SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 QSB
-------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended
April 30, 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 April 30, 2003
- ------------------------------ -------------------------------
Common Stock, Par value $0.001 14,902,923
1
AQUA VIE BEVERAGE CORPORATION
BALANCE SHEETS
(Unaudited)
April 30
2003 July 31,
(Unaudited) 2002
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 365,676 $ 2,179
Accounts receivable 19,688 6,471
Inventory 244,457 120,006
Prepaid and other assets 20,022 6,737
----------- -----------
Total Current Assets 649,843 135,393
----------- -----------
PROPERTY AND EQUIPMENT
Equipment 207,782 201,608
Less accumulated depreciation (190,316) (150,222)
----------- -----------
Total Property and Equipment 17,466 51,386
----------- -----------
OTHER ASSETS
Intangibles 281,164 281,164
Less accumulated amortization (165,881) (105,433)
----------- -----------
Total Other Assets 115,283 175,731
----------- -----------
TOTAL ASSETS $ 782,592 $ 362,510
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 148,512 $ 320,030
Accounts payable - related party 91,553 54,292
Bank overdraft -- 16,388
Settlements payable 36,000 36,000
Notes payable - current 163,851 218,422
Accrued expenses 67,276 87,367
Accrued compensation, related party 184,225 180,000
Loan from related party 91,423 156,325
----------- -----------
Total Current Liabilities 782,840 1,068,824
----------- -----------
LONG-TERM DEBT
Notes payable - net of current portion 9,123 10,928
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, Series A, B, C, D, E, F, G, H, I, J and K $0.001 par
value; 5,000,000 shares authorized, 12,214 and 12,941
shares issued and outstanding, respectively 12 13
Common stock, $0.001 par value; 120,000,000 shares
authorized, 14,902,923 and 5,337,551 shares
issued and outstanding, respectively 14,903 5,337
Additional paid-in capital 10,329,355 7,008,584
Subscriptions receivable (388,309) --
Accumulated deficit (9,965,332) (7,731,176)
------------ ------------
Total Stockholders' Deficit (9,371) (717,242)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 782,592 $ 362,510
============ ============
The accompanying notes are an integral part of these financial statements.
2
Three Months Ended Nine Months Ended
April 30, April 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
NET REVENUES $ 30,421 $ 6,643 $ 72,817 $ 129,565
COST OF GOODS SOLD 11,077 11,301 51,742 183,943
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 19,344 (4,658) 21,075 (54,378)
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 912,699 9,444 1,492,367 86,732
Legal and accounting 70,582 25,145 175,239 84,642
Depreciation and amortization 30,091 38,156 100,541 112,377
Officer's compensation 60,000 60,000 180,000 180,000
Consulting 51,824 -- 75,806 8,800
Other general and administrative expenses 144,188 57,906 317,212 186,402
------------ ------------ ------------ ------------
Total Expenses 1,269,384 190,651 2,341,165 658,953
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,250,040) (195,309) (2,320,090) (713,331)
OTHER INCOME (EXPENSES)
Forgivements of related party payable 168,974 -- 168,974 --
Interest expense (4,640) (8,193) (83,040) (28,730)
------------ ------------ ------------ ------------
164,334 85,934
LOSS BEFORE TAXES (1,085,706) (203,502) (2,234,156) (742,061)
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (1,085,706) $ (203,502) $ (2,234,156) $ (742,061)
============ ============ ============ ============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.09) $ (0.05) $ (0.25) $ (0.22)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 12,341,579 3,801,553 8,825,428 3,421,437
============ ============ ============ ============
See notes to interim financial statements.
