UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 27, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
BEVSYSTEMS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Florida 84-1352529
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1315 Cleveland Street
Clearwater, FL 33755
(Address of principal executive offices)
(786) 425-0811
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of February 10, 2004
there were 66,917,252 shares of common stock, par value $0.0001 per share, of
the issuer outstanding.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
TABLE OF CONTENTS
Page
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements. F-1
Item 2. Management's Discussion and Analysis or Plan of Operation. 1
Item 3. Controls and Procedures. 6
PART II--OTHER INFORMATION
Item 1. Legal Proceedings. 6
Item 2. Changes in Securities. 7
Item 3. Defaults Upon Senior Securities. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K. 9
SIGNATURES 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
INDEX
December 27, 2003
Page Number
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at December 27, 2003 F-2
(unaudited)
Condensed Consolidated Statement of Operations and Comprehensive Loss
for the three and nine months ended December 27, 2003
(unaudited) and December 28, 2002 (unaudited) F-3
Condensed Consolidated Statement of Cash Flows for the nine months
ended December 27, 2003 (unaudited) and December 28, 2002
(unaudited) F-4 to F-5
Notes to Condensed Consolidated Financial Statements F-6 to F-22
BEVsystems International, Inc. & Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEET
At December 27, 2003 (Unaudited)
ASSETS
Current assets
Cash $ 9,070
Accounts receivable 32,120
Marketable securites 8,500
----------
Total current assets 49,690
----------
Property, plant and equipment, net 945,588
----------
Total assets $ 995,278
==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Accounts payable $ 742,426
Accrued expenses 3,025,997
Deposits and deferred fees 63,670
Convertible debentures and advances - stockholders 639,590
Notes Payable secured by assets 746,433
------------
Total current liabilities 5,218,116
------------
Commitments and contigencies
Shareholders' deficiency
Preferred stock; no par value; 5,000,000 shares authorized;
100 shares issued and outstanding; nonvoting and
convertible into 174,825 shares of common stock 74,601
Common stock; $.0001par value ; 650,000,000 shares authorized;
61,011,392 shares issued and outstanding 6,101
Additional Paid-In Capital 36,331,838
Unearned Services (2,203,368)
Accumulated comprehensive income 3,000
Accumulated deficit (38,435,010)
------------
Total shareholders' deficiency (4,222,838)
------------
Total liabilities and shareholders' deficiency $ 995,278
============
The accompanying notes are an integral part of these financial statements
BEVsystems International, Inc. & Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended For the Nine Months Ended
December 27, December 28, December 27, December 28,
2003 2002 2003 2002
Net revenues $ 65,625 $ 122,824 $ 100,272 $ 566,444
Cost of Goods Sold
Cost of revenues 10,531 141,870 39,106 440,636
------------ ------------- ------------- -------------
Gross Profit (loss) 55,094 (19,046) 61,166 125,808
------------ ------------- ------------- -------------
Selling, general and administrative expenses
Selling and marketing 31,619 - 42,428 -
General and administrative 1,318,588 1,563,793 3,726,509 6,633,342
Asset impairment charges - - 6,041 11,946,032
Loss on Settlement of Debt 18,636 18,636
------------ ------------- ------------- -------------
Total selling, general and administrative expenses 1,368,843 1,563,793 3,793,614 18,579,374
------------ ------------- ------------- -------------
Loss from operations before interest expense (1,313,749) (1,582,839) (3,732,448) (18,453,566)
Interest expense, net 104,414 104,561 557,157 513,815
------------ ------------- ------------- -------------
Net loss $(1,418,163) $ (1,687,400) $ (4,289,604) $(18,967,381)
============ ============= ============= =============
Basic and diluted net loss per common share $ (0.02) $ (4.19) $ (0.12) $ (62.32)
------------ ------------- ------------- -------------
Weighted average number of common shares outstanding 57,016,449 402,636 35,524,839 304,364
------------ ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements
BEVsystems International, Inc. & Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended December 27,
December 27, 2003 December 28, 2002
Operating activities
Net loss $ (4,289,604) $ (18,967,381)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 18,151 -
Amortization of unearned services 1,966,297 449,175
Asset impairment charges 6,041 11,946,032
Issuance of Common stock for services and financing 919,035 4,519,700
Issuance of warrants in connection with finanicng 267,229 140,153
Grant of employee stock options 487,498
Changes in assets and liabilities:
Accounts receivable (31,664) (4,413)
Inventory - 35,546
Prepaid expenses and other assets (11,155) 139,193
Decrease in Deferred Revenue (30,500)
Accounts payable and accrued expenses 206,957 (560,320)
------------- --------------
Net cash used in operating activities (491,716) (2,302,315)
Investing activities
- -
- -
------------- --------------
Financing activities
Proceeds from notes payable and shareholder advances 514,147 416,387
Repayments of notes payable (13,497) (330,524)
Proceeds from issuance of convertible debentures - 728,000
Proceeds from issuance of common stock - 125,000
Proceeds from exercise of stock options - 5,500
Net proceeds from exercise of warrants - 1,349,656
------------- --------------
Net cash provided by financing activities 500,650 2,294,019
------------- --------------
Net increase(decrease) in cash 8,934 (8,296)
Cash, beginning of period 136 8,296
------------- --------------
Cash (overdraft), end of period $ 9,070 $ - 0
------------- --------------
The accompanying notes are an integral part of these financial statements
BEVsystems International, Inc. & Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(continued)
2003 2002
-------------- -------------
Supplemental disclosure of non-cash information:
Cash paid during the year for:
Interest $ - -
==============
Income Taxes $ - -
==============
Schedule of non-cash investing and financing activities:
Stock issued in connection with the settlement of trade payables
and accrued expenses $ 868,914
==============
Stock issued in connection with conversion of notes payable $ -
==============
Stock issued in connection with prepaid expenses $ -
==============
Stock issued in connection with conversion of convertible
noted payable $ 625,000
==============
Cashless exercise of warrants in lieu of accounts payable $ -
==============
Cashless exercise of stock options in lieu of accounts payable $ -
==============
Issuance of warrants in connection with convertible debebtures $ -
==============
Issuance of warrants in connection with financing $ -
==============
Issuance of common stock in connection with consulting
agreement $ 2,400,000
==============
The accompanying notes are an integral part of these financial statements
BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2003
(UNAUDITED)
NOTE 1 - ORGANIZATION, HISTORY AND NATURE OF BUSINESS
BEVsystems International, Inc. and Subsidiary (collectively the
"Company") is a provider of oxygenated water. The Company bottles its
product through co-packing agreements and distributes its products
primarily through an international distribution network. The Company's
fiscal year ends on the Saturday nearest to March 31.
On July 12, 2001, the Company acquired the net assets of the beverage
division of Life International, a provider of oxygenated water. The
net assets included oxygenation equipment, bottles, proprietary seals,
marketing materials, office equipment, trademarks, patent rights and
other intangible assets. On February 25, 2002, the Company consummated
a merger with Aqua Clara Bottling and Distribution, Inc. and
Subsidiary.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Bevsystems International, Inc. and its wholly
owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with
instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. The results of operations for the nine months ended December
27, 2003 are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the company's
annual report filed on Form 10-KSB for the year ended March 29,2003.
NOTE 3 - GOING CONCERN
The accompanying unaudited condensed consolidated financial statements
have been prepared assuming that the Company will continue as a going
concern. The Company has incurred operating losses, negative cash
flows from operating activities, negative working capital and has a
shareholders' deficit. At December 27, 2003 the Company's accumulated
deficit was $38,435,010 and its working capital deficiency was
$5,168,426. For the nine months ended December 27, 2003 the Company
had a net loss of $4,289,604. In addition, the Company is in default
of its debt agreements for nonpayment and certain debtors have filed
actions against the Company, including foreclosing property. These
conditions, among others, raise substantial doubt about the Company's
ability to continue as a going concern.
The Company has initiated several actions to generate working capital
and improve operating performances, including equity and debt
financing, cost reduction measures, renegotiating and settling certain
liabilities and redefining its business and marketing strategy.
However, there can be no assurance that it will be able to increase
revenues or to raise additional capital.
The financial statements do not include adjustments relating to the
recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to
continue in operation.
F-6
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consisted of the following at December 27, 2003:
Payroll and related costs $ 1,225,002
Settlements 450,000
Other 918,602
Interest 190,066
Professional fees 182,327
Directors fees 60,000
-------------
$ 3,025,997
=============
NOTE 5 - CONVERTIBLE NOTES PAYABLE
On October 22, 2001, the Company entered into a series of three
convertible promissory notes with Financial Partners Network
Corporation (an affiliate of the company's CEO) in the amount of
$100,000, $100,000 and $62,584. The notes were due April 22, 2002 and
had an interest rate of 10.5% per year. The notes were convertible, at
the option of the holder, into shares of the Company's common stock at
an initial conversion price of $65.99 per share. The conversion price
was subject to adjustment if the Company issued additional shares of
its common stock without consideration or for a consideration per
share less than the conversion price in effect immediately prior to
the issuance of such additional shares of common stock. On August 29,
2002, in consideration for extending the maturity dates on the notes,
the Company granted warrants to purchase 2,574 shares of the Company's
common stock at an exercise price of $0.01 per share expiring May 15,
2005. On January 21, 2003, all three notes, inclusive of accrued
interest of $34,464, were converted into 1,710,753 shares of the
Company's common stock at a rate of $0.108 per share. The Company also
granted warrants to Financial Partners Network Corporation to purchase
2,198 shares of the Company's common stock at an exercise price of
$65.99 per share expiring November 10, 2006. In lieu of exercising the
warrant by paying the per share warrant price, the holder may execute
a cashless exercise in accordance with the formula set forth in the
warrant agreement. In September 2003, Financial Partners Network
exercised their right to purchase 2,574 shares of the Company's common
stock via a cashless exercise, resulting in the issuance of 2,504
shares of the Company's common stock.
