SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
April 30, 2001
[ ] 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 0-24801
Delaware 82-0506425
(State or other Jurisdiction of incorporation) (IRS Employer Identification No.)
AQUA VIE BEVERAGE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
P.O. Box 6759 333 South Main Street Ketchum, Idaho 83340
(Address of principal executive offices)
208/622-7792
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [ ] NO [X] As of the quarter ending January 31, 2001 the
Registrant has been subject to the filing
requirements of the Securities Act of 1934 for
less than 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 2001
Common Stock, Par value $0.001 47,159,285
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Item 1. Financial Statements:
Aqua Vie Beverage Corporation
BALANCE SHEET
Apr. 30, 2001 Jul. 31, 2000
(unaudited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 11,127
Accounts receivable (net of $0 allowance for doubtful accounts) 80,792 25,238
Inventories 213,691 249,790
Prepaid expenses and deposits 185,155 93,476
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Total current assets 479,638 379,631
Equipment (net of $69,463 and $24,847 accumulated depreciation) 132,145 127,489
Intangibles (net of $26,812 and $19,500 accumulated amortization) 70,688 77,998
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Total assets $ 682,471 $ 585,118
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 431,271 $ 154,621
Overdraft payable 40,325 --
Shareholder loans payable 383,975 --
Notes payable 215,000 792,000
Accrued expenses 68,258 467,564
Loans from related parties 157,137 353,600
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Total current liabilities 1,295,965 1,767,785
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Long-term debt -- 18,362
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Total liabilities 1,295,965 1,786,147
Commitments and Contingencies -- --
STOCKHOLDERS' DEFICIT
Preferred stock: $0.001 par value 1,000,000 shares authorized,
Issued and outstanding:
Series A (200,000), outstanding: 1,973 and 2,557 2 3
Series B (200,000), outstanding: 991 and 4,653 1 4
Series C (10,000), outstanding: 0 and 200 -- --
Series D (20,000) outstanding: 12,000 and 0 12 --
Common stock:
$0.001 par value, 120,000,000 shares authorized
Issued and outstanding: 47,159,285 and 30,811,408 47,159 30,811
Additional paid-in capital 4,480,801 2,422,234
Subscriptions Receivable (309,702) --
Accumulated Deficit (4,831,768) (3,654,081)
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Total stockholders' deficit (613,495) (1,201,029)
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Total liabilities and stockholders' deficit $ 682,471 $ 585,118
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Aqua Vie Beverage Corporation
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
Apr. 30, 2001 Apr. 30, 2000 Apr. 30, 2001 Apr. 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
REVENUES $ 40,411 $ 34,462 $ 765,772 $ 64,712
Cost of Sales 28,308 -- 584,694 --
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GROSS PROFIT 12,103 34,462 181,078 64,712
OPERATING EXPENSES
Promotion and Advertising 46,779 277,891 372,234 408,676
General and Administrative 215,066 393,954 1,469,694 938,391
Depreciation and Amortization 18,590 9,773 57,016 27,072
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TOTAL OPERATING EXPENSES 280,435 681,618 1,898,944 1,374,139
------------ ------------ ------------ ------------
Loss from Operations (268,331) (647,156) (1,717,865) (1,309,427)
Interest Expense (63,714) 15,921 56,064 65,103
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Net Loss Before Extraordinary Item (204,618) (663,077) (1,773,930) (1,374,530)
Extraordinary Item:
Forgiveness of Accrued Payroll,
Net of Income Tax -- -- 499,968 --
------------ ------------ ------------ ------------
Net Loss $ (204,618) $ (663,077) $ (1,273,962) $ (1,374,530)
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Weighted average number of shares outstanding: 43,656,396 26,488,858 36,827,085 24,771,289
============ ============ ============ ============
Basic and diluted loss per share before
extraordinary item $ (0.005) $ (0.025) $ (0.048) $ (0.055)
============ ============ ============ ============
Basic and diluted income per share from
