SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 QSB/A
-------------
(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, 2003
[ ] 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 February 28, 2003
- ------------------------------ -------------------------------
Common Stock, Par value $0.001 11,276,823
1
Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION
CONDENSED FINANCIAL STATEMENTS AND NOTES
FOR THE QUARTER ENDED JANUARY 31, 2003
2
AQUA VIE BEVERAGE CORPORATION
BALANCE SHEETS
January 31,
2003 July 31,
(Unaudited) 2002
---------------- -----------------
ASSETS
Cash $ 11,990 $ 2,179
Accounts receivable 13,858 6,471
Inventory 100,321 120,006
Prepaid and other assets 6,737 6,737
---------------- -----------------
Total Current Assets 132,906 135,393
---------------- -----------------
PROPERTY AND EQUIPMENT
Equipment 201,608 201,608
Less accumulated depreciation (180,374) (150,222)
---------------- -----------------
Total Property and Equipment 21,234 51,386
---------------- -----------------
OTHER ASSETS
Intangibles 281,164 281,164
Less accumulated amortization (145,732) (105,433)
---------------- -----------------
Total Other Assets 135,432 175,731
---------------- -----------------
TOTAL ASSETS $ 289,572 $ 362,510
================ =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 325,161 $ 320,030
Accounts payable - related party 74,474 54,292
Bank overdraft 1,198 16,388
Settlements payable 36,000 36,000
Notes payable - current 460,579 218,422
Accrued expenses 66,076 87,367
Accrued compensation, related party 300,000 180,000
Loan from related party 94,786 156,325
---------------- -----------------
Total Current Liabilities 1,354,274 1,068,824
---------------- -----------------
LONG-TERM DEBT
Notes payable - net of current portion 10,179 10,928
---------------- -----------------
COMMITMENTS AND CONTINGENCIES -- --
---------------- -----------------
STOCKHOLDERS' DEFICIT
Preferred stock, Series A, B, C, D, E, F, G, H, I and J $0.001
par value, 5,000,000 shares authorized, 11,958 and 12,941
shares issued and outstanding, respectively 12 13
Common stock, $0.001 par value, 5,000,000,000 shares
authorized, 9,722,023 and 5,337,551 shares
issued and outstanding, respectively 9,722 5,337
Additional paid-in capital 7,815,340 7,008,584
Subscriptions receivable (20,329) -
Accumulated deficit (8,879,626) (7,731,176)
---------------- -----------------
Total Stockholders' Deficit (1,074,881) (717,242)
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 289,572 $ 362,510
================ =================
3
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
January 31, January 31,
---------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
NET REVENUES $ 15,976 $ 76,064 $ 42,396 $ 122,922
COST OF GOODS SOLD 14,585 90,942 40,665 172,642
---------------- ---------------- ---------------- ----------------
GROSS PROFIT (LOSS) 1,391 (14,878) 1,731 (49,720)
---------------- ---------------- ---------------- ----------------
GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 454,500 9,132 579,668 77,288
Legal and accounting 65,112 12,900 104,657 59,497
Depreciation and amortization 30,091 33,863 70,450 74,222
Officer's compensation 60,000 - 120,000 60,000
Other general and administrative expenses 121,798 44,726 197,006 197,295
---------------- ---------------- ---------------- ----------------
Total Expenses 731,501 100,621 1,071,781 468,302
---------------- ---------------- ---------------- ----------------
LOSS FROM OPERATIONS (730,110) (115,499) (1,070,050) (518,022)
OTHER EXPENSES
Interest expense (10,596) (9,884) (78,400) (20,537)
---------------- ---------------- ---------------- ----------------
LOSS BEFORE TAXES (740,706) (125,383) (1,148,450) (538,559)
INCOME TAXES - - - -
---------------- ---------------- ---------------- ----------------
NET LOSS $ (740,706) $ (125,383) $ (1,148,450) $ (538,559)
================ ================ ================ ================
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0$09) (0.$4) (0.16) $ (0.01)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 8,303,903 3,265,659 7,110,367 3,225,023
================ ================ ================ ================
4
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred Series A - J Common Stock
---------------------- --------------------- Additional
Number Number Paid-in Subscriptions Accumulated
of Shares Amount of Shares Amount Capital Receivable Deficit Total
--------- ----------- ---------- ---------- ------------- ------------ ------------ -----------
Balance, August 1, 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 (324 - 27,000 27 (27) - - -
Issuance of common stock at $0.05
to $0.35 per share