On November 15, 2001, the Company entered into a $200,000 convertible
promissory note with the Chief Executive Officer ("CEO"). The note was
due May 15, 2002 and had an interest rate of 10.5% per year. The note
was convertible, at the option of the holder, into shares of the
Company's common stock at an initial conversion price of $65.99 per
share. The conversion price was subject to adjustment if the Company
issued additional shares of its common stock without consideration or
for a consideration per share less than the conversion price in effect
immediately prior to the issuance of such additional shares of common
stock. On August 29, 2002, in consideration for extending the maturity
date on the note, the Company granted warrants to purchase 1,961
shares of the Company's common stock to the CEO at an exercise price
of $0.01 per share expiring May 15, 2005. On January 21, 2003, the
note, including accrued interest of $24,500, was converted into
3,571,424 shares of the Company's common stock at a rate of $0.108 per
share. In September 2003, the CEO exercised his right to purchase
1,961 shares of the Company's common stock via a cashless exercise,
resulting in the issuance of 1,908 shares of the Company's common
stock.
F-7
NOTE 5 - CONVERTIBLE NOTES PAYABLE (cont'd)
On December 21, 2001, the Company entered into a $20,000 convertible
promissory note with an investor. The note is currently in default and
was due June 21, 2002 and has an interest rate of 10.5% per year. The
note is convertible, at the option of the holder, into shares of the
Company's common stock at an initial conversion price of $65.99 per
share. The conversion price is subject to adjustment if the Company
issues additional shares of its common stock without consideration or
for a consideration per share less than the conversion price in effect
immediately prior to the issuance of such additional shares of common
stock. Accrued interest of $4,200 is included in accrued expenses in
the accompanying consolidated balance sheet. The Company also granted
warrants to the investor to purchase 122 shares of the Company's
common stock at an exercise price of $65.99 per share expiring
November 5, 2004.
On December 21, 2001, the Company entered into a $40,000 convertible
promissory note with an investor. The note is currently in default and
was originally due June 21, 2002 and has an interest rate of 10.5% per
year. The note is convertible, at the option of the holder, into
shares of the Company's common stock at an initial conversion price of
$65.99 per share. The conversion price is subject to adjustment if the
Company issues additional shares of its common stock without
consideration or for a consideration per share less than the
conversion price in effect immediately prior to the issuance of such
additional shares of common stock. Accrued interest of $8,400 is
included in accrued expenses in the accompanying consolidated balance
sheet. The Company also granted warrants to purchase 243 shares of the
Company's common stock at an exercise price of $65.99 per share
expiring November 5, 2004. On July 30, 2002, in consideration for
extending the maturity date on the note to June 21, 2003, the Company
granted warrants to the investor to purchase 100 shares of the
Company's common stock at an exercise price of $48.00 per share
expiring May 15, 2005.
In April 2002, the Company entered into several convertible promissory
notes with several investors for a total value of $200,000. The notes
were due April 30, 2003 and have an interest rate of 12%. The notes
are convertible, at the option of the holders, into shares of the
Company's common stock at an initial conversion price per share equal
to the lesser of (i) the average of the lowest three-day trading
prices during the five trading days immediately prior to the
conversion date discounted by 25%, or (ii) the average of the lowest
three-day trading prices during the five trading days immediately
prior to the funding. The conversion price is subject to adjustment if
the Company issues additional shares of its common stock without
consideration or for a consideration per share less than the
conversion price in effect immediately prior to the issuance of such
additional shares of common stock. During the year ended March 29,
2003, one investor converted his $50,000 note into 1,755 shares of the
Company's common stock. In August 2003, another investor converted his
$50,000 note, including accrued interest of $8,000, into 773,333
shares of the Company's common stock. On September 22, 2003, another
investor converted his $50,000 note, including accrued interest of
$8,515, into 329,662 shares of the Company's common stock. The Company
also granted these note holders warrants to purchase a total of 3,000
shares of the Company's common stock at an exercise price equal to the
lesser of (i) the average of the lowest three day trading prices
during the five trading days immediately prior to the conversion date
discounted by 25%, or (ii) the average of the lowest three day trading
prices during the five trading days immediately prior to the funding
date. The warrants are callable by the Company when the five-day
average closing stock price exceeds 120% of the five-day average
closing price prior to the funding date. The warrants expire on April
30, 2005. On September 22, 2003, one note holder exercised his
warrants and purchased 750 shares of the Company's common stock for
$133, the proceeds are currently due from the note holder. On
F-8
NOTE 5 - CONVERTIBLE NOTES PAYABLE (cont'd)
September 30, 2003, a note holder converted his $50,000 note,
including accrued interest of $8,433, into 417,378 shares of the
company's common stock.
On May 15, 2002, the Company entered into an $80,000 convertible
promissory note with a director. The note was due August 15, 2002 and
had an interest rate of 12.0% per year. The note was convertible, at
the option of the holder, into shares of the Company's common stock at
an initial conversion price per share equal to the lesser of (i) the
average of the lowest 3 day trading prices during the 5 trading days
immediately prior to the conversion date discounted by 25%, or (ii)
the average of the lowest 3 day trading prices during the 5 trading
days immediately prior to the funding date. The conversion price was
subject to adjustment. On August 29, 2002, in consideration for
extending the maturity date on the note, the Company granted warrants
to purchase 784 shares of the Company's common stock at an exercise
price of $0.01 per share expiring May 15, 2005. On January 21, 2003,
this note, as well as a $363,000 secured note with the director,
including accrued interest was converted into 4,440,044 shares of the
Company's common stock. The Company also granted to the director
warrants to purchase 1,200 shares of the Company's common stock at an
exercise price equal to the lesser of (i) the average of the lowest
three day trading prices during the five trading days immediately
prior to the conversion date discounted by 25%, or (ii) the average of
the lowest three day trading prices during the five trading day
immediately prior to the funding date. The warrants to purchase 1,200
shares of the Company's common stock were exercised on August 7, 2002.
On August 29, 2002, in consideration for extending the maturity date
of the aforementioned secured note with this director the Company
granted warrants to purchase 3,845 shares of the Company's common
stock at an exercise price of $0.01 per share expiring May 15, 2005.
On September 22, 2003, the director exercised his right to purchase
4,629 shares of the Company's common stock via a cashless exercise,
resulting in the issuance of 4,504 shares of the Company's common
stock.
On June 4, 2002, the Company entered into a $100,000 convertible
promissory note with an investor. The note was due June 4, 2003 and
has an interest rate of 12%. The note is convertible, at the option of
the holder, into shares of the Company's common stock at an initial
conversion price per share equal to the lesser of (i) the average of
the lowest three-day trading prices during the five trading days
immediately prior to the conversion date discounted by 25%, or (ii)
the average of the lowest three-day trading prices during the five
trading days immediately prior to the funding. The conversion price is
subject to adjustment if the Company issues additional shares of its
common stock without consideration or for a consideration per share
less than the conversion price in effect immediately prior to the
issuance of such additional shares of common stock. The Company also
granted warrants to this investor to purchase 1,500 shares of the
Company's common stock at an exercise price equal to the lesser of (i)
the average of the lowest three day trading prices during the five
trading days immediately prior to the conversion date discounted by
25%, or (ii) the average of the lowest three day trading prices during
the five trading day immediately prior to the funding date. The
warrant is callable by the Company when the five-day average closing
stock price exceeds 120% of the five-day average closing price prior
to the funding date. The warrant expires on April 30, 2005. On
September 30, 2003, the investor converted his note, including accrued
interest of $15,879, into 2,000,000 shares of the Company's common
stock.
On June 27, 2002, the Company entered into a $50,000 convertible
promissory note with an investor. The note was due April 30, 2003 and
has an interest rate of 12%. The note is convertible, at the option of
the holder, into shares of the Company's common stock at an initial
F-9
NOTE 5 - CONVERTIBLE NOTES PAYABLE (cont'd)
conversion price per share equal to the lesser of (i) the average of
the lowest three-day trading prices during the five trading days
immediately prior to the conversion date discounted by 25%, or (ii)
the average of the lowest three-day trading prices during the five
trading days immediately prior to the funding. The conversion price is
subject to adjustment if the Company issues additional shares of its
common stock without consideration or for a consideration per share
less than the conversion price in effect immediately prior to the
issuance of such additional shares of common stock. The Company also
granted warrants to this investor to purchase 750 shares of the
Company's common stock at an exercise price equal to the lesser of (i)
the average of the lowest three day trading prices during the five
trading days immediately prior to the conversion date discounted by
25%, or (ii) the average of the lowest three day trading prices during
the five trading day immediately prior to the funding date. The
warrant is callable by the Company when the five-day average closing
stock price exceeds 120% of the five-day average closing price prior
to the funding date. The warrant expires on April 30, 2005. On October
14, 2003 the note holder converted the principal amount of the note
and accrued interest of $7,693.16 into 412,094 common shares of the
company's stock.
On July 5, 2002, the Company entered into a $250,000 convertible
promissory note with an investor. The note was due July 5, 2003 and
does not bear interest, except in the case of default. The note is
convertible, at the option of the holder, into shares of the Company's
common stock at an initial conversion price per share equal to the
lesser of (i) the average of the 5-day closing bid prices during the 5
trading days immediately prior to the conversion date discounted by
25%, or (ii) $60. The conversion price is subject to adjustment if the
Company issues additional shares of its common stock without
consideration or for a consideration per share less than the
conversion price in effect immediately prior to the issuance of such
additional shares of common stock. The conversion price is also
subject to adjustment so that the number of shares into which the note
is converted does not exceed the number of shares such that, when
aggregated with all other shares of common stock then beneficially or
deemed beneficially owned by the holder, would result in the holder
owning more than 9.999% of all such shares of common stock as would be
outstanding on the conversion date. In August 2003, $30,000 of the
note was converted into 500,000 shares of the Company's common stock.