extraordinary item $ -- $ -- $ 0.014 $ --
============ ============ ============ ============
Basic and diluted loss per share after
extraordinary item $ (0.005) $ (0.025) $ (0.035) $ (0.055)
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3
Aqua Vie Beverage Corporation
STATEMENTS OF CASH FLOWS
Nine Months Ended
April 30
2001 2000
(unaudited) (unaudited)
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OPERATING ACTIVITIES
Net loss $(1,273,962) $(1,374,530)
Adjustments to reconcile net loss
to net cash used by operating activity:
Depreciation and amortization 57,016 27,072
Accrued compensation -- 180,000
Forgiveness of compensation 499,998 --
Prior-year expense in retained earnings 52,488 --
Changes in operating assets and liabilities:
Issuance of shares for services 364,588 --
Advances to shareholder -- 506,350
Accounts receivable (55,554) (7,665)
Note receivable -- --
Accounts payable 276,650 101,437
Shareholder loans payable 383,975 --
Overdraft payable 40,325 --
Accrued expenses (399,306) 13,815
Loans from related parties (196,463) --
Inventories 36,099 (189,093)
Prepaid expenses (91,679) 103,794
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Net cash used by operating activities (305,827) (638,820)
INVESTING ACTIVITIES
Purchase of intangibles -- --
Purchases of equipment (49,272) (79,959)
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Net cash used by investing activities (49,272) (79,959)
FINANCING ACTIVITIES
Stock sales cash proceeds 598,484 480,238
Debt converted to stock 340,850 --
Long-term debt (18,362) --
Notes payable (577,000) 213,000
Net cash provided by financing activities 343,972 693,238
Increase (Decrease) in cash (11,127) (25,541)
Cash - Beginning of period 11,127 27,298
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CASH - END OF PERIOD $ 0 $ 1,757
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SUPPLEMENTAL CASHFLOW INFORMATION:
Corporate income taxes paid $ -- $ --
Interest paid $ 195,725 $ --
NON-CASH TRANSACTIONS:
Debt converted to stock $ 340,850 $ --
Notes payable and accrued interest forgiven $ 499,998
Note payable converted to long-term debt $ -- $ 340,000
820,000 common shares were issued for services -
August & October 2000 $ 344,578 $ --
Notes payable and accrued interest converted to
common stock -- $128,960.00
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - STATEMENT OF ACCOUNTING
The interim financial statements of Aqua Vie Beverage Corporation included
herein, have been prepared without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Although certain information normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The accompanying interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
annual report on Form 10-K for the fiscal year ended July 31, 2000.
The financial statements included herein reflect all normal recurring
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for interim periods. The results for interim periods
are not necessarily indicative of trends or of results to be expected for a full
year.
NOTE 2 - EXTRAORDINARY ITEM
Subsequent to the ending of this reporting quarter, the Company discovered
certain revenue figures that had been booked in error for the quarters ending
October 31, 2000 and January 31, 2001. It has re-filed the Form 10QSB's for
those two quarters with the corrected financial information. The correction of
these errors did not affect the final income, per share loss or the financial
statements as previously reported for those periods.
NOTE 3 - STOCK SUBSCRIPTION AGREEMENT
The stock subscription agreement executed on November 21, 2000 and reported in
the previous quarter for the sale of 12,000 shares of $.001 par value Series D
Preferred stock for the aggregate purchase price of $1,200,000, the equivalent
of $100 per preferred share, has been funded to the extent of $891,000 during
this reporting quarter and the first month of the subsequent quarter reporting
period.
NOTE 4 - SUBSEQUENT EVENT
During March, 2001, the Company entered into a Shipping and Security Agreement
with a central California contract manufacturer. The Agreements provide the
Company with production financing and inventory expansion of its beverage
products, interest-free and without a factoring fee. Under the terms of the
agreement, the Company granted to the contract manufacturer a security interest
in the Company's inventory and receivables.
