Tuesday, November 19, 2002 7:28:18 PM
part 3..................
PART III
"The Items contained in this Part III will be updated to the end of the current
fiscal year by either a Definitive proxy or Information Statements, or and
amendment to this Report made within 120 days of the end of the fiscal year, as
provided in General Instruction E-3 to the Form."
SIGNATURES
In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aqua Vie Beverage Corp.
(Registrant)
Date 11-13-01 By /s/ Thomas J. Gillespie
-------- --------------------------
Thomas J. Gillespie, CEO and President
CEO, President, Director
Signature
/s/ Thomas J. Gillespie Title Date
----------------------- ------------------------ --------
Thomas J. Gillespie CEO, President, Director 11-13-01
15
CERTIFICATIONS
I, Thomas Gillespie certify that:
1. I have reviewed this annual report on Form 10-KSB of Aqua Vie
Beverage Corporation >;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 19, 2002
16
AQUA VIE BEVERAGE CORPORATION
Financial Statements
July 31, 2002
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
Bank of America Financial Center
601 W. Riverside, Suite 1940
Spokane, Washington 99201
(509) 838-5111
AQUA VIE BEVERAGE CORPORATION
C O N T E N T S
Independent Auditor's Report................................................F-1
Balance Sheets..............................................................F-2
Statements of Operations....................................................F-3
Statement of Stockholders' Deficit..........................................F-4
Statements of Cash Flows....................................................F-55
Notes to the Financial Statements...........................................F-6
Board of Directors and Stockholders
Aqua Vie Beverage Corporation
Ketchum, Idaho
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Aqua Vie Beverage Corporation
(a Delaware corporation) as of July 31, 2002 and 2001, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aqua Vie Beverage Corporation
as of July 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company's
significant operating losses raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
------------------------------
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
November 7, 2002
F-1
AQUA VIE BEVERAGE CORPORATION
BALANCE SHEETS
July 31,
---------------------------------
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 2,179 $ 3,608
Accounts receivable 6,471 82,776
Inventory 120,006 155,372
Prepaid and other assets 6,737 24,434
----------- -----------
Total Current Assets 135,393 266,190
----------- -----------
PROPERTY AND EQUIPMENT, net of depreciation 51,386 115,993
----------- -----------
OTHER ASSETS
Intangibles, net of accumulated amortization 175,731 246,881
----------- -----------
TOTAL ASSETS $ 362,510 $ 629,064
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 374,322 $ 362,312
Bank overdraft 16,388 52,412
Settlements payable 36,000 10,000
Accrued expenses 87,367 64,101
Accrued compensation - related party 180,000 --
Loan from related party 161,544 128,520
Notes payable - current 218,479 455,135
----------- -----------
Total Current Liabilities 1,074,100 1,072,480
----------- -----------
LONG-TERM DEBT
Notes payable, net of current portion 5,651 14,632
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, Series A, B, C, D, E, F and G, $0.001 par
value; 5,000,000 shares authorized, 12,941 and 15,074
shares issued and outstanding, respectively 13 15
Common stock, $0.001 par value; 5,000,000,000 shares
authorized, 106,749,217 and 58,253,173 shares
issued and outstanding, respectively 106,749 58,253
Additional paid-in capital 6,907,173 5,562,162
Subscriptions receivable -- (176,977)
Accumulated deficit (7,731,176) (5,901,501)
----------- -----------
Total Stockholders' Deficit (717,241) (458,048)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 362,510 $ 629,064
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF OPERATIONS
Years Ended July 31,
---------------------------------------
2002 2001
------------ -------------
NET REVENUES $ 162,809 $ 912,000
COST OF GOODS SOLD 182,013 804,064
------------ ------------
GROSS PROFIT (LOSS) (19,204) 107,936
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 157,064 544,815
