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, 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
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(State or other Jurisdiction (IRS Employer
of incorporation) 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
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(Address of principal executive offices)
208/622-7792
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(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 [X] NO [ ]
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, 2002
- ------------------------------ -----------------------------
Common Stock, Par value $0.001 76,031,061
1
Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION
BALANCE SHEETS
April 30, July 31,
2002 2001
(Unaudited)
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ASSETS
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CURRENT ASSETS
Cash $ 372 $ 3,608
Accounts receivable 129,354 82,776
Inventory 119,132 155,372
Deposits and other assets 22,737 24,434
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Total Current Assets 271,595 266,190
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PROPERTY AND EQUIPMENT
Equipment 201,608 201,608
Less accumulated depreciation (134,071) (85,615)
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Total Property and Equipment 67,537 115,993
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OTHER ASSETS
Intangibles 338,253 305,040
Less accumulated amortization (122,081) (58,159)
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Total Other Assets 216,172 246,881
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TOTAL ASSETS $ 555,304 $ 629,064
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LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Accounts payable $ 336,400 $ 362,312
Bank overdraft 54,663 52,412
Settlements payable 10,000 10,000
Notes payable - current 218,480 455,135
Accrued expenses 172,298 64,101
Loan from related party 120,086 128,520
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Total Current Liabilities 911,927 1,072,480
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LONG-TERM DEBT
Notes payable - net of current portion 11,977 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, 6,985 and 15,074
shares issued and outstanding, respectively 7 15
Common stock, $0.001 par value; 120,000,000 shares
authorized, 83,496,173 and 58,253,173 shares
issued and outstanding, respectively 83,496 58,253
Additional paid-in capital 6,191,459 5,562,162
Subscriptions receivable -- (176,977)
Accumulated deficit (6,643,562) (5,901,501)
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Total Stockholders' Deficit (368,600) (458,048)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 555,304 $ 629,064
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See notes to interim financial statements.
2
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET REVENUES $ 6,643 $ 40,411 $ 129,565 $ 765,772
COST OF GOODS SOLD 11,301 28,308 183,943 584,694
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) (4,658) 12,103 (54,378) 181,078
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 9,444 46,779 86,732 372,234
Depreciation and amortization 38,156 18,590 112,377 57,016
Legal and professional 25,145 15,100 84,642 45,430
Officer's compensation 60,000 60,000 180,000 180,000
Other general and administrative expenses 57,906 139,966 195,202 1,244,264
------------ ------------ ------------ ------------
Total expenses 190,651 280,435 658,953 1,898,944
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (195,309) (268,332) (713,331) (1,717,866)
OTHER EXPENSES
Interest (expense) income (8,193) 63,714 (28,730) (56,064)
------------ ------------ ------------ ------------
LOSS BEFORE TAXES (203,502) (204,618) (742,061) (1,773,930)
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (203,502) $ (204,618) $ (742,061) $ (1,773,930)
============ ============ ============ ------------
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED $ Nil $ (0.01) $ (0.04)
============ ============ ============ ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 76,031,061 43,656,396 68,428,748 36,827,085
============ ============ ============ ============
See notes to interim financial statements.
3
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred, Series A, B,
C, D, E and F Common Stock
--------------------------- ----------------------- Additional
Number Number Paid-in Subscriptions Accumulated
of Shares Amount of Shares Amount Capital Receivable Deficit Total
------------ -------------- ------------ ---------- ------------ ------------ ------------- ------------
Balance, July 31, 2000 7,410 $ 7 30,811,408 $ 30,811 $ 2,422,236 $ -- $ (3,654,081) $ (1,201,027)
Issuance of common stock
for services at prices
ranging from $0.02
to $0.42 -- -- 5,335,000 5,335 640,783 -- -- 646,118
Issuance of common stock
for debt conversion at
$0.40 per share -- -- 850,000 850 340,000 -- -- 340,850
Conversion of preferred
Series A to common
stock (1,368) (2) 4,489,123 4,489 (4,487) -- -- --
Conversion of preferred
Series B to common
stock (4,608) (4) 16,567,642 16,568 (16,564) -- -- --
Conversion of preferred
Series C to common
stock (200) -- 200,000 200 (200) -- -- --
Issuance of preferred Series
D for cash and receivable
at $100 per share 12,000 12 -- -- 1,199,988 (176,952) -- 1,023,048