for debt conversion - - 2,267,124 2,268 216,040 - - 218,308
Issuance of common stock at $0.30
per ahare for settlements - - 15,800 16 4,824 - - 4,840
Issuance of common stock for
fractional shares - - 14 - - - - -
Issuance of common stock for services
at $0.30 to $0.36 per share - - 79,000 79 27,913 27,992
- -
Issuance of Series H preferred stock
at $480.00 per share
for loan incentive 125 - - - 60,000 - - 60,000
Conversion of Series A preferred
stock to Series I preferred
stock at 1:1:5 407 - - - - - - -
Conversion of Series F preferred
stock to Series I preferred
stock at 1(1,116) (1 - - 1 - - -
Conversion of Series I preferred
stock to common stock (200 - 1,995,534 1,995 (1,995) - - -
Issuance of Series J preferred
stock for accounts payable -
related party and receivables 125 - - - 500,000 (20,329) - 479,671
Net loss for the six months ended
January 31, 2003 (unaudited) - - - - - - (1,148,450) 1,148,450)
-------- ----------- ----------- ---------- ------------- ------------ ------------ -----------
Balance, January 31, 2003
(unaudited) 11,958 $ 12 9,722,023 $ 9,722 $ 7,815,340 $ (20,329) $ (8,879,626) $1,074,881)
======== =========== =========== ========== ============= ============ ============ ===========
5
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
January 31,
--------------------------------
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,148,450) $ (538,559)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 70,450 74,222
Stock issued for services 27,992 64,610
Stock issued for settlement 4,840 --
Stock issued for loan incentive 60,000 --
Stock issued for interest on debt 32,002 --
Services charged to additional paid-in capital -- 60,000
Changes in assets and liabilities:
Accounts receivable (7,387) (45,570)
Inventory 19,685 114,322
Prepaid expenses -- 1,647
Accounts payable 36,437 (84,474)
Accounts payable - related party 495,853 --
Accrued expenses (21,291) 78,945
Accrued compensation 120,000 --
--------------- ---------------
Net cash used by operating activities (309,869) (223,189)
--------------- ---------------
CASH USED BY INVESTING ACTIVITIES:
Purchase of intangibles -- (33,213)
--------------- ---------------
Net cash used by investing activities -- (33,213)
--------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Sale of common stock -- 253,895
Proceeds from notes payable 396,866 --
Net advances from (payments to) affiliate loan (61,538) 39,718
Bank overdraft (15,190) (35,725)
Net payments on long-term debt (458) (4,724)
--------------- ---------------
Net cash provided by financing activities 319,680 253,164
--------------- ---------------
INCREASE (DECREASE) IN CASH 9,811 (3,238)
BEGINNING BALANCE 2,179 3,608
--------------- ---------------
ENDING BALANCE $ 11,990 $ 370
=============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ 4,000 $ 1,513
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services $ 27,992 $ 64,610
Forgiveness of debt and accrued payroll $ -- $ 60,000
Issuance of common stock for debt and interest $ 218,308 $ --
Issuance of common stock for settlements $ 4,840 $ --
Issuance of preferred stock for loan incentive $ 60,000 $ --
Issuance of preferred stock for accounts payable - related party $ 479,671 $ --
6
AQUA VIE BEVERAGE CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
January 31, 2003
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 six months ended January 31, 2003 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
Disputed liabilities were settled during the six months ended January 31, 2003
by the Company's issuance of 15,800 shares of common stock to the related
vendors. The stock was valued at $4,840 which represented the fair market value
of the stock on the dates of issuance. No gain or loss was recognized from this
transaction.
7
NOTE 2 - COMMON STOCK (Continued)
Common Stock Issuances (Continued)
During the six months ended January 31, 2003, the Company converted debt and
accrued interest to 2,267,124 shares of common stock valued at $218,308. The
stock was valued at its fair market value on the dates of issuance. No gain or
loss was recognized on this transaction.
During the six months ended January 31, 2003, the Company also issued 79,000
shares of common stock for services valued at $27,992, 27,000 shares of common
stock for the conversion of 324 shares of the Company's preferred Series D stock
and 1,995,534 shares of common stock for the conversion of 200 shares of the
Company's preferred Series I stock.
NOTE 3 - PREFERRED STOCK
During the six months ended January 31, 2003, the Company converted 324 shares
of its Series D preferred stock into 27,000 shares of common stock and 200
shares of its Series I preferred stock into 1,995,534 shares of common stock.