Legal and accounting 141,234 165,614
Depreciation and amortization 149,111 100,427
Bad debts -- 92,175
Other general and administrative expenses 1,328,889 1,396,772
------------ ------------
Total expenses 1,776,298 2,299,803
------------ ------------
OPERATING LOSS (1,795,502) (2,191,867)
OTHER EXPENSE
Interest expense (34,173) (55,553)
------------ ------------
Total other expense (34,173) (55,553)
------------ ------------
LOSS BEFORE TAXES (1,829,675) (2,247,420)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (1,829,675) $ (2,247,420)
============ ============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.03) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 72,226,565 40,774,176
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Preferred Series A - G Common Stock Additional
----------------------- ----------------------
Number Number Paid-in SubscriptionsAccumulated
of Shares Amount of Shares Amount Capital Receivable Deficit Total
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2000 7,410 $ 7 30,811,408 $ 30,811 $ 2,422,236 $ -- ($3,654,081) $(1,201,027)
Issuance of common stock for services
at an average of $0.13 per share -- -- 5,335,000 5,335 640,783 -- -- 646,118
Issuance of common stock
for debt at $0.41 per share -- -- 850,000 850 340,000 -- -- 340,850
Conversion of preferred Series A to
common stock (1,368) (2) 4,489,123 4,489 (4,487) -- -- --
Conversion of preferred Series B to
common stock (4,608) (4) 16,567,642 16,568 (16,564) -- -- --
Conversion of preferred Series C to
common stock (200) -- 200,000 200 (200) -- -- --
Issuance of preferred Series D
for cash and receivable
at $100 per share 12,000 12 -- -- 1,199,988 (176,952) -- -- 1,023,048
Issuance of preferred Series E
for cash and receivable
at $100 per share 600 1 -- -- 59,999 (25) -- 59,975
Issuance of preferred Series F
for cash and receivable
at $100 per share 1,240 1 -- -- 123,999 -- -- 124,000
Forgiveness of debt and accrued
payroll by officer -- -- -- -- 796,408 -- -- 796,408
Net loss for the year ended
July 31, 2001 -- -- -- -- -- -- (2,247,420) (2,247,420)
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2001 15,074 15 58,253,173 58,253 5,562,162 (176,977) (5,901,501) (458,048)
Issuance of common stock
for cash at $0.04 per share -- -- 6,250,000 6,250 247,645 -- -- 253,895
Issuance of common stock
for services at at an average
of $0.04 per share -- -- 15,393,333 15,393 506,990 -- -- 522,383
Issuance of common stock
for debt at $0.05 per share -- -- 5,300,000 5,300 270,727 -- -- 276,027
Issuance of common stock for
settlement at $0.005 per share -- -- 240,000 240 960 -- -- 1,200
Conversion of preferred Series A
to common stock (376) -- 1,601,611 1,602 (1,602) -- -- --
Conversion of preferred Series B
to common stock (45) -- 191,236 191 (191) -- -- --
Conversion of preferred Series D
to common stock (11,112) (11) 18,519,864 18,520 (18,509) -- -- --
Conversion of preferred Series E
to common stock (600) (1) 1,000,000 1,000 (999) -- -- --
Forgiveness of payroll by officer -- -- -- -- 60,000 -- -- 60,000
Issuance of preferred Series G for
waiver from officer 10,000 10 -- -- 279,990 -- -- 280,000
Payment of stock subscriptions
receivable -- -- -- -- -- 176,977 -- 176,977
Net loss for the year ended
July 31, 2002 -- -- -- -- -- -- (1,829,675) (1,829,675)
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2002 12,941 $ 13 106,749,217 $106,749 $ 6,907,173 $ -- $(7,731,176) $ (717,241)
=========== =========== ============ ======== =========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-4
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended July 31,
-----------------------------------
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,829,675) $(2,247,420)
Adjustments to reconcile net loss to net cash
used by operating activities:
Bad debts -- 92,175
Depreciation and amortization 149,111 100,427
Common stock issued for interest 276,027 850
Common stock issued for services 522,383 646,118
Common stock issued for settlement 1,200 --
Preferred stock issued for waiver from officer 280,000 --
Compensation of officer as additional paid-in capital 60,000 240,000
Expenses paid by the issuance of note payable -- 128,520
