneficial owners of the Debentures;
“Debentures” means the Subordinated Convertible Debentures of the Corporation issued pursuant to a Trust Indenture dated June 5, 1998;
“Expiry Time” means the earlier of (i) five business days after the date of the issuance of a receipt for the prospectus by the Securities Commission of the jurisdiction in which the holder of Special Warrants resides; and (ii) October 31, 1998;
“First Warrants” means the 5,000,000 Special Warrants issued by the Corporation at a price of $0.30 per First Warrant;
“Frozen Cargo” means Frozen Cargo Distributers Ltd.;
“Prospectus” means a final prospectus of the Corporation qualifying the Common Shares issuable upon conversion of the Special Warrants and Debentures for distribution in the Qualifying Jurisdictions;
“Qualifying Jurisdictions” means Alberta and Ontario;
“Ricochet Products” means Ricochet Products Inc., formerly Plasti-Guard industries Inc.;
“Second Warrants” means the 7,460,500 Special Warrants issued by the Corporation at a price of $0.40 per Second Warrant;
“Securities Commission” means the Securities Commissions or similar regulatory authorities in each of the Qualifying Jurisdictions;
“Special Warrants” means the First Warrants, Second Warrants and Third Warrants offered by the Corporation hereunder, each being exercisable without the payment of additional consideration for one Common Share, subject to adjustment and certain circumstances;
“Stoney Creek” means Stoney Creek Dairies Limited; and
“Third Warrants” means the 4,293,381 Special Warrants issued by the Corporation at a price of $0.46 per Third Warrant.
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