Dow Jones 0.00 +0.00 8:20 am PST, February 7, 2007 NASDAQ 2492.81 +21.32 For info, visit access.smallcapnetwork.com S & P 500 0.00 +0.00 Change your subscription status here Russell 2000 814.23 +3.82 VOLUME 07: ISSUE 16 Sailing Under 'Clear' Skies - A Sea Change for Clearly Canadian Investors, we think you should take notice of Clearly Canadian (OTCBB: CCBEF) if you haven't already! The company was impressing the heck out of us by its sheer rebuilding efforts alone. But, we think today's acquisition news could be the difference between outstanding returns and downright incredible returns. Sales are expected to almost double, and given that the newly-acquired division is already profitable, we see the maneuver as a giant leap towards profitability. In any case...  If there's one thing we've learned about Clearly Canadian recently, it's this....when the company speaks, it probably pays to listen. President Brent Lokash was pretty explicit a few weeks ago when he was laying out 2007's plans, specifically saying the company was going to "...pursue acquisition opportunities to strengthen our foothold in the beverage sector and diversify into the complementary organic snack sector."  Ta-da! We just learned a few moments ago the company has bought organic snack-food maker DMR Food Corporation. If you're in Eastern Canada, you may know them under their business name of 'Sweet Selections'.    Hand in Hand We think this is a pretty sweet deal (no pun intended) for both sides of the table. While we're not big fans of using buzz words just for the sake of using buzz words, we still see an obvious synergy between a beverage producer and a line of snack foods. The synergy is augmented when both products are specifically health-friendly. After all, the same typical consumer is being targeted by both companies.  We equate it to the Pepsi/Frito-Lay relationship....as does Brent Lokash in the press release (below). The 1965 union of Pepsi and Frito-Lay into Pepsico (NYSE: PEP) offered immediate advantages in terms of distribution, but we doubt anybody realized the kind of cross-marketing opportunities that would present themselves over the next four decades. Everything from coupons on the packaging to common grocery store aisle placements has demonstrated Pepsico's food and drink lines are treated as a team. The strategy has worked well.  Now Clearly Canadian is taking a parallel path, and as far as we're concerned, a better one. Why? Read on.    Where You're Going is More Important Than Where You Are Think bigger is better? Here's some organic food for thought....the worldwide annual market for organic food products is estimated to be between $20 and $30 billion. The global annual market for non-organic foods is just a little under $600 billion. Which seems like the better market to be in? Your first gut feeling might tell you to go fishing in the bigger $600 billion pond.  The thing is, as Paul Harvey might ask, what about the rest of the story? Some estimates say annual organic food sales growth is between 17% and 20%, while traditional food sales are growing between 2% and 3% per year. From a growth perspective, that certainly makes the smaller $30 billion pond look more attractive, especially if you're planning to fish in perpetuity. Based on all the data, we'd have to say Clearly Canadian shares are offering a superior growth opportunity right now by being in the faster-growing industry. And, it doesn't hurt them to have one of the most-recognized brand names in North America. Oh, did we mention Sweet Selections' business is growing by more than 25% per year? Sweet indeed.    The Dollars Behind The Deal Here's what we know about the deal so far...the initial price tag was a flat $450,000 (in Canadian dollars), with another $450,000 (CDN) to be paid over the course of the next three years. The deal also gives 3 million CCBEF warrants to DMR's current owners, allowing a purchase of Clearly's stock at a price of $4.00 (US). As part of the deal, Clearly Canadian has essentially assured DMR a profit of $2.55 million (CDN) on the warrants. If the net proceeds from the warrants can't provide DMR that $2.55 million within a year of exercising them, Clearly Canadian will make up the difference.  By our math, to DMR the deal is worth $900K (CDN) in cash, and a net of about $2.55 million in warrants (after exercised). That brings the price tag up to $3.45 million as far as DMR is concerned. The cost to Clearly may or may not be anything close to that. The $900K in cash is fixed, but the warrants may well pay for themselves, in a sense. If the share price exceeds $4.85, then Clearly won't have to do anything except make the shares available for DMR's purchase. As we think you'll agree below, we feel it's a bargain no matter how you slice it.  