The Company also granted warrants to the investor to purchase 1,667
shares of the Company's common stock at an exercise price of $72.00
per share. The warrant is callable at the Company's option, provided
that the closing bid prices for the five days preceding the date the
Company exercises such option exceeds 140% of the warrant exercise
price and that an effective registration statement is in place. On
September 30, 2003, the remaining balance of the note, including the
default interest of $128,404, were converted into 2,500,000 shares of
the Company's common stock.
On August 4, 2002, the Company entered into a $75,000 convertible
promissory note with an investor bearing interest at 10% per annum
with principal and all accrued interest payable in full on March 4,
2003. The note is secured by 50,000 shares of the Company's common
stock. The holder of the note is entitled, at its option, to convert
at any time, the principal amount of the note and accrued interest at
a conversion price equal to the latest five-day average of the closing
bid price of the Company's common stock into such shares of the
Company's common stock. The shares to be issued pursuant to this note
shall contain unlimited piggyback registration rights. Any overdue
payment of principal on the note shall bear interest at 15% per annum
until paid. On February 5, 2003, the Company issued 50,000 shares of
its common stock, valued at $85,000, in consideration for extending
the maturity date of the note In June 2003, a related
party-shareholder purchased the note from the investor. In
consideration for extending the maturity date of the note
F-10
NOTE 5 - CONVERTIBLE NOTES PAYABLE (cont'd)
to September 30, 2003, the related party-shareholder was granted
warrants to purchase 250,000 shares of the Company's common stock at
an exercise price of $0.01 per share. The fair value of the warrants
using the Black-Scholes Option Pricing Model was $52,825 and is being
amortized to interest and financing expense over the term of the
expense. On September 22, 2003, the related party-shareholder
exercised his warrants via a cashless exercise, resulting in the
issuance of 249,306 shares of the Company's common stock. On December
10, 2003 the remaining balance of the note including accrued interest
of $12,255.00 was converted into 1,662,000 shares of the company's
common stock.
The proceeds from the issuance of each of the convertible notes
payable with the warrants were allocated between the warrants and the
notes payable, based on their relative fair values at the time of
issuance. The fair value of the warrants issued prior to March 29,
2003 of $459,792 was calculated using the Black-Scholes Option Pricing
Model and was accounted for as additional paid-in capital and interest
and financing expense during the year ended March 29, 2003.
On September 30, 2003 the Company issued two Series A Convertible
Promissory Notes, to a Director of the Company and a consultant for
the Company. The notes were issued as a conversion of amounts advanced
to the Company by the parties. The notes aggregated $338,199, and bear
interest at a rate of 8.0% per annum. The notes mature on October 30,
2003. Interest is due and payable at the end of each calendar quarter.
At the option of the Holders, the interest may be paid in cash or
converted into common stock. The principal amount of the note may be
converted, in whole or in part, into common stock at the option of the
Holder. The initial conversion price per share shall be equal to the
lesser of (i) the average of the 5-day closing prices during the 5
days immediately prior to the conversion date discounted by 25%, or
(ii) $0.25. On December 10, 2003 the related party-shareholder was
granted warrants to purchase 867,177 shares of the company's common
stock at an exercise price of $0.01 per share. These warrants were
exercised concurrently. The fair value of the warrants using the
Black-Scholes Option Pricing Model was $95,460 and has been amortized
to interest and financing expense in the period ending December 27,
2003.
On December 27, 2003 the Company issued a Series A Convertible
Promissory Note, to a consultant for the Company. The note was issued
as a conversion of amounts advanced to the Company by the party. The
note aggregated $152,893, and bear interest at a rate of 8.0% per
annum. The notes mature on January 30, 2003. Interest is due and
payable at the end of each calendar quarter. At the option of the
Holders, the interest may be paid in cash or converted into common
stock. The principal amount of the note may be converted, in whole or
in part, into common stock at the option of the Holder. The initial
conversion price per share shall be equal to the lesser of (i) the
average of the 5-day closing prices during the 5 days immediately
prior to the conversion date discounted by 25%, or (ii) $0.25.
NOTE 6 - NOTES PAYABLE - SECURED BY ASSETS
On July 31, 2002, the Company refinanced their manufacturing plant
located in Clearwater, Florida. The amount of the mortgage note
totaled $420,000. The mortgage note is secured by the underlying
building and land. The note was due in monthly installments of
principal and interest through 2032 and has an initial interest rate
of 12.99%. The interest rate will be adjusted annually to a rate equal
to 6.00% above the prime rate and shall never be less than 12.00% per
year. At December 27, 2003, the interest rate was 12%. Due to the
default, the mortgage is now
F-11
NOTE 6 - NOTES PAYABLE - SECURED BY ASSETS (cont'd)
currently due and has been reclassified as a current liability. At
December 27, 2003, the outstanding principal balance was $419,806.
Accrued interest of $88,200 is included in accrued expenses in the
accompanying consolidated balance sheet.
In May 2002, the Company entered into an agreement with Brickell Bay
Capital Fund, LLC ("Brickell Bay") to extend the maturity date of its
$300,000 convertible promissory note to October 4, 2002. As part of
the agreement, the Company was required to pay past due interest
totaling $23,625 and issue warrants to purchase 2,511 shares of the
Company's common stock at an exercise price of $65.99 per share. The
fair value of the warrants of $290,531 was calculated using the
Black-Scholes Option Pricing Model and was accounted for as additional
paid in capital and interest and financing expense during the year
ended March 29, 2003. Accrued interest of $39,375 is included in
accrued expenses in the accompanying consolidated balance sheet at
December 27, 2003. On May 30, 2002, Brickell Bay exercised warrants
relating to a previous agreement to purchase 2,511 shares of the
Company's common stock for a total consideration of $165,706. In
addition, on April 4, 2002, the Company entered into a Collateral
Assignment of Rents, Leases and Profits ("Collateral Assignment") with
Brickell Bay whereby the Company's manufacturing plant in Clearwater,
Florida and land was assigned to Brickell Bay as collateral for the
$300,000 note. In June 2003, Brickell Bay filed a foreclosure action
against the Company for nonpayment.
At December 27, 2003, the Company has a note payable currently in
default. Certain vehicles of the Company secured the note. During the
quarter ended September 27, 2003, the note holder sold three of the
vehicles securing the note thereby reducing the amount due to $30,829.
One secured vehicle remains under the note. The Company recorded an
impairment loss of $6,040 as a result of the write-down of the
vehicles sold. On November 10, 2003 the company paid the bank $13,000
against the note, thereby releasing it from the security of the note.
The bank has filed suit to recover the remaining balance of $17,829
plus accrued interest.
NOTE 7 - STOCKHOLDERS' DEFICIENCY
Issuance of Warrants for Financing
On July 28, 2003, the Company issued warrants to purchase 1,823,796
shares of the Company's common stock at an exercise price of $0.01 per
share. The warrants were issued to the Chief Executive Officer (for
390,305 shares) a director (for 921,305 shares) and to Financial
Partners Network Corporation (for 512,295 shares). The warrants expire
on May 15, 2006. The warrants were issued in consideration for
previous and continued funding via the payment of expenses and
liabilities of the Company by the parties. The Company has valued the
warrants at $145,356 using the Black-Scholes Pricing Model. The value
of the warrants was recorded as a financing expense during the six
months ended September 27, 2003. On September 22, 2003, the
above-mentioned parties exercised their warrants via a cashless
exercise, resulting in the issuance of 1,774,504 shares of the
Company's common stock.
Issuance of Common Stock for Settlement of Debt
In August 2003, the Company issued 50,000 shares of its common stock,
valued at $5,000, in partial settlement of debt. The Company also
agreed to pay the Creditor at the rate of $2.00 for
F-12
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
every case of the Company's bottled water product sold through the
direct efforts of the Creditor which will be applied towards the
remaining debt due to the Creditor. The Creditor will also receive in
cash a sales commission for every case of the Company's bottled water
product sold through the direct efforts of the Creditor. No limit has
been placed on the amount of commissions earned or cases sold.
In August 2003, the Company issued 275,000 shares of its common stock,
valued at $50,325, in settlement of debt with a consultant.
In September 2003, the Company issued 100,000 shares of its common
stock, valued at $18,300, in partial settlement of debt with a
consultant. An additional 150,000 shares, valued at $27,450, is due to
this consultant in accordance with the agreement.
In October 2003, the Company issued 471,481 shares of its common
stock, valued at $90,615, in settlement of debt with consultants and
former employees. The company recorded a loss of $15,282 in connection
with these issuances.
In November 2003, the Company issued 883,999 shares of its common
stock, valued at $118,622 in settlement of debt with consultants and
former employees.
In December 2003, the Company issued 350,000 shares of its common
stock, valued at $36,500 for services with a consultant and employee.
Issuance of Common Stock and Warrants for Consulting Services
In March 2002, the Company entered into an agreement with a consultant
for services to be provided. The Company agreed to issue the
consultant 500 shares of its common stock each month. In addition, the
Company agreed to pay the consultant up to $600,000 of its common
stock over the term of the agreement. The consultant was also entitled
to receive additional compensation for other services provided, as
defined in the agreement. The agreement was amended on June 6, 2002,
whereby the Company agreed to grant the consultant the right to
purchase 3,000 shares of the Company's common stock at a 40% discount
to the average of the three highest closing bid prices of the
Company's common stock as of the date of notice. In April 2002, the
consultant exercised her right to purchase 500 shares of the Company's
common stock. The remaining warrants expired unexercised. The Company
has valued the warrants at $214 using the Black-Scholes Pricing Model.
