SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 QSB/A
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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, 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 (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
--------------------------------------------------------
(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 [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 November 30, 2002
- ------------------------------ -------------------------------
Common Stock, Par value $0.001 7,732,223
1
Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION
Balance Sheet
As of October 31, 2002
October 31, July 31,
2002 2002
(Unaudited)
---------------- --------------
ASSETS
Current Assets
Cash $ 1,642 $ 2,179
Accounts Receivable 15,707 6,471
Inventory 106,425 120,006
Prepaid & Other Assets 6,737 6,737
---------------- --------------
Total Current Assets 130,511 135,393
---------------- --------------
Property & Equipment
Equipment 201,608 201,608
Less Accumulated Depreciation (170,432) (150,222)
---------------- --------------
Total Property and Equipment 31,176 51,386
---------------- --------------
Other Assets
Intangibles 281,164 281,164
Less Accumulated Amortization (125,583) (105,433)
Total Other Assets 155,581 175,731
---------------- --------------
Total Assets $ 317,268 $ 362,510
================ ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 378,854 $ 374,322
Bank Overdraft 36,203 16,388
Settlements Payable 36,000 36,000
Notes Payable - Current 417,824 218,422
Accrued Expenses 60,277 87,367
Accrued Compensation, related party 240,000 180,000
Loan from related party 97,451 156,325
---------------- --------------
Total Current Liabilities 1,266,609 1,068,824
---------------- --------------
LONG-TERM DEBT
Notes payable - net of current portion 10,047 10,928
---------------- --------------
COMMITMENTS AND CONTINGENCIES -- --
---------------- --------------
STOCKHOLDER'S DEFICIT
Preferred stock, Series A, B, C, D, E and F, $0.001 par
value, 5,000,000 shares authorized, 12886 and 12941
shares issued and outstanding, respectively 13 13
Common stock, $0.001 par value, 5,000,000,000 shares
authorized, 7,112,065 and 5,337,461 shares
issued and outstanding, respectively 7,112 5,337
Additional paid-in capital 7,172,407 7,008,584
Subscriptions receivable -- --
Accumulated deficit (8,138,920) (7,731,176)
---------------- --------------
Total Stockholders' Deficit (959,388) (717,24@)
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 317,268 $ 362,510
================ ==============
See notes to interim financial statements.
2
AQUA VIE BEVERAGE CORPORATION
Statement of Operations
Three Months Ended
October 31,
------------------------------------------
2002 2001
-------------------- --------------------
NET REVENUES $ 26,420 $ 46,858
COST OF GOODS SOLD 26,080 81,700
-------------------- --------------------
GROSS PROFIT (LOSS) 340 (34,842)
-------------------- --------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 40,359 18,590
Officer's compensation 60,000 60,000
Promotion and advertising 125,168 68,156
Legal and accounting 39,545 46,597
Other general and administrative expenses 75,208 167,423
-------------------- --------------------
Total General and Administrative Expenses 340,280 360,766
-------------------- --------------------
LOSS FROM OPERATIONS (339,940) (395,608)
OTHER EXPENSES
Interest expense (67,804) (10,656)
-------------------- --------------------
LOSS BEFORE TAXES (407,744) (406,264)
INCOME TAXES -- --
-------------------- --------------------
NET LOSS $ (407,744) $ (406,264)
==================== ====================
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.07) $ (0.13)
==================== ====================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 5,916,831 3,184,989
==================== ====================
See notes to interim financial statements.