Issuance of preferred Series
E for cash at $100
per share 600 1 -- -- 59,999 (25) -- 59,975
Issuance of preferred Series
F for cash at $100
per share 1,240 1 -- -- 123,999 -- -- 124,000
Forgiveness of debt and
accrued payroll by
officer -- -- -- -- 796,408 -- -- 796,408
Net loss for the year ended
July 31, 2001 -- -- -- -- -- -- (2,247,420) (2,247,420)
------------ -------------- ------------ ---------- ------------ ------------ ------------- ------------
Balance, July 31, 2001 15,074 15 58,253,173 58,253 5,562,162 (176,977) (5,901,501) (458,048)
Issuance of common stock -- -- 6,250,000 6,250 247,645 -- -- 253,895
for cash at $0.04 per share
Stock issued for services
at $0.08 per share -- -- 810,000 810 63,800 -- -- 64,610
Issuance of common stock
for debt at $0.05 per share -- -- 5,300,000 5,300 270,727 -- -- 276,027
Conversion of preferred
Series A to common
stock (234) -- 1,000,000 1,000 (1,000) -- -- --
Conversion of preferred
Series D to common
stock (7,255) (7) 11,383,000 11,383 (11,376) -- -- --
Conversion of preferred
Series E to common
stock (600) (1) 500,000 500 (499) -- -- --
Forgiveness of payroll by
officer -- -- -- -- 60,000 -- -- 60,000
Payment of stock subscriptions
receivable -- -- -- -- -- 176,977 -- 176,977
Net loss for the nine months
ended April 30, 2002 -- -- -- -- -- -- (742,061) (742,061)
------------ -------------- ------------ ---------- ------------ ------------ ------------- ------------
Balance, April 30, 2002
(Unaudited) 6,985 $ 7 83,496,173 $ 83,496 $ 6,191,459 $ -- $ (6,643,562) $ (368,600)
============ ============== ============ ========== ============ ============ ============= ============
See notes to interim financial statements.
4
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
April 30,
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (742,061) $(1,773,930)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 112,377 57,016
Stock issued for services 64,610 364,588
Stock issued for accrued interest 39,027 --
Forgiveness of accrued payroll by officer 60,000 --
Changes in assets and liabilities:
Accounts receivable (46,578) (55,554)
Inventory 36,240 36,097
Prepaid expenses 1,697 (91,679)
Accounts payable (25,912) 276,650
Shareholder loans payable -- 383,975
Accrued expenses 108,197 (226,676)
Loans from related parties (8,434) (196,463)
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Net cash used by operating activities (400,837) (1,225,976)
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CASH USED BY INVESTING ACTIVITIES:
Purchase of intangibles (33,213) --
Purchase of equipment -- (49,272)
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Net cash used by investing activities (33,213) (49,272)
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CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock 253,895 --
Sale of preferred stock -- 978,310
Debt converted to stock -- 340,850
Receipts from stock subscriptions 176,977 --
Bank overdraft 2,251 40,325
Payments on long-term debt (2,309) (18,362)
Payments to notes payable -- (77,002)
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Net cash provided by financing activities 430,814 1,264,121
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INCREASE (DECREASE) IN CASH (3,236) (11,127)
BEGINNING BALANCE 3,608 11,127
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ENDING BALANCE $ 372 --
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- --
Interest paid $ 1,968 195,725
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt and accrued interest converted to stock $ 276,027 $ 340,850
Common stock issued for services $ 64,610 $ 364,588
Forgiveness of debt and accrued payroll by officer $ 60,000 $ 499,998
See notes to interim financial statements.
5
, AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
April 30, 2002
NOTE 1 - BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB and Regulation S-B as promulgated by the Securities and Exchange
Commission. Accordingly, these financial statements do not include all of the
disclosures required by accounting principles generally accepted in the United
States of America for complete financial statements. These unaudited interim
financial statements should be read in conjunction with the audited financial
statements for the period ended July 31, 2001. In the opinion of management, the
unaudited interim financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of
the results for the interim period presented.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published, and the reported amounts of revenues and
expenses during the reporting period. Uncertainties with respect to such
estimates and assumptions are inherent in the preparation of the Company's
financial statements; accordingly, it is possible that the actual results could
differ from these estimates and assumptions that could have a material effect on
the reported amounts of the Company's financial position and results of
operations.
Operating results for the three-month and nine-month periods ended April 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending July 31, 2002.
NOTE 2 - RESTATEMENT AND CORRECTION OF ERRORS
The Company's financial statements for the year ended July 31, 2001 have been
restated to reflect the correction of errors as follows.
1. Settlements payable have been accrued to reflect an expected settlement
on a breach of contract claim for $10,000.