F-13
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
The value of the warrants was expensed during fiscal 2003. In
September 2003, the Company and the consultant mutually agreed to
terminate the agreement and acknowledged no further obligations due
between the parties.
In March 2002, the Company entered into an agreement with a consulting
firm for services to be provided. The agreement was amended on June 6,
2002, whereby the Company agreed to grant the firm the right to
purchase 3,000 shares of the Company's common stock at a 40% discount
to the average of the three highest closing bid prices of the
Company's common stock as of the date of notice. On January 15, 2003,
the Company entered into another agreement with the same consulting
firm for a period of six months. The Company agreed to pay the firm
common stock in an amount not less than 7.00% of the fully diluted
post recapitalization shares of the Company. The firm was issued
718,553 common shares valued at $1,221,540 under this agreement, which
was expensed over the term of the agreement. During the year ended
March 29, 2003, the consulting firm exercised its right to purchase
1,125 shares of the Company's common stock. The remaining warrants
expired unexercised. The Company has valued the warrants at $160 using
the Black-Scholes Pricing Model. The value of the warrants was
expensed during the year ended March 29, 2003. On June 30, 2003, the
Company and the consulting firm mutually agreed to terminate the
agreement. The Company also agreed to issue the consulting firm
150,000 shares of its common stock valued at $10,500, in full
settlement of the amounts due. The Company accrued and expensed
$10,500 relating to this settlement.
In March 2002, the Company entered into a six-month consulting
agreement with another consulting firm for services to be provided.
The agreement automatically renewed on a month-to-month basis. In
connection with the agreement, the Company issued 8,440 shares of its
common stock, valued at $354,456, during the year ended March 29,
2003. In addition, on August 29, 2002, the Company granted warrants to
purchase 9,564 shares of the Company's common stock at an exercise
price of $200 per share expiring August 29, 2007. The Company has
valued the warrants at $322,708 using the Black-Scholes Pricing Model.
The value of the warrants was expensed during the year ended March 29,
2003. On June 30, 2003, the Company and the consulting firm mutually
agreed to terminate the agreement. Terms of the agreement are the
Company agreeing to issue the consulting firm 50,000 shares of its
common stock valued at $3,500 in full settlement of the amounts due.
The Company accrued and expensed $3,500 relating to this settlement.
In June 2002, the Company entered into a three month consulting
agreement with a consultant for services to be provided. The Company
agreed to pay the consultant 4,500 shares of its unrestricted common
stock, which vest pro-rata over the life of the agreement. On August
30, 2002, the agreement was amended such that the Company agreed to
issue the consultant 7,500 shares of unrestricted common stock, which
vest pro-rata over the life of the agreement. The agreement was
further modified to extend the term to eight months. In September
2003, the Company and the consultant mutually agreed to terminate the
agreement and acknowledged no further obligations due between the
parties.
In September 2002, the Company entered into a new consulting agreement
with a current shareholder of the Company, whereby the consultant
agreed to continue to serve as a member of the Board of Directors of
the Company and assist the Company in increasing shareholders' equity.
The consultant is to provide services to the Company for as long as he
is a duly elected member of the Board of Directors. Compensation is
$5,000 per month in the form of cash or free-trading S-8 shares of the
Company's common stock. If common stock is to be issued, they are to
have a 25% discount to the closing price on the date of issue.
In September 2002, the Company issued warrants to a consultant for
services to be provided to purchase 30,000 shares of the Company's
common stock at an exercise price of a 40% discount to the closing bid
price of the Company on the day of notice of execution. The warrants
expire six months from the date of issuance. At the same time, the
Company entered into a Stock Option Purchase Agreement with this
consultant whereby the consultant has the option to purchase up to
30,000 shares of the Company's common stock at a 40% discount to the
closing bid price of the Company on the day of notice of execution.
The option expires six months from the date of the
F-14
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
agreement. In November 2002, the Company issued additional warrants to
the consultant for services to be provided to purchase 62,500 shares
of the Company's common stock at an exercise price of a 40% discount
to the closing bid price of the Company on the day of notice of
execution. The warrants expire six months from the date of issuance.
The consultant has exercised a total of 81,500 warrants during the
year ended March 29, 2003. The remaining warrants expired unexercised.
The Company valued the warrants at $802 using the Black-Scholes
Pricing Model and expensed them during the year ended March 29, 2003.
In April 2003, the Company entered into a new consulting agreement
with this consultant for services to be provided. The initial term of
the engagement was for six months and would automatically renew on a
month-to-month basis. In consideration for services to be provided,
the consultant was to receive 1,500,000 shares of the Company's
unrestricted common stock. No shares relating to this agreement were
issued to the consultant. On September 30, 2003, the Company and the
consultant mutually agreed to terminate the agreement and acknowledged
no further obligations due between the parties.
In March 2003, the Company entered into a three-month consulting
agreement with a consulting firm for services to be provided
commencing March 15, 2003. The Company irrevocably paid the consultant
50,000 shares of its restricted common stock valued at $22,000. The
Company has three options to extend the agreement for three months
each. For each additional three-month period, the Company shall pay
the consultant $1,500 and $15,000 worth of the Company's common stock.
The shares issued to the consultant will have a one-year hold
commencing March 15, 2003. In the event that the consultant is unable
to sell the shares after the one-year hold, resulting from the
Company's neglect, as defined in the agreement, the Company is
required to issue "penalty shares" as defined in the agreement. On
June 17, 2003, the Company entered into an extension agreement whereby
both parties agreed to extend the contract to September 17, 2003. For
this extension, the Company issued the consulting firm 150,000 shares
of its common stock valued at $15,000. The shares have a one-year hold
from the date of issuance. All other terms and conditions from the
prior contract remain unchanged.
In April 2003, the Company entered into an agreement with a lawyer for
services rendered and services to be rendered. In exchange for
providing legal services to the Company and as payment for services
already provided amounting to $45,000, the lawyer received 750,000
shares of the Company's S-8 common stock valued at $120,000. The
lawyer is required to sell the shares and the net proceeds to be
applied as a credit against the balance due. In the event there is an
excess of proceeds, the lawyer is required to credit the Company for
future legal services. The Company has expensed $120,000 related to
this agreement.
In April 2003, the Company entered into a consulting agreement with a
consulting firm for services to be provided. The initial term of the
engagement is for six months and will automatically renew on a
month-to-month basis. In consideration for services to be provided,
the consulting firm received 1,500,000 shares of the Company's
unrestricted common stock valued at $105,000. The Company has expensed
$105,000 related to this agreement. On September 30, 2003, the Company
and the consulting firm mutually agreed to terminate the agreement and
acknowledged no further obligations due between the parties.
In April 2003, the Company issued 300,000 shares of its common stock
valued at $36,000 to a consultant for legal services provided and to
be provided. Following the issuance of the shares, the consultant will
sell the shares on the open market. The net proceeds shall be applied
as a credit against any outstanding legal fees and the excess, if any,
shall be applied as a credit against
F-15
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
future legal fees. The Company has expensed $36,000 related to this
agreement.
In April 2003, the Company entered into a consulting agreement with a
consultant for services provided and to be provided. In exchange for
providing consulting services to the Company and as payment for
services already provided amounting to $27,000, the consultant
received 500,000 shares of the Company's S-8 common stock valued at
$60,000. 200,000 shares are to be issued directly to the consultant.
An additional 300,000 shares shall be issued and held by the Company
until the consultant complies with the provisions of the agreement and
it is determined that the balance owed is not satisfied. If the
balance owed is not deficient, the Company shall return the 300,000
shares to its treasury. The consultant is required to sell the shares
on the open market and apply the net proceeds as a credit against the
balance due. In the event that the balance due is not paid in full
from the net proceeds, then the Company will undertake to issue
additional shares of its common stock, and to register such shares
pursuant to an S-8 registration, so that additional installments of
shares can be issued to the consultant to satisfy the remaining
balance. In the event there is an excess of proceeds, the consultant
is required to credit the Company for future consulting services.
In May 2003, the Company issued 1,250,000 shares of its common stock
valued at $125,000 to a consultant for services to be provided over
one year. Effective June 23, 2003, the Company amended its agreement
with the consultant, whereby the consultant agreed to provide
additional services to the Company in exchange for 3,000,000 shares of
the Company's common stock valued at $240,000. These shares were
issued during the quarter ended September 27, 2003. The Company has
expensed $118,875 related to these agreements. In July 2003, the
Company entered into a new consulting agreement with this consultant
for services to be provided. The agreement expires July 18, 2005. As
consideration for the services to be provided, upon filing of Form
SB-2 registration statement with the Securities and Exchange
Commission, the Company will issue the consultant sufficient shares of
the Company's common stock such that the consultant will receive 15%
of the total shares outstanding, exclusive of options or warrants. At
September 27, 2003, in accordance with the agreement there are
6,160,719 shares due the consultant, which have been valued at
$369,643. The Company has accrued the value of this obligation and
expensed $30,804 related to this agreement.
In May 2003, the Company issued 1,000,000 shares of its common stock
valued at $100,000 to a consultant for services to be provided over
one year. Effective June 23, 2003, the Company amended its consulting
agreement with the consultant, whereby the consultant was to be issued
an additional 1,000,000 shares of the Company's common stock, valued
at $80,000 for services provided through the quarter ended September
27, 2003. The shares were issued during the quarter ended September
27, 2003. The Company has expensed $117,500 related to these
agreements.