3
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
Preferred Series A - K 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 (366) - 30,500 31 (31) - - -
Issuance of common stock at $0.05
per share for debt conversion - - 2,267,124 2,268 216,040 - - 218,308
Issuance of common stock at $0.30
per share for settlement - - 54,700 55 25,523 - - 25,578
Issuance of common stock for
for fractional shares - - 14 - - - - -
Issuance of common stock for services
at $0.30 to $0.71 per share - - 164,000 164 76,693 78,857
Issuance of common stock for services
and receivable at $0.67 per share - - 543,500 543 362,052 (326,175) - 36,420
Issuance of Series H preferred stock
at $480.00 per share
for loan settleme 125 - - - 60,000 - - 60,000
Confersion of Series A preferred stock
to Series I preferred stock
at l:1.5 407 - - - - - - -
Conversion of Series F preferred
stock to Series I preferred
at 10:1.5 (1,116) (1) - - 1 - - -
Conversion of Series I preferred stock
to common stock at 10:1 (398) - 3,972,876 3,972 (3,972) - - -
Issuance of Series J preferred stock
for accounts payable - related
party and receivables 524 - - - 2,586,998 (62,134) - 2,524,864
Conversion of Series I preferred stock
to Series K preferred stock
at 1:2 350 - - - - - - -
Conversion of Series K preferred stock
to common stock at 10:1 (253) - 2,532,658 2,533 (2,533) - - -
Net loss for the nine months ended
April 30, 2003 (unaudited) - - - - - - (2,234,156) (2,234,156)
--------- ----------- ------------ ---------- ------------- ----------- ------------ ------------
Balance, April 30, 2003
(unaudited) 12,214 $ 12 14,902,923 $ 14,903 $ 10,329,355 $ (388,309) $(9,965,332) $ (9,371)
========= =========== ============ ========== ============= =========== ============ ============
See notes to interim financial statements.
4
AQUA VIE BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
Nine Months Ended
April 30,
--------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,234,156) $ (742,061)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 100,541 112,377
Stock issued for services 113,277 64,610
Stock issued for settlement 25,578 --
Stock issued for loan incentive 60,000 --
Stock issued for interest on debt 32,002 39,027
Services charged to additional paid-in capital -- 60,000
Changes in assets and liabilities:
Accounts receivable (13,217) (46,578)
Receivable from related party (175,775) --
Inventory (124,451) 36,240
Prepaid expenses (13,285) 1,697
Accounts payable (171,518) (25,912)
Accounts payable - related party 1,436,110 --
Accrued expenses (20,091) 108,197
Loans from related parties (64,902) (8,434)
Accrued compensation 4,225 --
----------- -----------
Net cash used by operating activities (869,887) (400,837)
----------- -----------
CASH USED BY INVESTING ACTIVITIES:
Purchase of equipment (6,174) --
Purchase of intangibles -- (33,213)
----------- -----------
Net cash used by investing activities (6,174) (33,213)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Sale of common stock -- 253,895
Proceeds from notes payable 1,256,865 --
Receipts from stock subscriptions -- 176,977
Net payments of bank overdraft (16,388) --
Net proceeds from bank overdraft -- 2,251
Net payments on long-term debt (919) (2,309)
----------- -----------
Net cash provided by financing activities 1,239,558 430,814
----------- -----------
INCREASE (DECREASE) IN CASH 363,497 (3,236)
BEGINNING BALANCE 2,179 3,608
----------- -----------
ENDING BALANCE $ 365,676 $ 372
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ 4,435 $ 1,968
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services $ 113,277 $ 64,610
Forgiveness of debt and accrued payroll $ -- $ 60,000
Issuance of common stock for debt and interest $ 218,308 $ 276,027
Issuance of common stock for settlements $ 25,578 $ --
Issuance of preferred stock for loan incentive $ 60,000 $ --
Issuance of preferred stock for accounts payable - related party
and receivable $ 2,524,864 $ --
See notes to interim financial statements.
5
AQUA VIE BEVERAGE CORPORATION
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
April 30, 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 nine months ended April 30, 2003 are not necessarily
indicative of the results that may be expected for the year ending July 31,2003.
Going Concern
As shown in the financial statements, the Company incurred a net loss of
$2,234,156 for the nine month period ended April 30, 2003 and has an accumulated
deficit of $9,965,332. The Company has negative equity, negative working capital
and limited sales volume. These factors indicate that the Company may be unable
to continue in existence. The financial statements do not include any
adjustments related to the recoverability and classification of recorded assets,
or the amounts and classification of liabilities that might be necessary in the
event the Company cannot continue existence.