In addition, the Company issued 125 shares of Series H preferred stock and 125
shares of Series J preferred stock. The Series H preferred stock was issued for
loan incentive value at $60,000. The Series J stock was issued for payment of
accounts payable-related party in the amount of $479,671 and a receivable in the
amount of $20,329. Shareholders of 813 shares of Series A preferred stock
converted to 1,220 shares of Series I preferred stock and shareholders of 1,240
shares of Series F preferred stock converted to 124 shares of Series I preferred
stock. Other information regarding preferred Series H preferred stock, Series I
preferred stock and Series J preferred stock follows:
The Company is authorized to issue a total of 5,000,000 shares of preferred
stock, par value at $0.001. At January 31, 2003, the Company had five 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, 1,000 shares
of $0.001 par value Series H preferred stock, 5,000 shares of $0.001 par value
Series I preferred stock and 1,000 shares of $0.001 par value Series J 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,
8
NOTE 3 - PREFERRED STOCK (Continued)
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, G,
H, I, and J 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
====== ======
January 31, 2003
-------------------------------------------
Number of Shares Amount
-------------------------- --------------
Series A -- $ --
Series B -- --
Series C -- --
Series D 564 1
Series E -- --
Series F -- --
Series G 10,000 10
Series H 125 --
Series I 1,144 1
Series J 125 --
------ ------
Total 11,958 $ 12
====== ======
General Terms
All Series A, B, C, D, E, F, G, H, I and J 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
9
NOTE 3 - PREFERRED STOCK (Continued)
General Terms (Continued)
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. Series I preferred stock is limited to $80 per share in
non-cumulative preferential dividends before common stock. Each Series I
preferred share has liquidation rights and merger or consolidation rights before
common stock. Series J preferred stock is limited to $500 per share in
non-cumulative preferential dividends before common stock. Each series J
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.
Voting Rights
All Series A, B, C, E, F, G, H, I and J 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.
10
NOTE 3 - PREFERRED STOCK (Continued)
Conversion to Common Shares (Continued)
Preferred Series A, B, and C stock have a basic conversion rate of 50 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 was 1:213 preferred to common as of July 31, 2002.
Preferred Series D and E have a basic conversion rate of 83 shares of common
stock for every share of preferred stock.
Preferred Series F have a basic conversion rate of 100 shares of common stock
for every share of preferred stock. Preferred Series G have a basic conversion
rate of 400 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. Preferred Series I and J have a basic conversion rates
of 10,000 shares of common stock for every share of preferred stock. Preferred
Series I has a conversion cap until December 31, 2003 whereby the person
converting the stock cannot hold more then 4.95% of the Company's common stock
at any time. Preferred Series J has a conversion cap until December 31, 2003
whereby the person converting the stock cannot hold more then 4.99% of the
Company's common stock at any time.
NOTE 4 - NOTES PAYABLE
Current notes payable at January 31, 2003 and July 31, 2002 consisted of the
following:
January 31, July 31,
Creditor and Conditions 2003 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. $ 13,892 $ 14,350
Bruce Butcher, unsecured, interest at 8%, convertible to
one share of common stock per $0.80 of debt, due on demand. -- 75,000
Joe Wozniak, unsecured, interest at 8%, convertible to one share
of common stock per $0.80 of debt, due on demand. -- 80,000
Keely Smith, secured by product inventory of subsidiary, interest at
24%, due on September 25, 1998. Delinquent.
60,000 60,000
----------------- -------------
Subtotal - Carried Forward $ 73,892 $ 229,350
11
NOTE 4 - NOTES PAYABLE (Continued)
January 31, July 31,
Creditor and Conditions 2003 2002
- ------------------------------------------------------------------------ ----------------- ------------
Subtotal - Brought Forward $ 73,892 $ 229,350
Joe Wozniak, secured by product inventory and accounts
receivable, interest at 8%, due on June 30, 2003. 296,866 --
Edwin Hamlin, Sr., secured by product inventory, interest
at 12%, due on February 24, 2003. 100,000 --
----------------- ------------
Total $ 470,758 $ 229,350
Less current portion 460,579 218,422
----------------- ------------
Net long-term debt $ 10,179 $ 10,928
================= ============
NOTE 5 - RELATED PARTY
The Company has a nonaffiliated shareholder who acts as a Company
represeentative in certain transactions. During the six months ended January 31,
2003, this shareholder incurred $479,671 in promotional and other administrative
expenses on behalf of the Company. This amount was recorded as accounts
payable-related party. The accounts payable-related party was then paid through
the issuance of Series J Preferred Stock on January 16, 2003. Accounts
payable-related party to this shareholder was stated as $70,474 and $54,292 at
January 31, 2003 and July 31, 2002 respectively. See note 3.