While there's a little potential for dilution, depending on when and how the warrant obligation is fulfilled, we wouldn't call it a significant concern. We see it as a win/win scenario - the better the stock does between now and then, the less likely it is that Clearly Canadian will have to pay any of the $2.55 million, and DMR will make more money on the deal. Oh, and shareholders will be reaping the same rewards DMR does, and won't have to worry about any major cash expense down the road.    Putting Their Money Where Their Mouth Is Here's the idea that speaks volumes to us....DMR just sold themselves to Clearly Canadian for a little cash and a truckload of $4.00 warrants while the stock was more than a buck under that exercise price. Most of the potential value of the warrants is directly linked to the success of the stock. What does that tell you? It tells us the acquiree (DMR) thinks a heck of a lot about CCBEF's upside potential. Remember, from DMR's perspective, the $3.45 million or so is basically a minimum, but we have to think they're thinking bigger than that. Ergo, Clearly's shareholders are actually on the same side of the table as DMR Food Corporation. (What a fresh concept!)  So what does DMR Food Corporation think they're worth? Take our math with a big grain of salt, as we still don't have all the exact details yet either. But...  Priced modestly at the same annual sales figure of $6 million, we'd say the targeted acquisition (cash) value could/should be at least $6 million, if not more. Is that what the company is worth? We can't say for sure (yet), but we do know this much....the press release says the acquisition will almost double Clearly's sales. Clearly Canadian was on track to do a little more than $8 million in revenue for fiscal 2006. So, let's just conservatively say the new Sweet Sensation division is doing $6 million in sales per year (and by the way, it's profitable).  If shares reach $6.00, DMR's warrants will be worth about a net of $6 million ( ($6 - $4) x 3 million) - our ballpark-valuation. If DMR's management agrees with our rough calculations, then they may think CCBEF could be worth as much as the upper $5's (low end), or even up to $8 (high end). Perhaps that's on the higher end of the scale, or maybe not. However, we don't think any level significantly above $5 would be crazy - our current suggested target is $5.15, and we're considering raising it. The point being, we can't help but think DMR is expecting to get more than the basic minimum.  Again, don't get married to our math here. It's an educated guess, but could be off a little. Besides, it's not the important part. The part we think you need to keep in mind today is how DMR Food Corporation's leadership - who obviously have a vested interest - just put an enormous amount of faith in Clearly's shares. When you've got that kind of stock participation from the folks who understand the opportunity as well as anyone, then we feel it's a pretty meaningful endorsement for any interested investor. It essentially allows the little guy to trade along with the people 'in the know'.  No need to repeat what we've been saying for a few weeks now. We can sum it up like this - we think Clearly Canadian's products are healthy for your body, and we think Clearly Canadian's stock could be very healthy for your portfolio. In our opinion, there's still lots of upside potential here, and it seems a lot of other qualified people do too.  The press release...    Clearly Canadian Acquires Eastern Canada's Leading Organic Snack Company  Management Sees Diversity and Synergy Resulting from Strategic Acquisition  VANCOUVER, British Columbia -- Clearly Canadian Beverage Corporation (OTCBB:CCBEF), (the "Company"), is pleased to announce it has acquired DMR Food Corporation. Operating under the name Sweet Selections, DMR is the leading seller of organic and natural snack foods in Eastern Canada.  "With the recent introduction of our Clearly Canadian Natural Enhanced Waters, including dailyEnergy, dailyVitamin and dailyHydration, a certified organic essence water, this acquisition accelerates our efforts to further establish Clearly Canadian as a provider of healthy, good-for-you, products," said Brent Lokash, President of Clearly Canadian. "We see great upside in Sweet Selection's business over the next several years as retailers are placing a major emphasis on organic and natural products. With a growth rate of over 25% per year and a strong presence in Canada's largest grocery chains, Sweet Selections is an ideal complement to Clearly Canadian's brand recognition and established presence in the beverage sector. This combination creates a host of opportunities to penetrate our key markets and fulfills our stated objective to enter into the complementary snack food market."  