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 nine months ended April 30, 2003 by
the Company's issuance of 54,700 shares of common stock to the related vendors.
The stock was valued at $25,578, which represented the fair market value of the
stock on the dates of issuance. No gain or loss was recognized from this
transaction.
6
During the nine months ended April 30, 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 nine months ended April 30, 2003, the Company also issued 164,000
shares of common stock for services valued at $76,824; 30,500 shares of common
stock for the conversion of 366 shares of the Company's preferred Series D
stock; and 3,972,876 shares of common stock for the conversion of 398 shares of
the Company's preferred Series I stock; 2,532,658 shares of common stock for the
conversion of 253 shares of the Company's preferred Series K stock; and 543,500
shares of common stock for stock subscription receivable valued at $362,595
prior to a reduction for services received of $36,420.
NOTE 3 - PREFERRED STOCK
During the nine months ended April 30, 2003, the Company converted 366 shares of
its Series D preferred stock into 30,500 shares of common stock, 398 shares of
its Series I preferred stock into 3,972,876 shares of common stock and 253
shares of its Series K preferred stock into 2,532,658 shares of common stock.
In addition, the Company issued 125 shares of Series H preferred stock and 524
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 $2,586,999 and a receivable in
the amount of $62,134. (See Note 5.) Shareholders of 813 shares of Series A
preferred stock converted to 1,220 shares of Series I preferred stock and
shareholders of 1,860 shares of Series F preferred stock converted to 186 shares
of Series I preferred stock. Shareholders of 350 shares of Series I preferred
stock converted to 700 shares of Series K preferred stock. Other information
regarding preferred Series H preferred stock, Series I preferred stock, Series J
preferred stock and Series K preferred stock as 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 six classes of
preferred stock outstanding with an aggregate of 466,000 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, 1,000 shares of $0.001 par value Series J preferred
stock and 1,000 shares of $0.001 par value Series K 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.
7
The number of shares outstanding of preferred stock, Series A, B, C, D, E, F, G,
H, I, J and K 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 1,860 1
Series G 10,000 10
------ ------
Total 12,941 $ 13
====== ======
April 30, 2003
-----------------------------------------
Number of Shares Amount
---------------- -------------------
Series A -- $ --
Series B -- --
Series C -- --
Series D 522 1
Series E -- --
Series F -- --
Series G 10,000 10
Series H 125 --
Series I 596 1
Series J 524 1
Series K 447 --
------ ------
Total 12,214 $ 13
====== ======
General Terms
All Series A, B, C, D, E, F, G, H, I, J, and K 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
8
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 $80 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. Series K preferred stock is limited to $100 per share in
non-cumulative preferential dividends before common stock. Each Series K
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. Series K preferred shares shall
have no voting rights unless required under Delaware law.
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 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 , J and K 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. Preferred Series K has a conversion cap
until September 30, 2004 whereby the person converting the stock cannot hold
more then 4.99% of the Company's common stock at any time.
9
NOTE 4 - NOTES PAYABLE
Current notes payable at April 30, 2003 and July 31, 2002 consisted of the
Following:
April 30, 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. $ 12,974 $ 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
---------- -----------
$ 72,974 $ 229,350
Edwin Hamlin, Sr., secured by product inventory,
Interest at 12%, due on February 24, 2003. 100,000 --
---------- -----------
Total $ 172,974 $ 229,350
Less current portion 163,851 218,422
---------- -----------
Net long-term debt $ 9,123 $ 10,928
========== ===========
NOTE 5 - RELATED PARTY
The Company has a shareholder who acts as a Company representative in certain
transactions. During the nine months ended April 30, 2003, this shareholder
incurred $1,368,000 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. Accounts payable - related party to this shareholder
is stated at $91,553 and $54, 292 at April 30, 2003 and July 31, 2002,
respectively. See Note 3.
