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
October 31, 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 October 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 October 31, 2001
Common Stock, Par value $0.001 63,699,784
1
Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION
Balance Sheets
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October 31, July 31,
2001 2001
(Unaudited)
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ASSETS
CURRENT ASSETS
Cash $ 4,765 $ 3,608
Accounts receivable 55,832 82,776
Inventory 89,634 155,372
Prepaid and other assets 22,786 24,434
----------- -----------
Total Current Assets 173,017 266,190
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PROPERTY AND EQUIPMENT
Equipment 201,608 201,608
Less accumulated depreciation (101,767) (85,615)
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Total Property and Equipment 99,841 115,993
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OTHER ASSETS
Intangibles 313,336 305,040
Less accumulated amortization (74,284) (58,159)
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Total Other Assets 239,052 246,881
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TOTAL ASSETS $ 511,910 $ 629,064
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LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 297,134 $ 362,312
Bank overdraft 49,857 52,412
Notes payable - current 464,342 455,135
Accrued expenses 84,401 64,101
Loan from related party 86,558 128,520
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Total Current Liabilities 982,292 1,062,480
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LONG-TERM DEBT
Notes payable - net of current portion 5,425 14,632
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COMMITMENTS AND CONTINGENCIES -- --
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STOCKHOLDERS' DEFICIT
Preferred stock, Series A, B, C, D, E
and F, $0.001 par value, 1,000,000
shares authorized,15,074 and 15,074
shares issued and outstanding, respectively 15 15
Common stock, $0.001 par value, 120,000,000 shares
authorized, 65,313,173and 58,253,173 shares
issued and outstanding, respectively 65,313 58,253
Additional paid-in capital 5,077,199 4,765,754
Subscriptions receivable (176,977) (176,977)
Accumulated deficit (5,441,357) (5,095,093)
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Total Stockholders' Deficit (475,807) (448,048)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 511,910 $ 629,064
=========== ===========
See accountant's review report and accompanying notes.
2
AQUA VIE BEVERAGE CORPORATION
Statements of Operations
(Unaudited)
Three Months Ended
October 31,
-----------------------------
2001 2000
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REVENUES $ 46,858 $ 192,256
COST OF GOODS SOLD 81,700 137,399
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GROSS PROFIT (LOSS) (34,842) 54,857
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GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 68,156 457,687
Legal and accounting 46,597 11,953
Other general and administrative expenses 186,013 361,691
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Total expenses 300,766 831,331
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LOSS FROM OPERATIONS (335,608) (776,474)
OTHER EXPENSES
Interest expense 10,656 17,595
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LOSS BEFORE TAXES (346,264) (794,069)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (346,264) $ (794,069)
============ ============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.005) $ (0.0195)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 63,699,784 40,774,176
============ ============
See accountant's review report and accompanying notes.
3
AQUA VIE BEVERAGE CORPORATION
Statement of Stockholder's Deficit
(Split Table)
Preferred, Series A, B,
C, D, E and F Common Stock
-------------------------- ------------------------
Number Number
of Shares Amount of Shares Amount
----------- ----------- ----------- -----------
Balance brought forward 7,410 $ 7 30,811,408 $ 30,811
----------- ----------- ----------- -----------
Issuance of common stock
for services at prices
ranging from $0.02
to $0.42 -- -- 5,335,000 5,335
Issuance of common stock
for debt conversion at
$0.40 per share -- -- 850,000 850
Conversion of preferred
Series A to common
stock (1,368) (2) 4,489,123 4,489
Conversion of preferred
Series B to common
stock (4,608) (4) 16,567,642 16,568
Conversion of preferred
Series C to common
stock (200) -- 200,000 200
Issuance of preferred Series
D for cash and receivable
at $100 per share 12,000 12 -- --
Issuance of preferred Series
E for cash at $100
per share 600 1 -- --
Issuance of preferred Series
F for cash at $100
per share 1,240 1 -- --
Net loss for the year ended
July 31, 2001 -- -- -- --
----------- ----------- ----------- -----------
Balance, July 31, 2001 15,074 15 58,253,173 58,253
Stock converted per
subscription -- -- 6,250,000 6,250
Stock issued for services -- -- 810,000 810
Net loss for the quarter
ended October 31, 2001 -- -- -- --
----------- ----------- ----------- -----------
Balance, October 31, 2001
(Unaudited) 15,074 $ 15 65,313,173 $ 65,313
=========== =========== =========== ===========
See accountant's review report and accompanying notes.