Changes in assets and liabilities:
Accounts receivable 76,305 (57,538)
Inventory 35,366 94,418
Prepaid expenses 17,697 69,042
Accounts payable 12,010 207,691
Settlements payable 26,000 10,000
Accrued expenses (13,620) (403,463)
Accrued compensation 180,000 --
----------- -----------
Net cash used by operating activities 444,196) (1,119,180)
----------- -----------
CASH USED BY INVESTING ACTIVITIES:
Refund of intangible assets 57,088 (207,540)
Purchase of intangible assets (33,212) --
Purchases of equipment -- (49,272)
----------- -----------
Net cash provided (used) by investing activities 23,876 (256,812)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock 253,895 --
Sale of preferred stock, Series C, D, E and F -- 1,207,023
Payments on notes payable (8,981) (595)
Receipts from stock subscription 176,977 --
Bank overdraft (36,024) 52,412
Loans - related parties 33,024 109,633
----------- -----------
Net cash provided by financing activities 418,891 1,368,473
----------- -----------
INCREASE (DECREASE) IN CASH (1,429) (7,519)
BEGINNING BALANCE 3,608 11,127
----------- -----------
ENDING BALANCE $ 2,179 $ 3,608
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for debt $ 276,027 $ 340,850
Issuance of common stock for services $ 522,383 $ 646,118
Issuance of common stock for settlement $ 1,200 $ --
Issuance of preferred stock for waiver from officer $ 280,000 $ --
Forgiveness of debt and accrued payroll by officer $ 60,000 $ 796,408
The accompanying notes are an integral part of these financial statements.
F-5
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Aqua Vie Beverage Corporation was incorporated on July 31, 1998 in the State of
Delaware. The Company's principal assets were acquired through a bankruptcy
court ordered liquidation of a predecessor company and included the trade name,
beverage formula and the predecessor's public status. These assets were acquired
by the issuance of Series B preferred stock. The Company's business activities
have been financed primarily through the issuance of equity securities, outside
loans, and loans from officers and stockholders.
The Company's principal products include low calorie, non-preservative, lightly
flavored bottled water. Management plans include the marketing and distribution
of the Company's products nationally and internationally.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Aqua Vie Beverage Corporation
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
Accounting Method
-----------------
The Company's financial statements are prepared using the accrual method of
accounting.
Advertising Costs
-----------------
The Company expenses all advertising expenditures as incurred.
Principles of Consolidation
---------------------------
The accompanying financial statements are not deemed to be consolidated because
the Company's wholly owned subsidiary, BEVA Corporation is dormant.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with maturity of three months or less to be
cash equivalents.
Allowance for Doubtful Accounts
-------------------------------
Provision for losses on trade accounts receivable is made in amounts required to
maintain an adequate allowance to cover anticipated bad debts. Accounts
receivable are charged against the allowance when it is determined by the
Company that payment will not be received.
Inventories
-----------
Inventories consist primarily of raw materials and finished product and are
valued at the lower of cost (first in, first out) or market.
F-6
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories (continued)
Inventory is comprised of the following at July 31:
2002 2001
------------- ------------
Finished goods $ 72,006 $ 113,013
Raw materials 48,000 42,359
------------- ------------
Total $ 120,006 $ 155,372
============= ============
Property and Equipment
----------------------
Property, plant and equipment are stated at cost. All expenditures for
improvements, replacements and additions are added to the asset accounts at
cost.
Expenditures for normal repairs and maintenance are charged against earnings as
incurred. The cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in the statements of
operations when depreciable assets are retired or otherwise disposed.