2. Forgiveness of advances and payroll by the Company's chief executive
officer is shown as a capital contribution which increased additional
paid-in capital by $796,408 and expenses by $120,000 for unpaid salary
not previously recorded in the last six months of the Company's fiscal
year.
6
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
April 30, 2002
NOTE 2 - RESTATEMENT AND CORRECTION OF ERRORS (Continued)
The effect of these corrections in the restated financial statements was an
increased net loss for the year ended July 31, 2001 of $806,408 and increased
liabilities of $10,000.
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 aforementioned 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 by the Company for an accounting resulting in a refusal by the
packer of any further production or shipment of inventory already produced until
the Company executed an indemnity in the packer's favor. Management held
steadfast in its belief that its product quality and purity are critical and not
subject to compromise. This dispute had a negative impact on the Company by
creating 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 already been undertaken. In an effort to resolve the dispute, the
Company entered into a new production agreement, which provided for payments to
be made directly to the Company in settlement of the claims.
Subject to third-party quality assurance testing, shipping and production
resumed in July under the new agreement. Management is confident that with
certain modifications having been made to the manufacturing process and
production line, and with strict adherence to the quality assurance, the
aforementioned issues have been resolved and the packer is capable of
maintaining production levels and consistent quality.
7
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
April 30, 2002
NOTE 3 - ADDITIONAL COMMENTS (Continued)
Notwithstanding the impact on the Company's sales and marketing efforts by 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 period from June to August 2001 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 retail
grocery chains, and to obtain additional approvals.
Management believes that 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 during the current fiscal year.
8
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 $5,901,501. In the subsequent nine months ended
April 30, 2002, the Company's accumulated deficit grew to $6,643,562 as the
Company's marketing and administrative expenses increased, creating a quarterly
operating loss of $203,502.
At April 30, 2002, the Company's total assets of $555,304 were lower than the
$629,064 reported at its July 31, 2001 year-end. The decrease was due primarily
to a decrease in inventory to approximately $119,000 from approximately
$155,000, decreases in accounts receivable, and increases in accumulated
depreciation and amortization. The Company's current liabilities decreased from
$1,072,480 at July 31, 2001 to $911,927 at April 30, 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 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. To date, arrangements have not been finalized.
The aforementioned delay in capitalization of financing resulted in lower
production and inventory levels, and a postponement of regional advertising
campaigns.
As uncertain conditions within the financial markets, and other factors
continued to seriously affect the company's already discounted stock price, the
company chose to initiate a registration statement intended to be used in a
registered offering directed towards institutional investment within the U. S.
and offshore this fall. The company also took steps to restructure its sales and
distribution strategy within the all-natural segments of national grocery
retailers, including new sales units and marketing programs designed to
exclusively accommodate the "store-within-a store" and "all natural" formats of
key retailers in the U.S., from shipping points in New York, Illinois, and
California. As a result of its affiliation with key national and regional
natural food distributors, the Company expects to greatly reduce distribution
overhead and administrative expenses associated with opening new markets and
launching new products.
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.
9
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. .
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 $6,643 for the quarter ended April 30, 2002 were a
decrease from the $40,411 of revenues in the corresponding third 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 April 30, 2002, the Company had negative
working capital of $640,322, although this amount represents a decrease in
liquidity and capital resources from its negative working capital position of
$806,290 at July 31, 2001. The decrease is principally attributable to a
decrease in current Assets.
In the three months ended April 30, 2002, the Company funded a portion of its
operations from the payment of stock subscriptions in the amount of $176.977. In
addition, Aqua Vie financed its operations by issuing shares for debt and
accrued interest valued at $276,027. This recent mix of diversified funding
sources contrasts with the corresponding three months of the prior year when the
primary source of funds was $740,000 from the Company's sale of stock.
10
]
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 $6,643 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 April 30, 2002, the Company's sales produced gross
profit of ($4,658), which compares with the gross profit of $12,103 for the
comparable three months of the prior fiscal year. Operating expenses were
$190,651 for the three months ended April 30, 2002 and were $280,435 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 April 30, 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 April 30, 2002, the Company's net loss of ($203,502) for
the three months ended April 30, 2002 resulted in a net loss per share of
($0.003) for the quarter. This contrasts with a net loss of ($204,618) for the
three months ended April 30, 2001, which also posted a per share loss of
($0.005).
11
SIGNATURE
AQUA VIE BEVERAGE CORPORATION
(Registrant)
Date June 25, 2002 By: /s/ Thomas J. Gillespie
---------------------------
Thomas J. Gillespie
Chief Executive Officer
& President
12