4
AQUA VIE BEVERAGE CORPORATION
Statement of Stockholder's Deficit
(Second Part of Split Table)
Additional
Paid-in Subscriptions Accumulated
Capital Receivable Deficit Total
----------- ----------- ----------- -----------
Balance brought forward $2,422,236 $ -- $(3,654,081) $ (1,201,027)
----------- ----------- ----------- -----------
Issuance of common stock
for services at prices
ranging from $0.02
to $0.42 640,783 -- -- 646,118
Issuance of common stock
for debt conversion at
$0.40 per share 340,000 -- -- 340,850
Conversion of preferred
Series A to common
stock (4,487) -- -- --
Conversion of preferred
Series B to common
stock (16,564) -- -- --
Conversion of preferred
Series C to common
stock (200) -- -- --
Issuance of preferred Series
D for cash and receivable
at $100 per share 1,199,988 (176,952) -- 1,023,048
Issuance of preferred Series
E for cash at $100
per share 59,999 (25) -- 59,975
Issuance of preferred Series
F for cash at $100
per share 123,999 -- -- 124,000
Net loss for the year ended
July 31, 2001 -- -- (1,441,012) (1,441,012)
----------- ----------- ----------- -----------
Balance, July 31, 2001 4,765,754 (176,977) (5,095,093) (448,048)
Stock converted per
subscription 247,645 -- -- 253,895
Stock issued for services 63,800 -- -- 64,610
Net loss for the quarter
ended October 31, 2001 -- -- (346,264) (346,264)
----------- ----------- ----------- -----------
Balance, October 31, 2001
(Unaudited) $ 5,077,199 $ (176,977) $(5,441,357) $ (475,807)
=========== =========== =========== ===========
See accountant's review report and accompanying notes.
5
AQUA VIE BEVERAGE CORPORATION
Statements of Cash Flows
(Unaudited)
Three Months
October 31,
-------------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(346,264) $(794,069)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 32,277 40,696
Stock issued for services 64,610 --
Changes in assets and liabilities:
Accounts receivable 26,944 (125,634)
Inventory 65,738 151,937
Prepaid expenses 1,648 (69,618)
Accounts payable (65,178) 209,887
Bank overdraft (2,555) 115,137
Accrued expenses 20,300 18,221
Accrued compensation -- 60,000
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Net cash used by operating activities (202,480) (393,443)
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CASH USED BY INVESTING ACTIVITIES:
Increase in intangible assets for slotting (8,296) --
--------- ---------
Net cash used by investing activities (8,296) --
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CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock -- 188,468
Stock conversion subscriptions 253,895 --
Payments on debt -- (18,362)
Advances from affiliate 223,961 --
Payments to affiliate (265,923) --
Proceeds from notes payable -- 202,500
Advances from stockholders -- 105,610
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Net cash provided by financing activities 211,933 478,216
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INCREASE (DECREASE) IN CASH 1,157 84,773
BEGINNING BALANCE 3,608 11,127
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ENDING BALANCE $ 4,765 $ 95,900
=========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for services $ 64,610 $ --
See accountant's review report and accompanying notes.
6
CONDENSED 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. 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, 2001.
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 - 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 $1,023,048 during
this reporting quarter and the first month of the subsequent quarter reporting
period.
NOTE 3 - ADDITIONAL COMMENTS
During March, 2001, the Company entered into a Shipping and Security Agreement
with a central California contract manufacturer. The agreements provided 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. Based on that Agreement, the Company
began an aggressive campaign to place its products in California-based
supermarket chains by paying and/or incurring slotting fees, supporting sampling
programs, and other marketing activities.
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 California, Arizona, and Nevada. Subsequently, the Company
increased its sales and marketing efforts, and slotting fee commitments intended
to support an expanded sales program. The Packer, which was experiencing quality
assurance problems, failed to sustain production levels adequate to meet the
sales levels projected by the Company notwithstanding the marketing expenses
incurred by the Company, and the Packer continued in its failure to resolve past
account issues arising over defective products. This led to a demand being made
on the Packer by the Company for an accounting. The Packer responded by refusing
any further production or shipment of inventory already produced until the
Company would execute an indemnity in favor of the Packer. Notwithstanding then
a deadlock in negotiations, management held steadfast in its belief that its
product quality and purity are critical and, therefore, are not subject to
compromise. The dispute, which was of considerable duration, had a negative
impact on the Company, as it created uncertainty relative to the Company's
ability to deliver product to fill pending and projected orders, for which the
slotting payments and marketing efforts had been undertaken. In an effort to
progress toward a resolution, the Company and Packer subsequently entered into a
new production agreement, which provided for payments to be made to the Company
in settlement of the claims against the Packer and also effected a termination
of the factoring agreement.