NOTE 5 - RELATED PARTY TRANSACTION (Continued)
Effective April 30, 2003, a shareholder offered to forgive $168,974 owed to his
firm for legal services performed for Aqua Vie. This amount is recorded as
forgiveness of related party payable in other income.
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 a related loan.
10
NOTE 7 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in one commercial account at a major financial
institution. Although the financial institution is considered creditworthy and
has not experienced any losses on its deposits, at April 30, 2003 the Company's
cash balance exceeded Federal Deposit Insurance Corporation (FDIC) limits by
$265,676.
NOTE 8-COMMITMENTS AND CONTINGENCIES
On February 27, 2003, the Company entered into a consulting agreement with a
related party whereby the Company will issue common stock in payment of
consulting fees and for payment of subcontracting fees or other fees paid by the
consultant to others. During the quarter ended April 30, 2003, the Company
issued 543,500 shares of its common stock valued at $362,595. Because only a
small portion of the consulting services were performed during the quarter,
$326,175 has been recorded as subscription receivable at April 30, 2003. This
receivable will be reduced as services are performed for the Company.
Subsequent to the quarter ended April 30, 2003, the consultant has paid for
approximately $275,000 of expenses for the benefit of the Company.
NOTE 9-LEGAL PROCEEDINGS
The Securities and Exchange Commission ("SEC") temporarily suspended trading in
the securities of Aqua Vie from May 2, 2003 through May 15, 2003 because of
questions raised regarding the accuracy and completeness of information about
Aqua Vie in fax broadcasts and on the Internet. Subsequent to the trading
suspension, the SEC commenced a formal investigatory proceeding of the
aforementioned.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Beginning calendar 2002 and to the end of the current period, the company
continued to develop and refine a new marketing strategy incorporating greater
brand and corporate awareness within acquired distribution channels, and
directed toward broadening its portfolio of water-beverages and new product
introductions within the all-natural retail, and all-other retail food markets.
The company's primary operating focus has been the development of its new
Hydrator product line and product labels, for planned introduction this summer,
additional production capacity, and the company's new corporate website.
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, Randall's, Tom Thumb, Carr's Genuardi's, Shaw's Supermarkets and Wild
Harvest. The greatest concentration of retail availability is in the Pacific
Northwest, Southwest, and Northeast regions of the United States. During the
most recent quarter, the company began marketing and product demonstration
programs within these regions, aimed at increasing retail demand and geographic
distribution of its all-natural product line. The company continues to make its
products available directly to consumers through its website (www.aquavie.com).
Sales increased for the quarter ended April 30, 2003 compared to the previous
quarter and the year ended April 30, 2002 as shipping of initial products for a
nationwide store demonstration program commenced. Current assets were higher at
the end of the most recent period, and our current liabilities decreased by
about $285,984 from April, 2002.
During the quarter, the Company continued 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, we also reduced accounts payable at April 30, 2003 to $148,512 from
320,030 at the beginning of the fiscal year.
In addition to its all-natural Hydrators, Aqua Vie has finalized the development
of a low calorie line of Hydrators for chain retail markets that do not
specialize in all-natural products (the all-other markets), for introduction
this summer. The company anticipates introducing the first of its new product
lines through new, as well as existing distribution channels.
Liquidity and Capital Resources
Despite the difficult capital markets, which severely hindered our operations
throughout 2000 and 2001, we were able to secure approximately $3,321,000 in
additional equity capital during the period July 31, 2002 - April 30, 2003.
Additional capital we have received has enabled us to fund current operations,
pay for additional production runs, and engage in an aggressive marketing and
development program. Our preliminary goal is to achieve sustainable current
sales sufficient to support overhead, and as a function of the sales achieved,
to seek additional capital thereafter as needed, to support growth. We have not
yet secured this capital, but management has been reviewing various alternatives
to affect 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 the development of these
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 revenues, driven by higher demand and additional product
available for sale, we expect, as a result of our efforts to strengthen our
current position, and to be able to present a better balance sheet when seeking
support financing.