3
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred Series A - H Common Stock Additional
---------------------- -----------------------
Number Number Paid-in Subscriptions Accumulated
of Shares Amount of Shares Amount Capital Receivable Deficit Total
--------- ----------- ------------ ---------- ------------- ------------- ------------ ---------
Balance, July 31, 2001 15,074 $ 15 2,912,749 $ 2,912 $ 5,617,502 $ (176,977) $ (5,901,501) $ (458,049)
Issuance of common stock
for cash at $0.81 per share - - 312,500 312 253,583 - - 253,895
Issuance of common stock for
services at an average of
$0.68 per share - - 769,667 770 521,613 - - 522,383
Issuance of common stock
for debt at $1.04 per share - - 265,000 265 275,762 - - 276,027
Issuance of common stock for
settlement at $0.10 per share - - 12,000 12 1,188 - - 1,200
Conversion of preferred Series A
to common stock (376) - 80,080 80 (80) - - -
Conversion of preferred Series B
to common stock (45) - 9,562 10 (10) - - -
Conversion of preferred Series D
to common stock (11,112) (11) 925,993 926 (915) - - -
Conversion of preferred Series E
to common stock (600) (1) 50,000 50 (49) - - -
Forgiveness of payroll by officer - - - - 60,000 - - 60,000
Issuance of preferred Series G for
waiver from officer 10,000 10 - - 279,990 - - 280,000
Payment of stock subscriptions
receivable - - - - - 176,977 - 176,977
Net loss for the year ended
July 31, 2002 - - - - - - (1,829,675) (1,829,675)
--------- ----------- ------------ ---------- ------------- ----------- ------------ ------------
Balance, July 31, 2002 12,941 13 5,337,551 5,337 7,008,584 - (7,731,176) (717,242)
Conversion of preferred Series D
to common stock (180) - 15,000 15 (15) - - -
Issuance of common stock at $0.05
per share for debt conversion - - 1,699,500 1,700 83,275 - - 84,975
Issuance of common stock at $0.30
per share for settlement - - 4,000 4 1,196 - - 1,200
Issuance of common stock for
for fractional shares - - 14 - - - - -
Issuance of common stock for services
at $0.30 per share - - 6,000 6 1,794 1,800
- -
Issuance of Series H preferred stock
at $480.00 per share
for loan settleme 125 - - - 60,000 - - 60,000
Issuance of common stock at $0.35 per
share for debt conversion - - 50,000 50 17,573 - - 17,623
Net loss for the three months ended
October 31, 2002 (unaudited) - - - - - - (407,744) (407,744)
--------- ----------- ------------ ---------- ------------- ----------- ------------ ------------
Balance, October 31, 2002
(unaudited) 12,886 $ 13 7,112,065 $ 7,112 $ 7,172,407 $ - $ (8,138,920) $ (959,388)
========= =========== ============ ========== ============= =========== ============ ============
See notes to interim financial statements.
4
AQUA VIE BEVERAGE CORPORATION
Statement of Cash Flows
Three Months Ended
October 31,
------------------------------------------
2002 2001
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (407,744) $ (406,264)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 40,359 32,277
Stock issued for services 1,800 64,610
Stock issued for settlement 1,200 --
Stock issued for loan incentive 60,000 --
Stock issued for debt conversion 70,598 --
Stock issued for interest on debt 32,000 --
Services charged to additional paid-in capital -- 60,000
Changes in assets and liabilities:
Accounts receivable (9,236) 26,944
Inventory 13,581 65,738
Prepaid expenses -- 1,648
Accounts payable 4,532 (65,178)
Accrued expenses 5,610 20,300
Accrued compensation 60,000 --
-------------------- --------------------
Net cash used by operating activities (127,300) (199,925)
-------------------- --------------------
CASH USED BY INVESTING ACTIVITIES:
Increase in intangible assets for slotting -- (8,296)
-------------------- --------------------
Net cash used by investing activities -- (8,296)
-------------------- --------------------
CASH PROVIDED BY FINANCING ACTIVITIES
Stock conversion subscriptions -- 253,895
Bank overdraft 19,815 (2,555)
Payments on debt (864) --
Advances from affiliate -- 223,961
Payments to affiliate -- (265,923)
Proceeds from notes payable 169,378 --
Advances from stockholders (61,566) --
-------------------- --------------------
Net cash provided by financing activities 126,763 209,378
-------------------- --------------------
INCREASE (DECREASE) IN CASH (537) 1,157
BEGINNING BALANCE 2,179 3,608
-------------------- --------------------
ENDING BALANCE $ 1,642 $ 4,765
==================== ====================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for services $ 1,800 $ 64,610
Forgiveness of payroll by officer and majority stockholder $ -- $ 60,000
Issuance of common stock for debt and interest $ 102,598 $ --
Issuance of common stock for settlement $ 1,200 $ --
Issuance of preferred stock for loan incentive $ 60,000 $ --
See notes to interim financial statements.