NOTE 6 - RECLASSIFICATION
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.
NOTE 7 - SUBSEQUENT EVENT
Subsequent to the date of these financial statement, the Company issued an
additional 187 shares of Series J preferred stock in payment of debt and
expenses valued at $750,000.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Through 2002 and to the end of the current period, the company continued to
develop and refine a new strategy incorporating greater brand and corporate
awareness within newly acquired distribution channels, and directed toward
broadening its portfolio of all-natural, very low/zero calorie water-beverages
and new product introductions within the all-natural retail food markets.
Development activities during the period were funded by approximately $800,000
in additional private capital funding, and has continued to the filing of this
report with an additional $750,000 from private equity capital funding. During
the period the company expanded the product and corporate identification
programs, which it intends to continue and intensify concurrent with the current
production and in conjunction with additional production runs.
Aqua Vie products are currently distributed through two major distributors in
the natural foods market--Tree of Life/Gourmet Award Foods and United Natural
Foods. The products are being featured in all-natural "store within a store"
concepts, through various grocery chains including Safeway, Vons, Dominick's,
Pavilions, Randalls, Tom Thumb, Carr's Genuardi's, Shaw's Supermarkets and Wild
Harvest. Greatest concentration of retail availability is in the Pacific
Northwest, Southwest, Northeast and Southeast regions of the United States.
During the most recent quarter, the company scheduled and prepaid for
multi-regional advertising, marketing and product demonstration programs aimed
at increasing retail demand and geographic distribution. The company continues
to make product available direct to consumers through its website
(www.aquavie.com).
Sales were flat for the quarter ended January 31, 2003 compared to the previous
quarter and the year ended July 31, 2002; however, a nationwide store
demonstration program is scheduled to commence in mid-April 2003. Current assets
were lower at the end of the most recent period, and our current liabilities had
increased by about $300,000 over the comparable period in 2002.
During the quarter, the Company began a program to settle or reduce our payables
and other current liabilities aimed at strengthening our balance sheet and
improving our credit in anticipation of a need for factoring capital and/or
lines of credit to support increased production. In conjunction with these
efforts, a current note due on June 30, 2003 in the amount of $296,865 was
exchanged for restricted stock in March 2003, and we also recently reduced
accounts payable at January 31, 2003 of $395,000 by approximately 25% through
conversion into restricted stock.
13
Production Plans and New Product Introductions
In addition to its all-natural Hydrators, Aqua Vie has developed PurePlay(TM), a
new line of flavored spring water for children, which contains fewer than 15
calories per serving. Production of PurePlay is expected to commence during the
latter part of the third fiscal quarter of 2003, with market introduction
anticipated during the fourth fiscal quarter of 2003. Additional products in
development include an all-natural nonalcoholic wine made from spring water, and
a low-calorie or zero-calorie Hydrator. The company anticipates introducing
these latter two products through existing distribution channels during its
fourth fiscal quarter.
Subsequent Events
Following the end of the period, the company received approximately $750,000 in
additional equity capital, which is being applied to new product development,
including a children's beverage line, selected product and corporate
identification marketing, and additional inventory production funding.
In conjunction with efforts aimed at reducing our payables and other current
liabilities, in March 2003, a current note due on June 30, 2003 in the amount
of $296,865 was exchanged for restricted stock. Additionally, after the close of
the period we reduced ccounts payable at January 31, 2003 of $395,000 by
approximately 25% through conversion into restricted stock.
The increase in inventory resulting from production runs following the close of
the quarter, subsequent sales and reductions we have effected in our current
liabilities will be reported in our financial statements for the period ending
April 30, 2003. The foregoing discussion of these subsequent events is included
here to afford more current information concerning our financial status and
business prospects than would otherwise be contained within the report for the
quarter ended January 31, 2003.