In May 2003, the Company issued 500,000 shares of its common stock
valued at $50,000 to a consultant for services to be provided.
Following the issuance of the shares, the consultant will sell the
shares on the open market. The net proceeds shall be applied as a
credit against the fees incurred for services rendered. In the event
that the balance has not been paid in full from the net sale proceeds
of the shares, the Company will issue additional shares of its common
stock to the consultant. In the event that there is excess, it shall
be applied as a credit for future consulting services. The Company has
expensed $50,000 related to this agreement.
F-16
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
In May 2003, the Company entered into a six-month Attorney/Client
Agreement with an attorney for certain legal services to be provided.
The Company issued 250,000 shares of unrestricted S-8 common stock
valued at $27,500. The Company has expensed $27,500 related to this
agreement.
In May 2003, the Company entered into a consulting agreement with a
consultant for services to be provided over a one-year term. In July
2003, the Company issued the consultant 250,000 shares of its common
stock valued at $35,000 related to this agreement. An additional
150,000 shares valued at $21,000, has been accrued and are due to the
consultant at September 27, 2003. In addition, the Company is required
to issue the consultant 500,000 shares of its common stock when the
Company signs an Exclusive License Agreement with a certain company.
The term of the consulting agreement is twelve months. The Company has
expensed $21,000 relating to this agreement.
In May 2003, the Company entered into a consulting agreement with a
former director for services to be provided. The Company issued the
consultant 250,000 shares of its common stock valued at $25,000. The
Company has expensed $25,000 related to this agreement.
In June 2003, the Company issued 325,000 shares of its common stock
valued at $26,000 to a consultant for services to be provided over one
year. The Company has expensed $13,000 related to this agreement.
In August 2003, the Company issued 100,000 shares of its common stock
valued at $9,500 to a consultant for services to be provided over
thirty days. The Company has expensed $9,500 related to this
agreement.
Marketing Agreement:
On January 20, 2003, the Company entered into a six-month Strategic
Marketing Agreement with ChampionLyte Holdings, Inc. ("ChampionLyte")
whereby the Company agreed to issue shares equal to $125,000 per month
of its common stock to ChampionLyte. The shares were to be fully paid
and non-assessable and bear no restrictive legend. ChampionLyte was to
issue the Company 50,000 shares of its restricted stock per month
under the agreement. These shares were to carry piggyback registration
rights. ChampionLyte was also to pay the Company up to $100,000 per
month for services to be rendered by the Company relating to the use
of their beverage knowledge and distributing the other firm's beverage
product, as well as for any and all expenses incurred on its behalf.
In connection with the agreement, the Company received 50,000 shares
of ChampionLyte common stock, valued at $8,500 and $5,500 at December
27, 2003 and March 29, 2003, respectively. The stock is classified as
available for sale and is included in marketable securities in the
accompanying consolidated balance sheet. During the nine months ended
December 27, 2003, the Company issued 1,715,000 shares of its common
stock valued at $157,900 to ChampionLyte. On May 20, 2003, the Company
and ChampionLyte mutually agreed to terminate this agreement.
In August 2003, the Company entered into a marketing agreement with
Benchmark Career Fund ("BCF"), whereby BCF agreed to provide athletic
and other professional endorsement services for the Company's bottled
water product through initiating contact with athletes and other
selected professionals. BCF will receive $0.50 for every case of the
Company's product sold within the continental United States, Hawaii,
and Alaska, through the expiration of the
F-17
NOTE 7 - STOCKHOLDERS' DEFICIENCY (cont'd)
agreement. In addition, BCF will receive 10,000,000 shares of the
Company's common stock to be used to attract and manage athletes as an
initial payment. The agreement is for a period of two years,
commencing on the date the 10,000,000 shares are issued to BCF. On
September 30, 2003, the Company issued BCF 10,000,000 shares, valued
at $2,400,000. The value of these shares have been recorded as
unearned services and are being amortized over the life of the
agreement.
NOTE 8 - RELATED PARTY TRANSACTIONS
Employment Agreements:
On July 15, 2003, the Company entered into an employment agreement
with its Senior Vice President of Sales and Marketing ("SVP"). The
SVP's base compensation is $75,000 per year. In addition, the SVP is
entitled to receive 1,000,000 shares of the Company's common stock
over a one-year term. As of September 27, 2003, the SVP has been
issued 750,000 shares valued at $52,500. The remaining 250,000 shares
will be issued on the SVP's first employment anniversary. The Company
has expensed $35,000 relating to this agreement. Subsequent to the
quarter ended September 27, 2003, on September 30, 2003, the Company
issued 100,000 shares of its common stock to the SVP valued at $24,000
for accrued salary and advances against out-of-pocket expenses.
Other Transactions
At September 27, 2003, the Company had accrued expenses of $89,332 for
disbursements paid by a director on behalf of the Company for
operating expenses and payroll. In addition, at September 27, 2003,
the Company accrued $15,000 for directors' fees due the director.
During the quarter ended September 27, 2003, the Company issued the
director 1,256,783 shares of its common stock, valued at $100,543, for
directors fees owed and disbursements paid by the director on behalf
of the Company.
At December 27, 2003, the Company accrued $30,000 for directors' fees
due another director. During the quarter ended September 27, 2003, the
Company issued the director 750,000 shares of its common stock, valued
at $60,000, for directors' fees owed.
At September 27, 2003, the Company owed the CEO $15,641 for
disbursements paid by the CEO on behalf of the Company for operational
expenses. During the quarter ended September 27, 2003, the Company
issued the CEO 1,382,467 shares of its common stock, valued at
$110,597, in settlement of accrued salary and disbursements paid by
the CEO on behalf of the Company.
On October 30, 2003, the company issued 167,782 shares of its common
stock, valued at $31,878 in settlement of the debt the company owed
the daughter of the CEO. In connection with this transaction the
company recorded a loss on settlement of $3,355.
NOTE 9 - STOCK OPTION PLANS
2003 Equity Incentive Plan:
The shareholders approved the 2003 Equity Incentive Plan (the "
Incentive Plan") in April 2003. The Incentive Plan is effective April
1, 2003. Officers, directors, key employees and consultants, who in
the judgment of the Company render significant service to the Company,
are eligible to participate.
F-18
NOTE 9 - STOCK OPTION PLANS (cont'd)
The Incentive Plan provides for the awards of stock-based compensation
alternatives such as non-statutory stock options and incentive stock
options. The Incentive Plan provides for 10,000,000 shares of common
stock to be offered form either authorized and unissued shares or
issued shares, which have been reacquired by the Company. Options
granted under the Incentive Plan vest at a rate of 20% per year with
the first 20% becoming exercisable on the first anniversary of the
date the options were granted.
In April 2003, the Company granted employees and directors options to
purchase 3,250,000 and 6,000,000 shares, respectively, of the
Company's common stock under the plan. The options are fully vested as
of the grant date and have an exercise price of $0.01. Accordingly,
under APB No. 25, compensation expense of $487,500 has been recognized
during the six months ended
September 27, 2003 in connection with employee stock option grants. On
August 7, 2003, 6,250,000 options were exercised.
2003 Stock Incentive Plan:
In April 2003, the Company's Board of Directors approved the 2003
Stock Incentive Plan ("2003 Plan"). The purpose of the 2003 Plan is to
provide long-term incentives and rewards to employees, directors,
independent contractors or agents; assist the Company in attracting
and retaining such persons; and associate the interests of such
persons with those of the Company's stockholders. The 2003 Plan is to
be administered by the Board of Directors and the maximum number of
shares issuable under the 2003 Plan may not exceed 3,500,000 shares of
the Company's common stock. No shares have been issued under the 2003
plan as of June 28, 2003.
In July 2003, the Board of Directors approved a resolution for the
creation of the Company's 2003 Stock Incentive Plan #1 which includes
the issuance of a total of 2,710,750 shares of the Company's common
stock pursuant thereto and the filing of an S-8 Registration Statement
to register the Plan. No shares have been issued under the 2003 plan
as of September 27, 2003.
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. The adoption of SFAS No. 150 is not
expected to have a material impact on the Company's financial position
or results of operations.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation:
A former officer of Aqua Clara filed suit against Aqua Clara for
approximately $227,000 of accrued wages, loans that took the form of a
mortgage on the property, and other damages. This claim also sought
1,350,000 shares of the Company's common stock. At March 30 2002 the
Company had provided approximately $180,000 related to the accrued
wages, loans and other
F-19
damages in the accompanying financial statements, which was accrued by
Aqua Clara prior to the acquisition. However, the Company asserts that
all or a majority of the number of common shares due was a frivolous
claim and did not include any amount related to these shares in the
related financial statements. In September 2003 the Company settled
this suit for $450,000. The terms include 16 monthly installment
payments and 3,000,000 shares of S-8 common stock of the Company to be
escrowed as collateral, to be released upon satisfaction of the
settlement amount. The $450,000 settlement amount is included in
accrued expenses.
During the fiscal year ended March 29, 2003 and subsequent to such,
various vendors, consultants and professionals have filed actions
against the Company, including some having received default judgments.
The unsettled claims aggregate approximately $180,000. The Company has
included in accrued expenses at March 29, 2003 approximately $154,000
of these settlements based on this assessment, certain of the balances
were previously included as accounts payable. During the fiscal year
ended March 29, 2003 and subsequent to such, various former employees
of the Company and certain related Company's have filed actions
against the Company to recover severance pay, back wages, personal
property and interest. One such group of claims has obtained a
judgment against the Company's bottling equipment and is forcing a
disposition of the equipment through an auction. The unsettled claims
aggregate approximately $985,000. The Company has included in accrued
expenses at March 29, 2003 approximately $792,000 as a contingency
related to these unsettled claims, actions and judgments based on the
Company's and counsel's assessments. During the six months ended
September 27, 2003, the Company issued 1,369,884 shares of its common
stock valued at approximately $82,000 in settlement of claims.