5
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 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 year ended July 31, 2002. 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 months ended October 31, 2002 are not
necessarily indicative of the results that may be expected for the year ending
July 31, 2003.
NOTE 2 - COMMON STOCK
Reverse Stock Split
On September 3, 2002, the Company's board of directors authorized a 1:20 reverse
stock split of its $0.001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Common Stock Issuances
A disputed liability was settled in September 2002 by the Company's issuance of
4,000 shares of common stock to a vendor. The stock was valued at $1,200 which
represented the fair market value of the stock on the dates of issuance.
During the three months ended October 31, 2002, the Company converted debt and
accrued interest to 1,749,500 shares of common stock valued at $102,598. The
stock was valued at its fair market value on the dates of issuance.
6
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 2002
NOTE 2 - COMMON STOCK
Common Stock Issuances
During the quarter ended October 31, 2002, the Company issued 6,000 shares of
common stock for services valued at $1,800, or $0.30 per share, and 15,000
shares of common stock for the conversion of 180 shares of the Company's
preferred Series D stock.
NOTE 3 - PREFERRED STOCK
During the three months ended October 31, 2002, the Company converted 180 shares
of its Series D preferred stock into 15,000 shares of common stock.
In addition, the Company issued 125 shares of preferred Series H stock. The
Series H preferred stock was issued for loan incentive value at $60,000. Other
information regarding preferred Series H stock follows:
The Company is authorized to issue a total of 5,000,000 shares of preferred
stock, par value at $0.001. At October 31, 2002, the Company had seven classes
of preferred stock outstanding with an aggregate of 465,000 shares authorized.
The Company has been authorized to issue 200,000 shares of $0.001 par value
Series A preferred stock, 200,000 shares of $0.001 par value Series B preferred
stock, 10,000 shares of $0.001 par value Series C preferred stock, 20,000 shares
of $0.001 par value Series D preferred stock, 5,000 shares of $0.001 par value
Series E preferred stock, 5,000 shares of $0.001 par value Series F preferred
stock, 25,000 shares of $0.001 par value Series G preferred stock and 1,000
shares of $0.001 par value Series H preferred stock. The board of directors of
the Company has the authority to issue shares of preferred stock from time to
time in one or more classes or series, which may have such voting power, full or
limited as fixed by the board of directors. The board of directors may also
determine the terms of any such series or class, including dividend rights,
dividend rates, conversion, exchange, voting rights and terms of redemption, the
redemption price and the liquidation preference of such class or series.
The number of shares outstanding of preferred stock, Series A, B, C, D, E, F and
G and amounts were as follows:
July 31, 2002
-----------------------------------------
Number of Shares Amount
------------------------ ------------
Series A 813 $ 1
Series B - -
Series C - -
Series D 888 1
Series E - -
Series F 1,240 1
Series G 10,000 10
------------------------ ------------
Total 12,941 $ 13
======================== ============
7
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 2002
NOTE 3 - PREFERRED STOCK (Continued)
October 31, 2002
----------------------------------------
Number of Shares Amount
-------------------------- ------------
Series A 813 $ 1
Series B - -
Series C - -
Series D 708 1
Series E - -
Series F 1,240 1
Series G 10,000 10
Series H 125 -
-------------------------- ------------
Total 12,886 $ 13
========================== ============
General Terms
All Series A, B, C, D, E, F, G and H preferred stock shares contain standard
terms relative to adjustment for stock splits and combinations, reorganizations,
mergers, and consolidations or sales of assets, registration of stock issued
upon conversion, and registration rights. For dividend, liquidation, mergers and
consolidations, the respective rights of each series are different. Series A
preferred stock is limited to $300 per share in non-cumulative preferential
dividends before common stock. Each Series A preferred share has liquidation
rights and merger or consolidation rights before common stock. Series B
preferred stock is limited to $6 per share in non-cumulative preferential
dividends before common stock. Each Series B preferred share has liquidation
rights and merger or consolidation rights before common stock. Series C
preferred stock is limited to $0.25 per share in non-cumulative preferential
dividends before common stock. Each Series C preferred share has liquidation
rights and merger or consolidation rights before common stock. Series D
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series D preferred share has liquidation
rights and merger or consolidation rights before common stock. Series E
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series E preferred share has liquidation
rights and merger or consolidation rights before common stock. Series F
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series F preferred share has liquidation
rights and merger or consolidation rights before common stock. Series G
preferred stock is limited to $80 per share in non-cumulative preferential
dividends before common stock. Each Series G preferred share has liquidation
rights and merger or consolidation rights before common stock. Series H
preferred stock is limited to $1.00 per share in non-cumulative preferential
dividends before common stock Each Series H preferred share has liquidation
rights and merger or consolidation rights before common stock.
