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
January 31, 2002
[ ] 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 January 31, 2002
Common Stock, Par value $0.001 68,113,173
1
Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION
Balance Sheet
As of January 31, 2002
Jan 31, 2002
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ASSETS
Current Assets
Checking/Savings
1000 AVAC - General -9.64
1010 AVAC - Operating 65.86
1020 AVBC - Operating 15,796.85
1030 AVBC - Primary 201.39
1040 Petty Cash 103.00
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Total Checking/Savings 16,157.46
Accounts Receivable
1100 Accounts Receivable 128,346.20
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Total Accounts Receivable 128,346.20
Other Current Assets
1200 Inventory 89,634.41
1240 Prepaid Insurance 49.22
1250 Prepayments 29,791.00
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Total Other Current Assets 119,474.63
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Total Current Assets 263,978.29
Fixed Assets
1300 Leasehold Improvements 1,000.00
1400 Equipment
1401 Accumulated Depreciation -134,071.00
1400 Equipment - Other 200,608.39
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Total 1400 Equipment 66,537.39
1500o Intangible Assets
1501 Accumulated Amortization -79,159.00
1500 Intangible Assets - Other 313,336.00
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Total 1500 Intangible Assets 234,177.00
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Total Fixed Assets 301,714.39
Other Assets
1800 Deposits 22,737.18
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Total Other Assets 22,737.18
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TOTAL ASSETS 588,429.86
===============
See accompanying notes.
AQUA VIE BEVERAGE CORPORATION
Balance Sheet (continued)
As of January 31, 2002
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
2000 Accounts Payable 298,720.97
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Total Accounts Payable 298,720.97
Other Current Liabilities
2300 Loan Payable - RS 237,000.00
2310 Loan Payable - GMAC 16,512.44
2400 Notes Payable
2403 Notes Payable - 8% conv-JW 80,000.00
2400 Notes Payable - Other 135,000.00
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Total 2400 Notes Payable 215,000.00
2410 Accrued Interest-Notes Payable 83,542.67
2500 Affiliate Loan
2501 Brace Trust Affiliate Loan 14,398.00
2500 Affiliate Loan - Other 153,808.17
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Total 2500 Affiliate Loan 168,206.17
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Total Other Current Liabilities 720,261.28
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Total Current Liabilities 1,018,982.25
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Total Liabilities 1,018,982.25
Equity
3000 Opening Bal Equity 58.95
3900 Retained Earnings -5,204,837.58
3950 Additional Paid-In Capital 5,190,940.59
Net Income -416,714.35
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Total Equity -430,552.39
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TOTAL LIABILITIES & EQUITY 588,429.86
===============
See accompanying notes.
AQUA VIE BEVERAGE CORPORATION
Statement of Operations
November 2001 through January 2002
January 31,2002
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Ordinary Income/Expense
Income
4100 Distributor Sales 72,514.00
4200 Internet Sales 3,549.67
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Total Income 76,063.67
Cost of Goods Sold
5200 Cost of Goods Sold 27,950.00
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Total COGS 27,950.00
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Gross Profit 48,113.67
Expense
Post dated from 11/23 0.00
6100 Payroll 31,983.00
6999 Uncategorized Expenses 0.00
7020 Computer Allowance 498.90
7050 Bank Charge 3,258.82
7120 Broker Commission 7,000.00
7145 Depreciation and Amortization 37,179.00
7210 Equipment Leasing 4,210.94
7335 Insurance 5,429.80
7350 Investor Relations 6,586.27
7450 Office Expenses 1,593.13
7480 Maintenance 225.00
7490 Miscellaneous 2,001.30
7540 Postal 5,840.08
7550 Professional Fees
7555 Legal Fees 600.00
7550 Professional Fees - Other 7,500.00
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Total 7550 Professional Fees 8,100.00
7590 Promotional Expense - Product 8,572.38
7670 Research & Development 987.99
7710 Shipping 3,035.80
7715 Slotting Fees 550.00
7770 Trademark 750.00
7780 Telephone 5,741.36
7785 Travel 819.50
7800 Utilities
7810 Cable TV 422.60
7820 Gas & Electric 482.87
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Total 7800 Utilities 905.47
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Total Expense 135,268.74
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Net Ordinary Income -87,155.07
Other Income/Expense
Other Expense
9010 Interest Expense -350.42
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Total Other Expense -350.42
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Net Other Income 350.42
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Net Income -86,804.65
==================
See accompanying notes.
AQUA VIE BEVERAGE CORPORATION
Cash Flows
November 2001 through January 20002
Nov 2001 - Jan 2002
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OPERATING ACTIVITIES
Net Income -86,804.65
Adjustments to reconcile Net Income
to net cash provided by operations:
1100 Accounts Receivable 128,346.20
1400 Equipment:1401 Accumulated Depreciation -134,071.00
1500 Intangible Assets:1501 Accumulated Amortization 234,177.00
2000 Accounts Payable 298,720.97
2500 Affiliate Loan 153,808.17
2310 Loan Payable - GMAC 16,512.44
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Net cash provided by Operating Activities 610,689.13
FINANCING ACTIVITIES
3000 Opening Bal Equity 58.95
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Net cash provided by Financing Activities 58.95
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Net cash increase for period 610,748.08
Cash at beginning of period -44,931.80
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Cash at end of period 16,157.06
==========
See accompanying notes.
Comparisons will be provided in an amendment
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 are providing a major
foothold and a foundation for regional expansion throughout 2002.
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 $5,858,000 as
the Company's marketing and executive expenses increased, creating a quarterly
operating loss of $86,805.
At January 31, 2002, the Company's total assets of $263,978 were lower than the
$629,000 reported at its July 31, 2001 year-end The Company's current
liabilities decreased slightly from $1,062480 at July 31, 2001 to $1,018,982 at
January 31, 2002.
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 its 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 during the first half of the calendar year.
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 late
January, the company entered into an agreement in principle with a venture group
to provide $1.2 million in bridge capital for the company's operations and
inventory requirements for 2002; however, to date, arrangements have not been
finalized. The aforementioned delay in finalization of financing resulted in
lower production and inventory levels, and a postponement of additional new
product shipments until early March 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
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 $76,000 for the quarter ended January 31, 2002 were an
decrease from the $563,133 of revenues in the corresponding second 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 January 31, 2002, the Company had negative
working capital of $872,004, 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 January 31, 2002, the Company funded a portion of its
operations from the issuance of common stock, valued at $29,000. .
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 $76,000 were less than the comparable three-month period of the
prior fiscal year. 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 January 31, 2002, the Company's sales produced gross
profit of $48,113 which compares with the gross profit of $144,147 for the
comparable three months of the prior fiscal year. Operating expenses were
$135,269 for the three months January 31, 2002 and were $798,029 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 January 31, 2002 also reflects reduction in general and
administrative expenses.
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 January 31, 2002, the Company's net loss of ($86,805) for
the three months ended January 31, 2002 resulted in a net loss per share of
($0.001) for the quarter. This contrasts with a net loss of ($171,347) for the
three months ended January 31, 2001, which posted a per share loss of ($0.004).
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 January 31,
2001, the Company issued 824,000 shares of common stock for services valued at
$29,000.
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
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 March 27, 2002 By: /s/ Thomas J. Gillespie
---------------------------
Thomas J. Gillespie
Chief Executive Officer
& President