An action was filed on June 26, 2003. The suit is a foreclosure action
against the Company by a secured mortgage holder for non-payment. The
Plaintiff seeks to recover possession of the collateral, consisting of
real property and machinery. The principal amount of the note is
approximately $300,000. In addition to this amount, back interest,
attorneys' fees and costs are being sought in the amount of
approximately $50,000. The complaint in this action has been received
by the Company, the Company's answer has been filed and the Company is
awaiting discovery.
Subsequent to the year ended March 29, 2003, the Company entered into
settlement agreements with certain professionals, consultants, vendors
and former employees. In connection with certain of these settlement
agreements, the Company is required to issue 1,375,000 shares of its
common stock. As of September 27, 2003, the Company has issued
1,225,000 shares related to these settlements, valued at $97,950. At
September 27, 2003, approximately $330,000 is due under these
settlements and are included in accrued expenses. An additional
150,000 shares of common stock remain to be issued under these
agreements. Certain plaintiffs are required to sell these shares and,
once sold, if there is any remaining balance, the Company is required
to pay the plaintiffs an aggregate of $15,000 per month, beginning
November 1, 2003, until the obligation is satisfied.
The Company is a defendant in an action commenced by an individual and
a related company, which action was filed on June 6, 2003. The
Plaintiff in this action served a 13-count complaint, which includes
claims of breach of contract, ejectment and foreclosure of a security
agreement.
Further, the Plaintiff is claiming that he is entitled to receive
shares of Preferred Stock of the Company, which are convertible into
15% of the issued and outstanding shares of the Company. The Plaintiff
has not specified an amount of damages. The satisfaction of the
conditions upon
F-20
NOTE 11 - COMMITMENTS AND CONTINGENCIES (cont'd)
which the Company agreed to issue such shares and the consideration
for the issuance of such shares are in dispute. Accordingly, the
Company believes the individual is no longer entitled to receive such
shares. The Company and counsel handling the action believe that the
Company will prevail in the defense of these transactions due to the
Plaintiff's failure to satisfy its consideration obligations. Although
the Company believes that such action is without merit, and it is
vigorously defending such action, there can be no assurance that such
action will not be successful.
In July 2003, the Company and one of its directors entered into a
Mutual Release Agreement, whereby the Company and the director
mutually agreed to terminate and release each other from their current
relationship for a consideration of $5,000.
The Company is party to various legal proceedings generally incidental
to its business as is the case with other companies in the same
industry.
License and Trademark Agreement:
On May 7, 2003, the Company entered into a new exclusive license and
trademark agreement with StonePoint Group, Limited ("StonePoint")
whereby the Company granted StonePoint the exclusive, unlimited
royalty-free right and license to all the intellectual property,
know-how and technology for use in the production, licensing,
marketing, distribution, use, sublicense, subcontract, sale and
transfer of the products (as defined in the agreement) within the
established territory. The territory includes the countries of Japan,
Taiwan, the Philippines, China, North Korea, South Korea, Singapore,
Vietnam, Thailand, Malaysia, Indonesia, Cambodia and Laos. No
royalties or fees of any kind shall ever be due to the Company and the
term of the agreement is perpetual.
The Company was paid $1,742,000 in the following form:
Cash of $400,000 pursuant to a prior license and trademark agreement
dated January 8, 2002;
Cash of $342,000 spent by StonePoint during 2002 for costs incurred by
StonePoint for remedial actions taken by StonePoint to regain and
recapture StonePoint's business relationship with its Distributor and
to protect and preserve the Distributor and StonePoint Supply and
Purchase Agreement as a result of contaminated product purchased by
the Company; and
The assumption by StonePoint of the Company's debt obligation to
Distributor in the amount of $1 million in future product rebates, in
settlement of the $3 million loss suffered by Distributor as a result
of the recall caused by the contaminated product purchased by the
Company.
As a result of the above, the Company recognized $1,342,000 in
settlement expense, of which $1,092,000 was recognized during the year
ended March 29, 2003 and $250,000 was recognized during the year ended
March 30, 2002. The Company recognized $1,342,000 in exclusive license
agreement revenue, related to the new agreement. Such amounts are
included in settlements in other income and expense in the
accompanying consolidated statements of operations.
F-21
NOTE 11 - COMMITMENTS AND CONTINGENCIES (cont'd)
The Company also recognized under the prior agreement $371,999 in net
revenues during the year ended March 29, 2003 and $39,001, was
recognized during the year ended March 30, 2002.
Lack of Insurance:
The Company, at December 27, 2003, did not maintain any liability
insurance or any other form of general insurance. The Company is also
lacking insurance coverage for Directors and Officers Liability,
workman's compensation, disability, and business discontinuance.
Although the Company is not aware of any claims resulting from
non-coverage, there is no assurance that none exist. Management plans
to obtain coverage as soon as possible.
NOTE 12 - SUBSEQUENT EVENT
On February 4, 2004, the Company issued the CEO 2,550,175 shares of
its common stock, valued at $90,276, in settlement of accrued salary
and disbursements paid by the CEO on behalf of the Company.
On February 4, 2004, the Company issued an employee 2,390,687 shares
of its common stock, valued at $85,108, in settlement of accrued
salary and disbursements paid by the employee on behalf of the
Company.
On February 4, 2004, the Company issued a consultant 1,000,000 shares
of its common stock, valued at $35,600, in settlement of fees and
disbursements paid by the consultant on behalf of the Company.
F-22
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion of our financial condition and results of our
operations should be read in conjunction with the Financial Statements and Notes
thereto. This document contains certain forward-looking statements including,
among others, anticipated trends in our financial condition and results of
operations and our business strategy. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. Important factors to consider in evaluating such forward-looking
statements include (i) changes in external factors or in the our internal
budgeting process which might impact trends in our results of operations; (ii)
unanticipated working capital or other cash requirements; (iii) changes in our
business strategy or an inability to execute its strategy due to unanticipated
changes in the industries in which it operates; and (iv) various competitive
market factors that may prevent us from competing successfully in the
marketplace.
Overview
BEVsystems International, Inc. and Subsidiary (collectively the "Company") is a
provider of oxygenated water. The Company bottles its product through co-packing
agreements and distributes its products primarily through an international
distribution network. The Company's fiscal year ends on the Saturday nearest to
March 31.
On July 12, 2001, the Company acquired the assets of the beverage division of
Life International, a provider of oxygenated water. The assets included
oxygenation equipment, bottles, proprietary seals, marketing materials, office
equipment, trademarks, patent rights and other intangible assets. On February
25, 2002, the Company consummated a merger with Aqua Clara Bottling and
Distribution, Inc. and its subsidiary.
Results of Operations
Results of Operations - Three Months Ended December 27, 2003 Compared to the
Three Months Ended December 28, 2002.
Revenues
Revenues generated during the three months ended December 27, 2003,
aggregated $65,625, as compared to $122,824 for the three months ended December
28, 2002. The decrease in revenues of $57,199 from the prior period is primarily
due to the closing of the manufacturing plant in Clearwater, Florida and the
transitioning from a direct sales organization to an organization that provides
licensees of its products on a national and international basis.
Costs of Goods Sold
Cost of Goods Sold for the three months ended December 27, 2003, aggregated
$10,531, or 16% of revenue, as compared to $141,870, or 116% of revenue, for the
three months ended December 28, 2002. The decrease for the three months ended
December 27, 2003 of $131,339, was primarily due to the closing of the
manufacturing plant in Clearwater, Florida and the transitioning from a direct
sales organization to an organization that provides licensees of its products on
a national and international basis.
F-23
Selling, general and administrative expenses
Selling, general administrative expenses incurred for the three months
ended December 27, 2003, aggregated $1,368,843, as compared to $18,579,374 for
the three months ended December 28, 2002. The decrease of $194,950 is directly
attributable to the closing of the manufacturing plant in Clearwater, Florida
and the transitioning from a direct sales organization to an organization that
provides licensees of its products on a national and international basis.
Net Loss and Loss Per Share
The net loss and the basic net loss per weighted average share were
$1,418,163 and $(.02), respectively, for the three months ended December 27,
2003, as compared to $1,687,400 and $(4.19), respectively, for the three months
ended December 28, 2002. The net loss decreased from operations decreased from
the previous period primarily as a result of the transitioning from a direct
sales organization to an organization that provides licensees of its products on
a national and international basis. The basic loss per share also was affected
by a 200:1 reverse stock split on January 2, 2003.
Results of Operations - Nine Months Ended December 27, 2003 Compared to the Nine
Months Ended December 28, 2002.
Revenues
Revenues generated during the nine months ended December 27, 2003,
aggregated $100,272 as compared to $566,444 for the nine months ended December
28, 2002. The decrease in revenues of $466,172 from the prior period is
primarily due to the transitioning from a direct sales organization to an
organization that provides licensees of its products on a national and
international basis.
Costs of Goods Sold
Cost of Goods Sold for the nine months ended December 27, 2003, aggregated
$39,106 or 39% of revenue, as compared to $440,636 or 78% of revenue for the
nine months ended December 28, 2002. The decrease for the nine months ended
December 27, 2003 of $401,530, was primarily due to a decrease in sales
resulting from the transition from a direct sales organization to an
organization that provides licensees of its products on a national and
international basis.