Subject to stringent third-party quality assurance testing, shipping and
production resumed in July under the new agreement. Management is confident
that, now with certain modifications having been made to the Packer's
manufacturing process and production line, and with the Packer's strict
adherence to the Company's stated quality assurance, the aforementioned issued
have been resolved to the Company's satisfaction and the Packer is capable of
maintaining consistent quality at commercial production levels.
Notwithstanding the impact on the Company's increased sales and marketing
efforts resultant of the Packer's failure to perform as agreed, and the
consequent loss of saleable inventory under the Shipping and Security Agreement
to satisfy orders and proposed orders during the June-August 2001 period of the
dispute, through additional slotting fee commitments and other arrangements made
by the Company, the Company was able to place its products on the shelves of
over 1,200 retail grocery chains, and to obtain additional approvals in
approximately 650 chains. These placements and approvals provide a major
foothold and a foundation for regional expansion into 2002 as the Company
expects to begin a rapid expansion of its inventory production, and its sales
and marketing programs for the first quarter of 2002.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During its first three years of existence (from inception to July 31, 2001), the
Company accumulated a deficit of $5,095,000. In the subsequent three months
ended October 31, 2001, the Company's accumulated deficit grew to $5,441,000 as
the Company's marketing and executive expenses increased, creating a quarterly
operating loss of $346,264.
At October 31, 2001, the Company's total assets of $512,000 were lower than the
$629,000 reported at its July 31, 2001 year-end. The decrease was due primarily
to a decrease in inventory to approximately $90,000 from approximately $155,000,
decreases in accounts receivable, and increases in accumulated depreciation and
amortization. The Company's current liabilities decreased from $1,062,480 at
July 31, 2001 to $982,292 at October 31, 2001.
The Company entered into an aggressive marketing campaign in the Spring of 2001,
which substantially increased its General and Administrative expenses for sales
personnel and marketing expenses for slotting fees and related items based on
the production financing agreement made with its contract packer in late
February 2001 (see Note 3 to the Financials). These expenses were incurred in
the anticipation of a rapid increase in sales and revenues to support the
expenditures. The dispute which arose with the packer, although resolved in late
July, 2001, did not provide compensation for the loss of revenues projected by
management for that period, and also reduced the sales activity due to
uncertainties over supply. Management had proposed to address these problems in
early September 2001 but was unable to adequately redress the issue due to the
September 11th event and it impact on retail sales.
Aqua Vie continues to offer information about its products and a subscription
service on its Internet site. Aqua Vie's revenue from Internet sales, a small
portion of current revenue, is projected to be an important part of future
revenue. Management intends to expand and develop marketing of Aqua Vie
beverages through the Internet, and redesign of the Company's Internet site to
support the Company's marketing plan is currently underway.
Given Aqua Vie's market distribution presence and order interest by major
customers, the funded slotting fee arrangements with major grocery and
convenience store chains, its present relationship with its co-packer, and the
present production and overhead cost structure, profitability is believed
achievable in 2002, given adequate bridge financing. The immediate solution to
profitability in this early growth scenario rests with the Company's ability to
obtain bridge financing adequate to meet the increased product demand available
within the account base with which the Company has already secured shelf space.
At the same time, the company will continue to build brand awareness through
immediate execution of consumer marketing programs postponed during 2001,
including radio and newspaper advertising in select markets, which is expected
to commence in January 2002.
The Company began a program to seek production financing shortly before the
September 11th event but was unable to finalize commitments with interested
investors at that time due to the market uncertainties which arose. In the last
few days the Company has secured additional debt financing from a major
shareholder that it believes should provide for proposed January sales. In
addition, discussions are expected to continue with several other interested
investors unrelated to the Company, to support an expanded inventory production
and sales program for the first Quarter of 2002.