12
Results of Operations
Our assets increased in the current period, primarily due to production of new
inventory and equity infusion. Relative to July 31, 2002, total assets increased
approximately $420,082 of which approximately $363,000 was in cash, $125,000 was
in inventory, and $13,217 was in accounts receivable. These increases were
offset by approximately $100,000 of additional accumulated depreciation and
amortization.
Our current liabilities decreased by approximately $285,900 during the period.
We had increased but low sales during the period ended April 30, 2003; however,
as a result of the 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 April 30, 2003 was $(9,965,332), compared to $(7,731,176) as of July 31,
2002 and $(6,643,561) as of April 30, 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, we expect advertising and promotional
new product introduction costs to be a significant factor in the company's
growth, through the remainder of this year and throughout fiscal 2004.
ITEM 3. CONTROLS AND PROCEDURES
In accordance with Item 307 of Regulation S-B promulgated under the Securities
Act of 1933, as amended, and within 90 days of the date of this Quarterly Report
on Form 10-QSB, the Chief Executive Officer and Chief Financial Officer of the
Company (the "Certifying Officers") have conduct ed evaluations of the Company's
disclosure controls and procedures. As defined under Rules 13a-14(c) and
15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the term "disclosure controls and procedures" means controls
and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer's management, including its principal executive
officer or officers and principal financial officer or officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. The Certifying Officers have reviewed the Company's
disclosure controls and procedures and have concluded that those disclosure
controls and procedures are effective in causing information to be recorded,
processed, summarized, and reported within the time periods specified in the
Commission's rules and forms and communicated to management of the Company to
allow timely decisions regarding the Company's public disclosures. In compliance
with Section 302 of the Sarbanes-Oxley Act of 2002, (18 U.S.C 1350), each of the
Certifying Officers executed an Officer's Certification included in this
Quarterly Report on Form 10-QSB.
As of the date of this Quarterly Report on Form 10-QSB, there have not been any
significant changes in the Company's internal controls or in other factors that
could significantly affect these internal controls subsequent to the date of the
Certifying Officers' evaluation.
PART II - OTHER INFORMATION
13
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
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) was 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.
(b) 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. There was also a new class of preferred
shares, "Series K" designated, which does not have voting rights and eliminated
the $.30 anti-dilution provision. Please see the financial statements for a
complete description of terms and for a description of exchanges for a portion
of the Series I shares. Exchanges were without additional consideration and the
Company relied upon the Regulation D exemption as to accredited investors.
ITEM 3 DEFAULTS ON SENIOR SECURITIES
A subsidiary of Aqua Vie, Keely Smith, delinquent, has a credit of 60,000 with
an interest rate of 24%. It was due on September 25, 1998.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NA
ITEM 5 OTHER INFORMATION
5.1.
The company's co-packer, Lyons Magnus, has determined that it wished to
concentrate on a few larger accounts, and accordingly has notified the Company
that it wished to forthwith terminate the co-packing relationship. A bottling
run is currently scheduled for August, 2003, and thereafter the Company expects
to utilize other co-packers. Discussions are underway with other packers;
however, no definite arrangements have been made.
As discussed in the last 10-Q, Item 5, a new series K Preferred shares were
designated and offered in exchange for a portion of the Series I shares. Please
see the Financial Statements and Notes for details.
As previously noted in our Report filed for the Quarter ended October 31, 2002,
after the end of said period, the Company affected 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 share 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
14
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. In our last report, it had
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. This has been effected, please see
the Financial Statements for details.
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 $.40/share, the conversion rate of Series G preferred is adjusted
upward accordingly ($.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.
ITEM 6. EXHIBITS AND REPORTS
99. Exhibit: (a) Title 18 Certification (b) Designation of Rights of Preferred
Series K (c) Designation of Rights of Preferred Series J
(d) Employee Benefit Agreement for Valerie Gillespie
15
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, the need to transition to a new bottlerdependence 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.
SIGNATURES
----------
AQUA VIE BEVERAGE CORPORATION
(Registrant)
By: /s/ Thomas Gillespie
---------------------------------------
Thomas Gillespie
Chief Executive Officer & President
Date: June 26, 2003
16
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002-
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 June 27, 2003
17