As of the date of these financial statements, no dividends have been declared
due to the Company's accumulated deficit.
8
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 2002
NOTE 3 - PREFERRED STOCK (Continued)
Voting Rights
All Series A, B, C, E, F, G, and H preferred shares have the right to vote based
on their conversion rights to common shares. Series D preferred shares have the
right to vote based on five and a half times their conversion rights to common
shares. Series G preferred shares have the right to vote based on four times
their conversion rights to common shares.
Conversion to Common Shares
The Series A and B preferred provide that each share is entitled to an
additional conversion share to common stock based on a formula that reflects
increased market value of the common stock when the common shares have a market
price in excess of $2 but not greater than $12 per share.
Preferred Series A, B, and C stock have a basic conversion rate of 1,000 shares
of common stock for every share of preferred stock. The conversion ratio to
common for Series A and B preferred stock is adjusted upwards depending on any
future issue of common shares at below $1.65 per share. The conversion rates for
Series A and B preferred stock were 1:4,259 and 1:3,721 preferred to common as
of July 31, 2002 and 2001, respectively. Preferred Series D and E have a basic
conversion rate of 1,667 shares of common stock for every share of preferred
stock. Preferred Series F have a basic conversion rate of 2,000 shares of common
stock for every share of preferred stock. Preferred Series G have a basic
conversion rate of 8,000 shares of common stock for every share of preferred
stock. Preferred Series H have a basic conversion rate of 5,000 shares of common
stock for every share of preferred stock.
NOTE 4 - NOTES PAYABLE
Current notes payable at October 31 and July 31, 2002 consisted of the
following:
October 31, July 31,
Creditor and Conditions 2002 2002
- ----------------------- ---------------- ----------------
Note payable to GMAC, interest
at 13.99%, secured by 2000 Plymouth
Voyager, payable in monthly installments
of $452.07 through April 28, 2006. $ 13,486 $ 14,350
Bruce Butcher, unsecured, interest at
8%, convertible to one share of common
stock per $0.80 of debt, due on demand. 73,377 75,000
------------- --------------
Subtotal, carried forward $ 88,683 $ 89,350
9
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 2002
NOTE 4 - NOTES PAYABLE (Continued)
October 31, July 31,
Creditor and Conditions 2002 2002
- ----------------------- ---------------- ----------------
Subtotal, brought forward $ 88,683 $ 89,350
Joe Wozniak, unsecured, interest at
8%, convertible to one share of common
stock per $0.80 of debt, due on demand. 11,025 80,000
Keely Smith, secured by product
inventory of subsidiary, interest at
24%, due on September 25, 1998. Delinquent. 60,000 60,000
Joe Wozniak, secured by product inventory
and accounts receivable, interest at 8%,
due on June 30, 2003. 169,983 --
Edwin Hamlin, Sr., secured by product
inventory, interest at 12%, due on
February 24, 2003 100,000 --
------------ -------------
Total notes payable 427,871 229,350
Less current portion 417,824 218,422
------------ -------------
Net long-term debt $ 10,047 $ 10,928
============ ==============
NOTE 5 - RELCLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented. A portion of notes
payable, $5,220, was reclassified as an affiliate loan.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During its first four years of existence (from inception to July 31, 2002), the
Company accumulated a deficit of $7,731,177. In the subsequent three months
ended October 31, 2002, the Company's accumulated deficit grew to $8,138,920 as
the Company's marketing and executive expenses increased, creating a quarterly
operating loss of $407,744.