In April 2001, the contract manufacturer commenced production under the terms of
the Shipping and Security Agreement and began shipping product to major grocery
chain accounts in Southern California. Subsequently, the Company increased it
sales and marketing efforts. Due to production difficulties, the contract
manufacturer halted production under the agreement. To date, the Company's
marketing efforts have resulted in authorizations for placement of its products
in stores of approximately a dozen additional grocery store chains.
5
The Company has informed the contract manufacturer of the Company's intention to
seek redress in the amount of $385,700 to compensate the Company for a
production shortfall and quality assurance problems. The Company has submitted
portions of this claim to the contract manufacturer and has reserved these claim
amounts, which have not been entered into the books of the Company and do not
affect the financial statements as submitted in this report. To date, this claim
and the issues on which it is based, remains unresolved, and the Company is
considering alternative settlements. Management believes that these issues can
be resolved to the parties' mutual satisfaction.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Aqua Vie Beverage Corporation, a Delaware corporation, was incorporated on July
30, 1998 and was formed as a successor to another Delaware corporation
liquidated in bankruptcy in 1997. Throughout most of its fiscal year ending July
31, 2000, Aqua Vie was a traditional development stage company whose early
efforts encompassed the development of a new category of beverages called water
beverages, and the sales and marketing of the first all-natural, lightly
flavored bottled spring waters, call Hydrators. In the quarter ended October 31,
2000, the Company had appeared to have emerged from the development stage and
actively commenced the sale of its products. In the quarter ended April30, 2001,
the Company's selling efforts, including a major sales commitment from its
contract bottler, pushed year-to-date sales to just over the three
quarter-million-dollar threshold.
At April 30, 2001, the Company's total assets of $682,000 exceeded that of
$585,000 at its July 31, 2000 year-end. Although the composition of the assets
changed during this interim period as most of the year-end inventories were sold
and converted to accounts receivable. Similarly, total current assets at April
30, 2001 of $460,000 were higher than year-end current assets of $380,000
because of the increase in the balance of prepaid expenses and deposits. The
Company's current liabilities decreased from $1,768,000 at July 31 to $1,296,000
at April 30 while the composition of this debt shifted from short-term loans to
increased accounts payable and shareholder loans payable.
During its first two years of existence (from inception to July 31, 2000), the
Company accumulated a deficit of $3,654,000. In the subsequent nine months ended
April 30, 2001, the Company's accumulated deficit grew to $4,832,000 as the
Company's marketing and executive expenses burgeoned, creating a quarterly
operating loss of $205,000 and a semi-annual operating loss of $1,274,000.
During March, 2001, the Company entered into a Shipping and Security Agreement
with a central California contract manufacturer. The Agreements provide the
Company with production financing and inventory expansion of its beverage
products, interest-free and without a factoring fee. Under the terms of the
agreement, the Company granted to the contract manufacturer a security interest
in the Company's inventory and receivables.
In April 2001, the contract manufacturer commenced production under the terms of
the Shipping and Security Agreement and began shipping product to major grocery
chain accounts in Southern California. Subsequently, the Company increased it
sales and marketing efforts. Due to production difficulties, the contract
manufacturer halted production under the agreement. To date, the Company's
marketing efforts have resulted in authorizations for placement of its products
in stores of approximately a dozen additional grocery store chains.
6
The Company has informed the contract manufacturer of the Company's intention to
seek redress in the amount of $385,700 to compensate the Company for a
production shortfall and quality assurance problems. The Company has submitted
portions of this claim to the contract manufacturer and has reserved these claim
amounts, which have not been entered into the books of the Company and do not
affect the financial statements as submitted in this report. To date, this claim
and the issues on which it is based, remains unresolved, and the Company is
considering alternative settlements. Management believes that these issues can
be resolved to the parties' mutual satisfaction.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues of $40,000 for the quarter ended April 30, 2001 were a
modest increase from the $35,000 of revenues in the corresponding third quarter
of the prior fiscal year. Year-to-date revenues of $766,000 for the first nine
months ended April 30, 2001 also reflect successful sales efforts in comparison
with the incipient sales of $64,000 for the prior year nine-month period but are
much less than what had been anticipated due to the processor's quality
assurance problem and the resultant lack of inventory.