In the future Aqua Vie expects to improve margins through economies of scale and
by introducing new products that management believes will support higher gross
margins even in today's competitive market environment. The first to be
introduced will be a line of Hydrators especially designed for children.
Subsequently, the Company plans to follow with a multi-flavor line of
nonalcoholic wines made from spring water. These nonalcoholic wines have been
designed to provide all of the sensual qualities of fine wines and champagnes,
without the presence of alcohol or preservatives.
Aqua Vie's product line contains no directly patented or patentable features or
components. Copyrighting, trade marking and the use of trade secret techniques
and formulations are employed extensively. Aqua Vie uses
non-disclosure/non-compete agreements with employees, suppliers and co-packer
8
bottlers. At present the Company has not issued any licenses, franchises,
concessions, royalty agreements or labor contracts, though future development
may include such actions being incorporated into the corporate strategy.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues of $46,000 for the quarter ended October 31, 2001 were a
decrease from the $192,000 of revenues in the corresponding first quarter of the
prior fiscal year, due to the time lost in the resolution of the processor's
quality assurance problem, the resultant temporary lack of inventory available
for sale, the consequent delay of advertising and marketing programs, and a
postponement of final arrangements for additional funding in September, delayed
because of events of September 11th. Discussions are ongoing with the same third
parties concerning this additional funding.
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 October 31, 2001, the Company had negative
working capital of $809,275, although this amount represents a decrease in
liquidity and capital resources from its negative working capital position of
$796,290 at July 31, 2000. The decrease is principally attributable to a
decrease in current Assets.
In the three months ended October 31, 2001, the Company funded a portion of its
operations from the sale of its common stock, which raised $253,895 in cash. In
addition, Aqua Vie financed its operations by issuing shares for services valued
at $64,610. This recent mix of diversified funding sources contrasts with the
corresponding three months of the prior year when the primary source of funds
was $202,500 in loans and $788,468 from the Company's sale of stock.
The Company anticipates a substantial use of cash for the foreseeable future. In
particular, management of the Company intends substantial expenditures in
connection with production of additional 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 availability of sufficient future funds for Aqua
Vie will depend to a significant extent on the growth in market acceptance of
the Company's primary product line by retail chains. The Company does not expect
to incur any 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 debt and/or equity securities, as needed. 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. The Company's three month
revenues of $46,858 were less than three-month revenues of the prior fiscal
year, sales to date have not been sufficient to cover the costs of operations.
Though sales to date have not been sufficient to cover the costs of operations,
profitability is believed achievable assuming inventory levels are adequate to
meet demand within the Company's existing customer base.
For the three months ended October 31, 2001, the Company's sales produced gross
profit of ($34,842), which compares with the gross profit of ($54,857) for the
comparable three months of the prior fiscal year. Operating expenses were
$300,766 for the three months ended October 31, 2001 and were $831,331 for the
comparable period of the prior year. The year-to-year change principally
reflects a decrease in marketing expenses during the most recent quarter
resulting from the Company's decision to postpone its advertising, marketing and
promotional activities pending the development of higher inventory levels.
During this same year-to-year time frame, the decrease in operating expenses
during the quarter ended October 31, 2001 also reflects reduction in general and
administrative expenses.
9
While Aqua Vie continued to operate at a loss during the most recent quarter,
given inventories adequate to support its marketing efforts, the Company's
ability to generate higher revenue and realize a net profit from operations
remains primarily dependent upon the effectiveness of its marketing efforts in
generating sales of its line of flavored spring water products.
In the quarter ending October 31, 2001, the Company's net loss of ($346,264) for
the three months ended October 31, 2001 resulted in a net loss per share of
($0.005) for the quarter. This contrasts with a net loss of ($794,064) for the
three months ended October 31, 2001, which also posted a per share loss of
($0.02).
PART II - - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no substantial 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.
Sales of unregistered securities were pursuant to the exemption from
registration under the Securities Act of 1933 contained in Section 4(2) and
Regulations promulgated thereunder. During the three months ended October 31,
2001, the Company issued 695,000 shares of common stock for services valued at
$64,610.
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
HYDRATROR(TM) product line, the Company's reliance at this time on a single
product line, reliance on the market distribution and retail system and risks
10
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.
11
AQUA VIE BEVERAGE CORPORATION
(Registrant)
Date January 2, 2002 By: /s/ Thomas J. Gillespie
---------------------------
Thomas J. Gillespie
Chief Executive Officer
& President
12