At October 31, 2002, the Company's total assets of $317,268 were lower than the
$362,510 reported at its July 31, 2002 year-end. The decrease was due primarily
to a small reduction in inventory and the effects of depreciation and
amortization. The Company's current liabilities increased from $1,068,824 at
July 31, 2002 to $1,266,609 at October 31, 2002.
FORWARD-LOOKING STATEMENTS
Matters discussed herein, contain forward-looking statements that involve risk
and uncertainties. This is particularly true as it relates to comments about the
development and funding of Aqua Vie's future production capability, expectations
about profitability, and new product introduction. Results may differ
significantly from results indicated by forward-looking statements.
Factors that might cause some differences, include, but are not limited to: (1)
changes in general economic conditions, including but not limited to increases
in interest rates; (2) government regulations affecting customers and the
bottling process for products; (3) the potential for product recall and related
non-compliance issues by third parties; (4) similar products competing for shelf
space and market share in the bottled water industry; (5) the ability of Aqua
Vie to successfully bring new products from their development stage into full
and profitable production and sales; (6) Aqua Vie's ability to raise sufficient
debt and/or equity capital to implement its business plans; (7) the occurrences
of incidents that could subject Aqua Vie to liability or fines; (8) the ability
of Aqua Vie to attract the needed networks for product distribution, and secure
the shelf space in stores necessary to achieve sales forecasts.
INTRODUCTION
The financial situation of the Company at quarter-end was substantially the same
as reported in our recently filed 10-KSB. In fiscal year 2002, ended July 31,
2002, the Company initiated a targeted supermarket sales program with the
Albertsons divisions of Northern and Southern California, Arizona, and Nevada.
These arrangements required substantial slotting fees (one time fees to stores),
to be paid in order to secure shelf space and provided for the Company's
products being featured in approximately 1,200 Albertsons stores in California
and adjacent states. The Company also negotiated supermarket sales in the
Raleys, Knob Hill, Savemart and other chains in the same general regions. At
11
that time the Company focused on mass markets and chain grocery sales in the
limited geography of greater California, intending to utilize such sales to
penetrate additional regions, such as Texas, where Albertsons also had a strong
presence. As the Company's available capital was limited and the public capital
markets continued their steep decline, the Company attempted to secure
additional financing for working capital and increased inventory production, and
focused on the development of two additional products lines, and a new
zero-calorie, carbohydrate-free line extension to the existing Hydrator(TM)
product line for test-marketing in January 2003, with anticipated introduction
into the all-natural market in early 2003, following the test markets.
In March, 2002, the Company secured a financing arrangement with its co-packer,
Lyons Magnus of Fresno CA., whereby the cost of bottling production could be
secured by the finished inventory. This financing was to be additionally secured
by a personal guarantee of one of the Company's larger shareholders (not
affiliated with management), who also had a personal relationship with the
management of Lyons. The Company's sales and marketing plan depended on this
financing arrangement. This financing arrangement funded only a limited amount
of production and product development, as Lyons and the guaranteeing party were
unable, after several months, to come to a long-term agreement over the form of
the guarantee.
In the second quarter of 2002, the Company began the execution of a marketing
initiative that provided for its products to be available exclusively in
"all-natural" markets, and initiated a transition of its sales from the general
beverage/ bottled water retail grocery market into the "all-natural" divisions
of grocery, general retail, and the "health food" marketplace. This marketing
initiative included the planned introduction of a zero-calorie,
carbohydrate-free Hydrator product line in early 2003 with follow-up
participation in "all natural" retail advertising, marketing events, and trade
shows throughout the year.
During the second half of 2002, and continuing into the first quarter of fiscal
2003, the Company accelerated the development of a zero calorie,
carbohydrate-free Hydrator product line for introduction into the all-natural
market, and continued to expand opening distribution of its present Hydrators
line to the all-natural market domestically, including approximately 500 grocery
chain stores with "all-natural stores within stores" in 17 states and the two
largest all-natural distributors in the U.S.. Additionally, the Company's
products began to enter the "all-natural" health food retail markets (health
food stores).