Liquidity and Capital Resources
In our Report for the period ending October 31, 2002, we stated that we were
seeking approximately $2.2 million in additional capital for our plans for early
2003. Despite the difficult capital markets, which severely hindered our
operations throughout 2000 and 2001, we were able to secure approximately
$800,000 in additional equity capital during the period July 31, 2002-January
31, 2003. Subsequent to January 31, 2003, we have received approximately
$750,000 in additional equity capital. As previously noted, we were able to
convert approximately $295,000 in notes payable and $90,000 in accounts payable
in restricted stock. The additional capital we have received has enabled us to
fund current operations, pay for additional production runs, and engage in an
aggressive marketing program. We believe that an additional $2,000,000 in
capital over the next six months would be desirable to support additional
production runs, marketing and new product development. Our preliminary goal is
14
to achieve sustainable current sales sufficient to support overhead, and to seek
additional capital thereafter by factoring or through a line of credit to
support growth. We have not yet secured this capital, but management has been
reviewing various alternatives to effect these capital objectives. The capital
markets remain difficult due to global uncertainties and weak short-term
economic outlook. Our success in achieving sustainable production and sales and
in the development of compelling new products, together with improvement in our
current position and the overall market situation, will determine the extent we
will be able to continue acquiring additional capital, and the dilution this may
entail. Assuming increased revenue driven by higher demand and additional
product available for sale, we expect, as a result of our efforts to strengthen
our current position, to be able to present a better balance sheet when seeking
receivables or inventory support financing.
Results of Operations
As we have noted in other Reports, we had planned in early 2001 to engage in a
substantial sales program based on the inventory financing agreement we effected
with our contract manufacturer/packager in March 2001. The disputes that arose
over the manufacturer's performance under that agreement, and the resulting
uncertainty in available inventory caused us to "bank" our sales to conserve the
inventory we had on hand. Later in that year, we entered into a "pay as you go"
arrangement that remains in effect currently. Due to the tight capital markets
in the second half of 2001 and thereafter, we severely curtailed operations
until additional funding could be secured. We also targeted a different
marketing model, the natural foods segment, for which we were eligible due to
our all-natural lines. We believed that this market venue would be more
receptive and would require less capital for marketing and thereby provide
higher profit margins.
Our results for the current period and earlier periods reflect static losses and
low sales while these new models are being effected. Recently scheduled
production runs are the most significant in almost eighteen months. We are in
the process of securing sales of this production.
Our assets decreased in the current period, primarily due to depreciation and
amortization. Relative to the same period in 2002, total assets decreased
approximately $200,000, of which approximately $130,000 was in accounts
receivable.
We have almost no long-term debt. Our current liabilities increased
approximately $300,000 during the period, and payables increased slightly;
subsequent to the period-end, approximately $280,000 of our notes and $90,000 of
our payables was converted to equity. If these conversions are taken into
account, our current position as adjusted for January 31 would be about $100,000
less than at the beginning of the period, and slightly less than our current
position as of January 31, 2001.
15
We had minimal sales during the period ended January 31, 2003; however, as a
result of the sizable capital infusions, we anticipate additional production
runs to support increasing sales. Expenses have continued however, and our
deficit increased approximately $1.1 million during the period. Our accumulated
deficit as of January 31, 2003 was $(8,879,626), compared to $(7,731,176) as of
July 31, 2002 and $(5,204,837) as of January 31, 2002. Although we maintained
modest payroll costs, we incurred a substantial increase for promotional
expenses, our most significant cost item during the quarter. Given the nature of
the beverage industry and our place in that industry as a "new" player, we
expect promotional costs to continue to be a significant factor in solidifying
our corporate identity in the industry and stimulating product sales.
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.
16
ITEM 2. CHANGE IN SECURITIES
There were several exchanges of securities during the period for pre-existing
debt that did not entail any new consideration. Please see the financial
statements for details. During the period, a new class of shares, "J" Preferred
Shares (See item 5) were subscribed to for a consideration of $500,000 for 125
of said shares. The securities were issued in reliance to the exemption provided
under Regulation D, Rule 506 for accredited investors.
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NA
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5 OTHER INFORMATION
5.1.
As previously noted in our Report filed for the Quarter ended October 31, 2002,
after the end of said period, the Company effected the filing of a new Series I
Preferred Stock. 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 anti-dilution
provisions caused their conversion rate to increase from 1000/1 to 10,000/1 from
inception in 1998 based on the 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. It has been proposed to
offer in exchange for no additional consideration approximately 350 I Shares for
approximately 700 shares of a new class of preferred shares, tentatively "K"
preferred, which would eliminate the $.30/adjustment, eliminate all voting
rights and
lower the preference. Exact terms have not negotiated and are expected to be
completed after the filing of this Report.
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, J, and K
share issuance would trigger this adjustment; however, a valuation has not been
placed on these transactions for these 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).
Series J shares were authorized during the period, but the Designation of Rights
and issuance thereof had not occurred by Quarter-end. Please see Note 3 to the
financials for a discussion of the terms thereof.
99. Exhibit: 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: March 17, 2003
19
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 March 17, 2003
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