Selling, general, and administrative expenses
Selling, general and administrative expenses incurred for the nine
months ended December 27, 2003, aggregated $3,793,613, as compared to
$18,579,374 for the nine months ended December 28, 2002.The decrease of
$14,785,760 for the nine months ended December 27, 2003, was primarily due to a
one time impairment charge and the continued implementation by management of a
plan to reduce various costs, including but not limited to the closing of the
manufacturing plant in Clearwater, Florida and the transitioning from a direct
sales organization to an organization that provides licensees of its products on
a national and international basis.
Net Loss and Loss Per Share
The net loss and the basic net loss per weighted average share was
$4,289,604 and $(.12), respectively, for the nine months ended December 27,
2003, as compared to net loss of $18,967,381 and $(63.32), respectively, for the
nine months ended December 28, 2002. The net loss from operations decreased from
the previous period primarily as a result of the transitioning from a direct
sales organization to an organization
F-24
that provides licensees of its products on a national and international basis.
The net basic loss per share also was affected by a 200:1 reverse stock split on
January 2, 2003.
Liquidity and Capital Resources
At December 27, 2003, we had working capital deficit of $5,168,425. Our primary
source of liquidity has historically consisted of sales of equity securities and
debt instruments. The Company is currently engaged in discussions with numerous
parties with respect to raising additional capital, provided, however, the
Company cannot provide any assurance as to whether the Company will be able to
raise funding in connection with these negotiations. The Company has no
definitive plans or arrangements in place with respect to additional capital
sources at this time. The Company has no lines of credit available to it at this
time. There is no assurance that additional capital will be available to the
Company when or if required.
On October 22, 2001, the Company entered into a series of three convertible
promissory notes with Financial Partners Network Corporation in the amount of
$100,000, $100,000 and $62,584. The notes were due April 22, 2002 and had an
interest rate of 10.5% per year. The notes were convertible, at the option of
the holder. On August 29, 2002, in consideration for extending the maturity
dates on the notes, the Company granted warrants to purchase 2,574 shares of the
Company's common stock at an exercise price of $0.01 per share expiring May 15,
2005. On January 21, 2003, all three notes, inclusive of accrued interest of
$34,464, were converted into 1,710,753 shares of the Company's common stock at a
rate of $0.108 per share. In lieu of exercising the warrant by paying the per
share warrant price, the holder may execute a cashless exercise in accordance
with the formula set forth in the warrant agreement. In September 2003,
Financial Partners Network exercised their right to purchase 2,574 shares of the
Company's common stock via a cashless exercise, resulting in the issuance of
2,504 shares of the Company's common stock.
On November 15, 2001, the Company entered into a $200,000 convertible
promissory note with the Chief Executive Officer ("CEO") of the Company. The
note was due May 15, 2002 and had an interest rate of 10.5% per year. On August
29, 2002, in consideration for extending the maturity date on the note, the
Company granted warrants to purchase 1,961 shares of the Company's common stock
to the CEO at an exercise price of $0.01 per share expiring May 15, 2005. On
January 21, 2003, the note, including accrued interest of $24,500, was converted
into 3,571,424 shares of the Company's common stock at a rate of $0.108 per
share. In September 2003, the CEO exercised his right to purchase 1,961 shares
of the Company's common stock via a cashless exercise, resulting in the issuance
of 1,908 shares of the Company's common stock.
In April 2002, the Company issued an aggregate of $200,000 of convertible
promissory notes to several investors. The notes were due April 30, 2003 and
have an interest rate of 12%. The notes are convertible, at the option of the
holders, into shares of the Company's common stock at an initial conversion
price per share equal to the lesser of (i) the average of the lowest three-day
trading prices during the five trading days immediately prior to the conversion
date discounted by 25%, or (ii) the average of the lowest three-day trading
prices during the five trading days immediately prior to the funding. The
conversion price is subject to adjustment if the Company issues additional
shares of its common stock without consideration or for a consideration per
share less than the conversion price in effect immediately prior to the issuance
of such additional shares of common stock.
On May 15, 2002, the Company entered into an $80,000 convertible promissory
note with a director of the Company. The note was due August 15, 2002 and had an
interest rate of 12.0% per year. The note was convertible, at the option of the
holder, into shares of the Company's common stock at an initial conversion price
per share equal to the lesser of (i) the average of the lowest 3 day trading
prices during the 5 trading days immediately prior to the conversion date
discounted by 25%, or (ii) the average of the lowest 3 day trading prices during
the 5 trading days immediately prior to the funding date. The conversion price
was subject to adjustment. On August 29, 2002, in consideration for extending
the maturity date on the note, the Company granted warrants to purchase 784
shares of the Company's common stock at an exercise price of $0.01 per share
expiring May 15, 2005. On January 21, 2003,
F-25
this note, as well as a $363,000 secured note with the director, including
accrued interest, was converted into 4,440,044 shares of the Company's common
stock. The Company also granted to the director warrants to purchase 1,200
shares of the Company's common stock at an exercise price equal to the lesser of
(i) the average of the lowest three day trading prices during the five trading
days immediately prior to the conversion date discounted by 25%, or (ii) the
average of the lowest three day trading prices during the five trading day
immediately prior to the funding date. The warrants to purchase 1,200 shares of
the Company's common stock were exercised on August 7, 2002. On August 29, 2002,
in consideration for extending the maturity date of the aforementioned secured
note with this director, the Company granted warrants to purchase 3,845 shares
of the Company's common stock at an exercise price of $0.01 per share expiring
May 15, 2005. On September 22, 2003, the director exercised his right to
purchase 4,629 shares of the Company's common stock via a cashless exercise,
resulting in the issuance of 4,504 shares of the Company's common stock.
On June 4, 2002, the Company entered into a $100,000 convertible promissory
note with an investor. The note was due June 4, 2003 and has an interest rate of
12%. The note is convertible, at the option of the holder, into shares of the
Company's common stock at an initial conversion price per share equal to the
lesser of (i) the average of the lowest three-day trading prices during the five
trading days immediately prior to the conversion date discounted by 25%, or (ii)
the average of the lowest three-day trading prices during the five trading days
immediately prior to the funding. The conversion price is subject to adjustment
if the Company issues additional shares of its common stock without
consideration or for a consideration per share less than the conversion price in
effect immediately prior to the issuance of such additional shares of common
stock. Accrued interest of $15,867 is included in accrued expenses in the
Company's consolidated balance sheet as of December 27, 2003. The Company also
granted warrants to this investor to purchase 1,500 shares of the Company's
common stock at an exercise price equal to the lesser of (i) the average of the
lowest three day trading prices during the five trading days immediately prior
to the conversion date discounted by 25%, or (ii) the average of the lowest
three day trading prices during the five trading day immediately prior to the
funding date. The warrant is callable by the Company if the five-day average
closing stock price exceeds 120% of the five-day average closing price prior to
the funding date. The warrant expires on April 30, 2005. Subsequent to the
quarter ended September 27, 2003, on September 30, 2003, the investor converted
his note, including accrued interest of $15,879, into 2,000,000 shares of the
Company's common stock.
On July 5, 2002, the Company entered into a $250,000 convertible promissory
note with an investor. The note was due July 5, 2003 and does not bear interest,
except in the case of default. The note is convertible, at the option of the
holder, into shares of the Company's common stock at an initial conversion price
per share equal to the lesser of (i) the average of the 5-day closing bid prices
during the 5 trading days immediately prior to the conversion date discounted by
25%, or (ii) $60. The conversion price is subject to adjustment if the Company
issues additional shares of its common stock without consideration or for a
consideration per share less than the conversion price in effect immediately
prior to the issuance of such additional shares of common stock. The conversion
price is also subject to adjustment so that the number of shares into which the
note is converted does not exceed the number of shares such that, when
aggregated with all other shares of common stock then beneficially or deemed
beneficially owned by the holder, would result in the holder owning more than
9.999% of all such shares of common stock as would be outstanding on the
conversion date. In August 2003, $30,000 of the note was converted into 500,000
shares of the Company's common stock. Accrued interest due to the default of the
Company of $128,404 is included in accrued expenses in the Company's
consolidated balance sheet as of December 27, 2003. The Company also granted
warrants to the investor to purchase 1,667 shares of the Company's common stock
at an exercise price of $72.00 per share. The warrant is callable at the
Company's option, provided that the closing bid prices for the five days
preceding the date the Company exercises such option exceeds 140% of the warrant
exercise price and that an effective registration statement is in place.
Subsequent to the quarter ended September 27, 2003, on September 30, 2003, the
remaining balance of the note, including the default interest of $128,404, were
converted into 2,500,000 shares of the Company's common stock.
F-26
On August 4, 2002, the Company entered into a $75,000 convertible
promissory note with an investor bearing interest at 10% per annum with
principal and all accrued interest payable in full on March 4, 2003. The note is
secured by 50,000 shares of the Company's common stock. The holder of the note
is entitled, at its option, to convert at any time, the principal amount of the
note and accrued interest at a conversion price equal to the latest five-day
average of the closing bid price of the Company's common stock into such shares
of the Company's common stock. The shares to be issued pursuant to this note
shall contain unlimited piggyback registration rights. Any overdue payment of
principal on the note shall bear interest at 15% per annum until paid. On
February 5, 2003, the Company issued 50,000 shares of its common stock, valued
at $85,000, in consideration for extending the maturity date of the note.
Accrued interest of $7,500 is included in accrued expenses in the Company's
consolidated balance sheet as of December 27, 2003. In June 2003, a related
party-shareholder purchased the note from the investor. In consideration for
extending the maturity date of the note to when, the related party-shareholder
was granted warrants to purchase 250,000 shares of the Company's common stock at
an exercise price of $0.01 per share. The fair value of the warrants using the
Black-Scholes Option Pricing Model was $52,825 and is being amortized to
interest and financing expense over the term of the expense. On September 22,
2003, the related party-shareholder exercised his warrants via a cashless
exercise, resulting in the issuance of 249,306 shares of the Company's common
stock.