The Company continued the development of two new lines of water beverages: a
line of flavored water beverages for children called PurePlay(TM), and a line of
non-alcoholic wines made from spring water called Eau Vin(TM). Both are expected
to be available at retail in late calendar 2003. Further, the Company
accelerated the development of a new calorie-free carbohydrate-free product line
extension to its existing Hydrator product line, anticipating retail
introduction in early 2003.
12
The Company projects that higher margins are available with its new products and
line extensions, and within all-natural markets compared to the generally lower
priced retail grocery venues and their associated costs and fees. However, the
Company also anticipates a substantially increased demand for its new Hydrators
line extension, which is believed may be the only all-natural, calorie-free
carbohydrate-free flavored spring water beverage of its type. It is also
anticipated that during the fiscal year the capital markets may improve, which
could further enhance the Company's ability to secure funding for its
all-natural preservative-free, spring water beverage product line.
With proven sales in the natural foods sections of large stores, new products,
continuous product availability and additional distribution, management believes
that the caution exercised in promoting general retail sales during late 2001
through fiscal 2002 into the current fiscal year 2003, was necessary as the
Company transitioned into a less competitive and more receptive natural food
outlet marketplace, and completed a key development phase of the production of a
line of calorie-free, carbohydrate-free spring water beverages.
The Company recorded gross revenues of $151,924 in fiscal 2000, $912,000 in
fiscal 2001, and $162,809 in fiscal 2002. Gross profit on sales was respectively
$(80,434), $107,936, and $(19,204). Management believes that the experience
gained in fiscal 2001 and 2002, which led to the market strategy of focusing on
the "all natural" niche market will enable the Company to attain higher gross
profit margins in fiscal 2003. The Company's success in improving profit margins
will be realized through improved cost control and improved unit margins through
all natural sales
Management believes that the mechanisms are in place for improved margins as the
new products and sales strategy develops.
While maintaining general sales and developing the introduction of the Hydrator
products into the all-natural market, the Company received a series of small
production and working capital financings from a shareholder not affiliated with
management.
The Company continues its effort to obtain additional capital in the form of
either secured debt, factoring, and/or equity funding. The Company seeks to
secure $2.2 million for inventory growth, working capital and marketing.
Management believes that initially the relative costs for such capital may be
high; however with consistent growth and the development of a proven track
record of sales, it is anticipated the costs of such financing will become more
economical. While parties have shown interest in various financing arrangements,
the Company presently does not have a firm commitment for the $2.2 million that
management believes will be required during early 2003.
PLAN OF OPERATION: During the first fiscal quarter of 2003 Aqua Vie continued
establishing a market presence for its line of Hydrators, the lightly flavored
spring water beverages by concentrating retail sales exclusively on the
all-natural retailers and major grocery retailers who maintain separate
all-natural departments within their stores.
13
The solution to increasing revenue and profitability in this new market place
depends upon the Company obtaining adequate financing to increase initial
production of its existing and new product lines, to meet the increased product
demand for its products, and building brand awareness through consumer marketing
programs within the all natural market. It is believed that such increased
demand for the Company's new and existing products is presently available within
the Company's newly acquired account base.
Aqua Vie also expects that margins will improve through economies of scale, and
the introduction of new products will support higher gross margins. The first
new product line expected to be introduced in calendar 2003, is a line extension
of zero calorie, carbohydrate-free Hydrators. Subsequently a line of
calorie-free Hydrators designed specifically for children called PurePlay(TM),
and a multi-flavor line of non-alcoholic wine made from spring water called Eau
Vin(TM), will be introduced.
Aqua Vie's product line contains no directly patented or patentable features or
components. Copyrighting, trademark registration, and the use of trade secret
techniques and formulations are utilized 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.
Aqua Vie continues to offer information about its products and a beverage
subscription service on its Internet site (www.aquavie.com). Aqua Vie's revenue
from Internet sales is a small portion of its gross revenue. Management intends
to expand and develop the marketing of Aqua Vie beverages through the Internet.
The means and ability to obtain meaningful sales volume is in place.
The past quality assurance issue, which was an ongoing situation during fiscal
year 2001 and into fiscal year 2002, led to a new agreement with the co-packer.