Because it has sustained recurring losses from operations, the Company cannot
assure that it will be able to fully carry out its plans as budgeted without
additional operating capital. At April 30, 2001, the Company had negative
working capital of $816,327, although this amount represents an improvement in
liquidity and capital resources from its negative working capital position of
$1,388,000 at July 31, 2000. The improvement is principally attributable to
sales of common stock the proceeds realized from the Series D Preferred
transaction.
In the nine months ended April 30, 2001, the Company funded a portion of its
operations from the sale of its common stock, which raised $740,000 in cash. In
addition, Aqua Vie financed its operations by a combination of increasing trade
payables, issuing shares for services valued at $345,000, converting $341,000 of
short-term debt into stock, and negotiating the forgiveness of almost $500,000
in accrued liabilities from a related party. This recent mix of diversified
funding sources contrasts with the corresponding nine months of the prior year
when the primary source of funds was $480,000, originating with the Company's
sale of its stock.
In the prior quarter, the Company paid off its only long-term debt, which was
$18,000 at July 31, 2000, and now stands free of long-term debt at April 30,
2001.
The Company anticipates that its use of cash will be substantial for the
foreseeable future. In particular, management of the Company expects substantial
expenditures in connection with production of inventory for the planned increase
in sales, expansion of the Company's marketing organization, payment of slotting
fees to obtain shelf space with new retailers, and quality assurance and
distribution management. The Company does not expect to incur major capital
expenditures in the next year. Aqua Vie's management expects that additional
funding for operating expenditures will be available from the issuance of equity
and/or debt securities, as needed.
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The availability of sufficient future funds for Aqua Vie will depend to a
significant extent on the market acceptance of the Company's primary product
line by retail chains. Accordingly, the Company may be required to issue
securities to finance such working capital requirements. There can be no
assurance whether or not such financing will be available on satisfactory terms.
RESULTS OF OPERATIONS
Aqua Vie commenced operations in 1998 and has a limited history of operations
which to date have not been profitable. Its operations are subject to the risks
and competition inherent in the establishment of a relatively new business
enterprise.
Aqua Vie is currently operating at a loss. While the Company's nine-month
revenues of $766,000 were over twenty times as large as the nine-month revenues
of the prior fiscal year, sales to date have not been sufficient to cover the
costs of operations. The Company's ability to develop increasing revenues and
profitable net income is dependent upon the effectiveness of its marketing
efforts in generating sales of its line of flavored spring water products.
For the nine months ended April 30, 2001, the Company's sales produced gross
profit of $181,078, which compares favorably with the smaller gross profit of
$65,000 for the nine months of the prior fiscal year. Operating expenses were
$1,899,000 for the nine months ended April 30, 2001 and were only $1,309,000 for
the same period of the prior year. The year-to-year change principally reflects
an increase in marketing expenses which directly correlates with increased
revenues. During this same year-to-year time frame, the increase in operating
expenses also reflects heightened expenditures for general and administrative
expenses which were substantially offset by reduced expenses for professional
fees.
In the quarter ending January 31, 2001, the Company's statement of operations
reflects an extraordinary item, $500,000 (or $0.01 per share) of gain from
forgiveness of accrued compensation by a related party. There were no similar
extraordinary items in the corresponding or previous periods presented.
The Company's net loss of $205,000 for the three months ended April 30, 2001
resulted in a net loss per share of $0.005 for the quarter. This contrasts with
a net loss of $663,000 for the three months ended April 30, 2000, which also
posted a per share loss of $0.025. The Company's year-to-date net loss of
$1,274,000 is after the extraordinary gain of $500,000 reported in the previous
quarter and equates to a year-to-date per share net loss of $0.035, comparable
to the prior year nine-month per share net loss of $0.055.