In August 2003, an investor converted his $50,000 note, including accrued
interest of $8,000, into 773,333 shares of the Company's common stock. On
September 22, 2003, an investor converted his $50,000 note, including accrued
interest of $8,515, into 329,662 shares of the Company's common stock. The
balance of these notes was $50,000 at September 27, 2003. Accrued interest of
$8,567 is included in accrued expenses in the Company's consolidated balance
sheet relating to the outstanding notes as of December 27, 2003. The Company
also granted these note holders warrants to purchase a total of 3,000 shares of
the Company's common stock at an exercise price equal to the lesser of (i) the
average of the lowest three day trading prices during the five trading days
immediately prior to the conversion date discounted by 25%, or (ii) the average
of the lowest three day trading prices during the five trading days immediately
prior to the funding date. The warrants are callable by the Company when the
five-day average closing stock price exceeds 120% of the five-day average
closing price prior to the funding date. The warrants expire on April 30, 2005.
On September 22, 2003, one note holder exercised his warrants and purchased 750
shares of the Company's common stock for $133, the proceeds are currently due
from the note holder. Subsequent to the quarter ended September 27, 2003, on
September 30, 2003, a note holder converted his $50,000 note, including accrued
interest of $8,433, into 417,378 shares of the Company's common stock.
If we need to obtain capital, no assurance can be given that we will be
able to obtain this capital on acceptable terms, if at all. In such an event,
this may have a materially adverse effect on our business, operating results and
financial condition. If the need arises, we may attempt to obtain funding
through the use of various types of short term funding, loans or working capital
financing arrangements from banks or financial institutions.
Settlement of Debt
In January 2003, the Company entered into an agreement with the Chief
Executive Officer and his spouse, a director of the Company and Financial
Partners Network Corporation whereby the Company issued a total of 9,722,221
shares of its restricted common stock to such shareholders in satisfaction of
all debt, convertible notes, security interest and other securities owed to
these parties, which aggregated approximately $1,050,000.
In August 2003, the Company issued 50,000 shares of its common stock,
valued at $5,000, in partial settlement of debt. The Company also agreed to pay
the creditor at the rate of $2.00 for every case of the Company's bottled water
product sold through the direct efforts of the creditor, which will be applied
towards the remaining debt due to the creditor. The creditor will also receive,
in cash, a sales commission for every case of the Company's bottled water
product sold through the direct efforts of the creditor. No limit has been
placed on the amount of commissions earned or cases sold.
F-27
In August 2003, the Company issued 275,000 shares of its common stock,
valued at $50,325, in settlement of debt with a consultant.
In September 2003, the Company issued 100,000 shares of its common stock,
valued at $18,300, in partial settlement of debt with a consultant. An
additional 150,000 shares, valued at $27,450, is due to this consultant in
accordance with the agreement.
At September 27, 2003, the Company had accrued expenses of $89,332 for
disbursements paid by a director on behalf of the Company for operating expenses
and payroll. In addition, at September 27, 2003, the Company accrued $15,000 for
directors' fees due to the director. During the quarter ended September 27,
2003, the Company issued the director 1,256,783 shares of its common stock,
valued at $100,543, for directors fees owed and disbursements paid by the
director on behalf of the Company.
At September 27, 2003, the Company owed the CEO $28,641 for disbursements
paid by the CEO on behalf of the Company for operational expenses. During the
quarter ended September 27, 2003, the Company issued the CEO 1,382,467 shares of
its common stock, valued at $110,597, in settlement of accrued salary and
disbursements paid by the CEO on behalf of the Company.
At September 27, 2003, the Company accrued $15,000 for directors' fees due
to a director. During the quarter ended September 27, 2003, the Company issued
the director 750,000 shares of its common stock, valued at $60,000, for
directors' fees owed.
A former officer of Aqua Clara filed suit against Aqua Clara for
approximately $227,000 of accrued wages, loans and other damages. In connection
with this lawsuit, a lien was filed against the Company's assets. The former
officer also sought 1,350,000 shares of the Company's common stock. As of March
30, 2002, the Company accrued approximately $180,000 related to the accrued
wages, loans and other damages in the accompanying financial statements, which
was accrued by Aqua Clara prior to the acquisition. In September 2003, the
Company settled this suit for $450,000. The terms include 16 monthly installment
payments and 3,000,000 shares of common stock of the Company to be escrowed as
collateral, to be released upon satisfaction of the settlement amount. The
$450,000 settlement amount is included in accrued expenses.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
BEVsystems maintains disclosure controls and procedures (as defined in Rule
13a-14(c) and Rule 15d-14(c) of the Exchange Act) designed to ensure that
information required to be disclosed in the reports of BEVsystems filed under
the Exchange Act is recorded, processed, summarized, and reported within the
required time periods. BEVsystems' Chief Executive Officer and Chief Financial
Officer has concluded, based upon his evaluation of these disclosure controls
and procedures as of December 27, 2003, that, as of the date of his evaluation,
these disclosure controls and procedures were effective at ensuring that the
required information will be disclosed on a timely basis in the reports of
BEVsystems filed under the Exchange Act.
(b) Changes in Internal Controls.
BEVsystems maintains a system of internal controls that is designed to provide
reasonable assurance that the books and records of BEVsystems accurately reflect
BEVsystems' transactions and that the established policies and procedures of
BEVsystems are followed. There were no significant changes to the internal
controls of BEVsystesm or in other factors that could significantly affect such
internal controls subsequent to the date of the evaluation of such internal
controls by the Chief Executive Officer and Chief Financial Officer, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
F-28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material developments in any litigation or governmental proceeding
or new proceedings involving the Company during the quarter ended December 27,
2003 except for the following:
o Plunkett v. BEVsystems Int'l, Inc, et al. This action was filed in the
Sixth Judicial Circuit for Pinellas County on February 11, 2003.
Former employees of the company filed the action to recover severance
pay as a result of their termination and/or for salary accruals. The
Plaintiffs in this case obtained a judgment in the amount of
approximately $438,620, have attached the Company's bottling equipment
in Clearwater, Florida and is forcing a sherrif's auction to dispose
of the equipment. The proceeds will go to the Lien Holder, Brickell
Bay Fund. The Company has filed an appeal with the courts to hear the
matter and the appellate upheld the judgment. The Company has filed a
request for a rehearing and has filed a multicount complaint against
the claimant. In addition, the judgment was dismissed with respect to
its subsidiaries.
Item 2. Changes in Securities
2003 Equity Incentive Plan:
In April 2003, the Company granted options to purchase [9,250,000] shares of the
Company's common stock under the Company's 2003 Equity Incentive Plan. The
options are fully vested as of the grant date and have an exercise price of $.01
of which 6,250,000 were exercised within the quarter
Item 3. Defaults Upon Senior Securities
On July 31, 2002, the Company refinanced their manufacturing plant located in
Clearwater, Florida. The amount of the mortgage note totaled $420,000. The
mortgage note is secured by the underlying building and land. The note was due
in monthly installments of principal and interest through 2032 and has an
initial interest rate of 12.99%. The interest rate will be adjusted annually to
a rate equal to 6.00% above the prime rate and shall never be less than 12.00%
per year. At December 27, 2003, the interest rate was 12%. Due to the Company's
failure to make the required payments under the note, the mortgage is now in
default and is currently due and has been reclassified as a current liability.
At December 27, 2003, the outstanding principal balance was $419,806.
In May 2002, the Company entered into an agreement with Brickell Bay Capital
Fund, LLC ("Brickell Bay") to extend the maturity date of its $300,000
convertible promissory note to October 4, 2002. As part of the agreement, the
Company was required to pay past due interest totaling $23,625 and issue
warrants to purchase 2,511 shares of the Company's common stock at an exercise
price of $65.99 per share. On May 30, 2002, Brickell Bay exercised warrants
relating to a previous agreement to purchase 2,511 shares of the Company's
common stock for a total consideration of $165,706. In addition, on April 4,
2002, the Company entered into a Collateral Assignment of Rents, Leases and
Profits ("Collateral Assignment") with Brickell Bay whereby the Company's
manufacturing plant in Clearwater, Florida and land was assigned to Brickell Bay
as collateral for the $300,000 note. In June 2003, Brickell Bay filed a
foreclosure action against the Company for nonpayment.
The Company has a note payable that is secured by certain vehicles of the
Company and the note holder is seeking repossession of the vehicles. During the
quarter ended September 27, 2003 the note holder sold three vehicles under the
note. The company paid the bank $13,000 towards the note, which subsequently
released the lien on the last vehicle. The remaining balance under the note of
$17,829. is being pursued by the lender.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
F-29
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description of Exhibits
No.
31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 Certification by the Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith)
32.2 Certification by the Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith)
(b) Reports on Form 8-K
On August 29, 2003, the Company filed a Form 8-K reporting under Item 5 with
respect to the filing of its Form 10-KSB for the year ended March 31, 2003 and
the Form 10-QSB for the quarter ended March 31, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
Date: February 10, 2004 BEVSYSTEMS INTERNATIONAL, INC.
By: /s/ G. Robert Tatum
---------------
G. Robert Tatum
CEO & Chairman
Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
Signature Capacity Date
/s/ G. Robert Tatum CEO & Chairman February 10, 2004
---------------
G. Robert Tatum
/s/ Darren J Cioffi CFO February 10, 2004
---------------
Darren J. Cioffi
F-30