In fiscal year 2002, the Company engaged a quality assurance specialist and a
comprehensive production line inspection system and audit program and obtained
the services of parties that had been directly involved in the Hydrator product
design and development, including the quality assurance standards, protocols and
procedures.
LIQUIDITY AND CAPITAL RESOURCES: Aqua Vie's current capitalization is not
sufficient to maintaining a company presence and to fund the production of the
anticipated growth in orders and apparent market acceptance.
Company capital resources have traditionally been used for promotion, sales
support, slotting fees, inventory support and general administration as more
particularly described in prior filings. The Company has devoted substantial
resources in the past several years and during the current year to inventory
support and the development of new and improved products in the expectation that
sales would in part offset other working capital requirements and would thus
result in less dependence on additional capital resources.
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The Company is currently engaged in seeking new sources of inventory and general
working capital financing in the approximate amount of $2.2 million to support
the sales and new products, and product improvements that it believes it can be
introduced at retail in 2003, in the outlets in which has had product presence.
The general financial market for developing companies has been difficult in the
past two years, but management is cautiously optimistic about additional
financing possibilities.
In the quarter ended October 31, 2002, the Company's principal sources of
incoming cash were loans from two shareholders. Revenues of approximately
$26,000 and loans serviced the operating loss, with the deficit in funding being
represented by the increase in liabilities
In fiscal 2002 the Company realized net cash of $418,891 in financing activities
compared with $1,368,473 in fiscal 2001. This reflected the extremely difficult
capital markets through fiscal 2002, which as previously discussed, was a major
contributing factor to the timeliness of management's decision to quickly
transition from a retail chain sales strategy to an "all-natural" and "new
product strategy, through utilizing a non-growth market presence requiring
minimum capital expenditure during 2002. Please see the statement of Cash Flows
for additional information.
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
total income of $26,420 was less than three-month total income of $46,858 in the
same quarter of the prior fiscal year, reflecting primarily the short-term
fiscal effect of making the complete transition from a chain retail sales
strategy to an exclusively "all-natural" long-term sales strategy. Sales to date
have not been sufficient to cover the costs of operations; profitability is
believed achievable assuming inventory levels are adequate to meet the demand
within the Company's new customer base.
For the three months ended October 31, 2002, the Company's total income before
expenses of $26,420 was less than the total income before expenses of $46,858
for the comparable three months of the prior fiscal year. Operating expenses
were $340,280 for the three months ended October 31, 2002 and were $360,766 for
the comparable period of the prior year. The quarter to quarter change
principally reflects the short-term effects associated with Management's
execution of a transition from the general grocery retail market into a niche
market and the higher cost of capital in tight markets. It also reflects a
proportional decrease in administrative expenses.
15
While Aqua Vie continued to operate at a loss during the most recent quarter,
given increased inventories to support its new 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 existing, and new flavored water products.
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 has had, and anticipates in the future that it will have, conflicts as
regards certain Accounts Payable for services invoiced but not adequately
performed.
ITEM 2. CHANGE IN SECURITIES
(a),(b) The issuance of certain additional Preferred Shares was proposed in the
Company's recent 10-KSB/A, please see item 5 for discussion of Series H
Preferred Shares issued for a financial accommodation by E. Hamlin. These shares
would not directly affect the rights of any class of registered securities.
Please see ITEM 5 for more information. (c) 4,000 common shares were issued in a
settlement with a long-term creditor in reliance on regulation D. 1,699,500
shares were issued in exchange for a debenture in default issued in March 2000;
pricing was at $.05 share (market was at $.07, see Certain Transactions in the
recent 10-KSB/A), in reliance with Regulation D to an accredited investor.
50,000 shares were issued at market in settlement of a debt in default issued in
March 2000, at approximately $17,000 to an accredited investor; 15,000 common
shares were issued in exchange for Series D Preferred; said series was issued in
reliance on Regulation D; 125 shares of Series H was issued in consideration for
a production loan accommodation to E. Hamlin, an accredited investor at minimal
cash consideration. (d) NA
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NA
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5 OTHER INFORMATION
16
In the previously filed10-KSB/A, within the Item "Certain Transactions"
additional information respecting loan transactions with E. Hamlin, deceased,
was not available, although information was included with respect thereto in
footnote 3, Item 11(a), and in the discussion respecting issuances of
unregistered securities, Item 5(b). E. Hamlin was a long-time shareholder of the
Company and its predecessors, and had maintained a long-term relationship with
the management of the Company's contract packer, Lyons Magnus of Fresno,
California. E. Hamlin was not affiliated with any member of management. E.