8
PART II - - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
any such meaningful proceedings contemplated against it. The Company anticipates
that in the future it will have conflicts as regards certain Accounts Payable
for services invoiced but not adequately performed and for the use of selected
names for products and product lines in selected market places.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of unregistered securities.
Pursuant to a stock purchase agreement dated November 21, 2001, the Company
agreed to sell 12,000 Series D Preferred Shares for $1,200,000 cash to an
accredited investor under Regulation D. All but $309,000 has been paid on said
subscription Proceeds are to be used for general working capital, including
slotting fees and marketing expenses. The Series D Preferred Shares are to be
designated and filed with the State of Delaware by April 15, 2001, which has
been delayed and said designation should be examined for the exact terms
thereof, of which the following is only a summary. The Series D Preferred Shares
are convertible to Common Shares under terms generally similar to Series B
Preferred Shares (the terms of which are incorporated by reference from the 10k
S-B filing of the Company on November 15, 2000, and which are also available
also from the State of Delaware) with the following principal differences: (1)
The preferences were set at $100 per share; (2) voting rights were 9,167 common
share equivalent for each preferred share, compared to 6,000 shares (adjustable)
under Series B; (3) Conversion to common was at 1,666.7 common share for each
preferred share; (4) the right to convert to common without consent of the
Company commences June 30, 2002; (5) the adjustment for Market success in Sec.
5(k) of the B Designation was changed to provide for a 5% increase in stock
under the conversion for each $.05 that the common shares traded at $.25 or more
to a maximum of trading at $2.50 per common share; (5) the anti-dilution
adjustment in 5(h) of the B Designation was eliminated for the Series D
Preferred Shares. As with the Series B Shares, an irrevocable proxy for voting
was given to Mr. Gillespie for so long as the original holder held the Preferred
Shares or as converted common shares. A condition of the subscription was that
remaining Series A Preferred Shares would waive future anti-dilution rights
there under, and that the conversion to common for those shares would be fixed
at 2,500 shares for those preferred shares remaining outstanding. Subsequently,
the Series A Preferred Share anti-dilution requirement was waived and that
series will convert at the same conversion ratio as for the Series B Preferred.
9
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this discussion which are not historical facts may be
considered forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. The words "believe", "expect",
"anticipate", "estimate" and similar expressions identify forward looking
statements. Any forward looking statements involve risks and uncertainties that
could cause actual events or results to differ, perhaps materially, from the
events or results described in forward looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly update
or revise any forward looking statements, whether as a result of new
information, future events or otherwise. Risks associated with the Company's
forward looking statements include, but are not limited to, risks associated
with the Company's history of losses and uncertain profitability, need for
market acceptance of the HYDRATRORTM product line, the Company's reliance at
this time on a single product line, reliance on the market distribution and
retail system and risks associated with the Company's international operations,
currency fluctuations, the risk of new and different legal and regulatory
requirements, governmental approvals, tariffs and trade barriers, risks
associated with competition and technological and product innovation by
competitors, dependence on proprietary formulas, general economic conditions and
conditions in the beverage industry, reliance on key management, limited
manufacturing production history with respect to the aseptic bottling system,
maintenance of quality control by the contract bottler, dependence on key
suppliers, future capital needs and uncertainty of additional financing,
potential recalls and product liability, dilution, effects of outstanding
convertible debentures and preferred stock , limited public market, liquidity,
possible volatility of stock price, recently adopted new listing standards for
NASDAQ securities and environmental matters.
AQUA VIE BEVERAGE CORPORATION
(Registrant)
Date June 20, 2001 By: /s/ Thomas J. Gillespie
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Thomas J. Gillespie
Chief Executive Officer &
President
10