Mr. Lokash added, "Our model for growth into the organic and natural foods market is to emulate what Pepsi/Frito Lay has done so well over the years in connecting beverages and snack food. We believe the combination of these two companies will provide a host of strategic opportunities to penetrate this exploding market and create value for our shareholders. Sweet Selections is a fast growing and profitable company. This acquisition will nearly double top line revenues with little immediate dilution to our shareholders."  In connection with the acquisition of Sweet Selections, the Company has paid $450,000 CDN upon closing of the transaction; 3,000,000 warrants to purchase the Company's common shares at a purchase price of US $4.00 per share, provided that if a gain of $2,550,000 CDN is not realized from a sale of the warrants within 1 year from their sale of the warrant shares, the Company will pay any shortfall; and $450,000 CDN payable over 3 years. In addition, the Company has entered into a 3 year consulting agreement to retain the services of Sweet Selection's founder, David Reingold.  About Clearly Canadian  Based in Vancouver, B.C., Clearly Canadian Beverage Corporation markets premium alternative beverages and products, including Clearly Canadian(r) sparkling flavoured water and Clearly Canadian dailyEnergy, dailyVitamin and dailyHydration Natural Enhanced Waters, which are distributed in the United States, Canada and various other countries. Since its inception, the Clearly Canadian brand has sold over 90 million cases equating to over 2 billion bottles worldwide. Additional information about Clearly Canadian may be obtained at www.clearly.ca.  About Sweet Selections  Sweet Selections packages and markets organic and natural dried fruit and nut snack foods, including the brands Sunridge Farms, Naturalife, Sweet Selections, Simply by Nature, and the newly introduced bulk format, Glengrove Organics, which are sold in major food retailers and natural stores throughout Eastern Canada. Forward Looking Statements Statements in this news release that are not historical facts are forward-looking statements that are subject to risks and uncertainties. Words such as "expects", "intends", "plans", "may", "could", "should", "anticipates", "likely", "believes", "estimates", "potential", "predicts", "continue" and words of similar import also identify forward-looking statements. Forward-looking statements are based on current facts and analysis and other information that are based on forecasts of future results, estimates of amounts not yet determined and assumptions of management, including but not limited to, the Company's belief in the future increase in revenues of its new acquisition, DMR Food Corporation. These assumptions are subject to many risks, and actual results may differ materially from those currently anticipated. These risks include, by way of example and not in limitation, general economic conditions, changing beverage consumption trends of consumers, the Company's ability to generate sufficient cash flows to support general operating activities and capital expansion plans, competition, pricing and availability of raw materials, the Company's ability to maintain the current and future retail listings for its beverage products and to maintain favorable supply, production and distribution arrangements, laws and regulations and changes thereto that may affect the way the Company's products are manufactured, distributed and sold and other factors beyond the reasonable control of the Company. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the U.S. Securities and Exchange Commission and with the British Columbia and Ontario Securities Commissions. CLEARLY CANADIAN BEVERAGE CORPORATION is the registered holder of various trademarks or pending trademarks, including CLEARLY CANADIAN(r) dailyEnergy, dailyVitamin and dailyHydration. CLEARLY CANADIAN BEVERAGE CORPORATION, and its wholly owned subsidiaries, produce, distribute and market CLEARLY CANADIAN(r) and CLEARLY CANADIAN NATURAL ENHANCED WATERS.  Contact:  Clearly Canadian Beverage Corporation,  Vancouver Shareholder Relations:  Steve Cook, 800-983-0993  E-mail: investor@clearly.ca  or  Marketing:  Sonia Manson,  604-742-5314  Email: smanson@clearly.ca  Source: Clearly Canadian Beverage Corporation    We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Subscribe Information is power and timely information is profitable. 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