Hamlin previously received Series H shares in exchange for a loan accommodation
of $100,000 for six months, see footnote 3 to Item 11(a) of the recent 10-KSB/A.
In 2002 he received 2,650,000 shares (all shares are pre-combination of 20-1) of
common stock in exchange for a debt of $118,000 plus interest. In 2001 he
converted previously acquired Series C Preferred Shares into 200,000 shares of
common stock (pre-combination); said preferred stock was received in exchange
for an investment of $100,000 in fiscal 2000.
E. Hamlin received Series H shares which would entitle him at no additional cost
to convert to 625,000 restricted shares (post combination). Said shares have
piggyback registration rights and may be eligible for S-8 registration. Said
registrations have not been requested. Said shares had a preference of $85/share
and also had an anti-dilution clause for sales under $.10/(post split). Based on
a request made after Dr. Hamlin's death, the Company considers the shares
converted, but has not as yet issued the common shares, estimated at 625,000
common shares.
After the end of the period, and immediately prior to or coincident with the
filing of this Report, the Company effected the filing of a new Series I
Preferred Stock, which was mentioned as proposed in the recently filed 10-KSB/A.
The new Series I was offered in exchange for all Series A and F Shares at a rate
of 1.5 Series I shares for Each Series A Share, and 1.5 Series I Shares for each
10 Series F Shares. The Series I Shares eliminate the anti-dilution provisions
of Series A Shares ( Series A shares have had the conversion rate increased from
1000/1 to 10,000/1 from inception in 1998 pre-combination conversion rate), and
further reduce the preference to $80/Share from $300/Share for Series A, and
$100/Share in Series F. The conversion rate is set at 10,000 to one to common;
however a conversion cap of 4.95% is established until December 2003 or in the
event of a sale or similar corporate event (extendable by agreement), total
holdings including beneficial holdings at any one time; and the voting rights of
the new Series is only to the extent they may be converted at any time. A
provision for a conversion adjustment is provided in the event that the market
for the Company's common stock drops below $.30/share for a period immediately
prior to a conversion request, with the adjustment eliminated if a later request
is received after the $.30 thresh hold is reached. The upward share adjustment
is made proportionally to the decrease below $.30/share.
Series G Preferred (issued in May, 2002) has varying conversion rates depending
upon market performance and other factors, and voting rights vary accordingly.
In addition, in the event that the Company issues either common stock or
instruments convertible into common stock in a transaction valued at over
$200,000 where the effective price of common stock for the consideration given
is less than $.40/share, the conversion rate of Series G preferred is adjusted
17
upward accordingly ($.40/share post-combination was the approximate market price
of common underlying the Series G when issued). The recent Series I share
issuance will trigger this adjustment; however, a valuation has not been placed
on said transaction for this purposes as yet by the Board of Directors. No
Series G shares have been converted, and there have been no shareholder actions
since the consent actions in June, 2002 (Please see the two Information
Statements sent to shareholders and filed with the SEC in June 2002 for more
information).
ITEM 6: Exhibits
4.1 Series I Preferred Designation of Rights (attached)
Incorporated by reference: 10-ksb/a filed 12/03/02
99. Title 18 Certification
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 has undertaken 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
HYDRATOR(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 risks 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, availability of loan funds or other sources
of capital, 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.
18
SIGNATURES
----------
AQUA VIE BEVERAGE CORPORATION
(Registrant)
By: /s/ Thomas Gillespie
---------------------------------------
Thomas Gillespie
Chief Executive Officer & President
Date: December 20, 2002
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CERTIFICATION
I, Thomas Gillespie certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Aqua Vie Beverage
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Signature
/s/ Thomas Gillespie Title Date
- --------------------- ------------------------ ------------------
Thomas Gillespie CEO, President, Director December 20, 2002
20