Depreciation is provided for by the use of straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended July 31, 2002 and 2001 was $64,608 and $60,768, respectively.
The following is a summary of property and equipment at July 31:
2002 2001
-------------- --------------
Total property and equipment $ 201,608 $ 201,608
Less accumulated depreciation (150,222) (85,615)
-------------- --------------
Net property and equipment $ 51,386 $ 115,993
============== ==============
Intangible Assets
-----------------
Most intangible assets are amortized over their estimated useful lives of 3 to
10 years on a straight-line basis. Amortization expense for the years ending
July 31, 2002 and 2001 was $93,676 and $38,659, respectively. In the year ended
July 31, 2002, the Company received $52,089 from a customer, which represents a
refund of slotting fees paid and was recorded as a reduction of intangibles.
Income Taxes
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the "more
likely than not" standard imposed by SFAS No. 109 to allow recognition of such
an asset.
F-7
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
At July 31, 2002, the Company had net deferred tax assets of approximately
$1,900,000, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes (continued)
------------------------
will realize the benefit of the net deferred tax asset, a valuation allowance
equal to the net deferred tax asset has been established at July 31, 2002. See
Note 3.
At July 31, 2002, the Company has net operating loss carryforwards of
approximately $13,100,000, which expire in the fiscal years ending July 31, 2002
through July 31, 2022.
Basic and Diluted Loss Per Share
--------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of common shares and common share equivalents outstanding during the
year. The weighted average number of shares was calculated by taking the number
of shares outstanding and weighting them by the amount of time they were
outstanding. Basic and diluted loss per share were the same because the
inclusion of outstanding warrants and other convertible instruments would be
considered antidilutive.
Revenue Recognition and Slotting Fees
-------------------------------------
Revenues from sales of product are recognized when the product is shipped and
collectibility is reasonably assured with title passing at the shipping point.
Sales terms for distributors and retail customers are 2%, net 30. At July 31,
2002, the Company was not selling to or through distributors. Sales terms
generally do not allow a right of return. Products are drop shipped from the
bottler to the customer and the customer pays all shipping charges.
Sales of products directly to customers through e-commerce and traditional
channels are recognized when shipped. In these transactions, the Company acts as
merchant-of-record. Accordingly, the Company records as revenue the full sales
price of the product sold and records the full cost of the product to the
Company as cost of revenues, upon shipment of the product. All internet sales
are paid via credit card and are considered immediately collectible.
The Company pays slotting or shelving fees to retailers. In past years, these
costs were deferred and expensed over an estimated time frame of 3 years.
Slotting fees paid during the year ended July 31, 2001 were $207,540. This
amount is included in intangibles. Effective with its April 30, 2002 financial
statements, the Company has changed its accounting policy to record slotting
fees as a reduction of revenue. This new policy is in accord with the consensus
of EITF 01-09 "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which affirms that the payment of
consideration by a vendor to a customer should not be recognized as an asset of
the vendor and further affirms that slotting fees should be accounted for as a
reduction of revenues. If the Company had implemented this new policy in the
year ended July 31, 2001, then the Company's net loss would have increased by
$168,881.
Compensated Absences
--------------------
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off, depending on job classification, length of service, and other
factors. The Company's policy is to recognize the costs of compensated absences
when actually paid to employees. The related liability, due to immateriality,
has not been recorded.
F-8
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
---------
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Impaired Asset Policy
---------------------
The Company reviews its long-lived assets quarterly to determine if any events
or changes in circumstances have transpired which indicate that the carrying
value of its assets may not be recoverable. The Company does not believe any
adjustments are needed to the carrying value of its assets at July 31, 2002.
Derivative Instruments
----------------------
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which is effective for the Company as of January 1,
2001. These standards establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. They require that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
Historically, the Company has not entered into derivative contracts to hedge
existing risks or for speculative purposes.
At July 31, 2002 and 2001, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments as defined by SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," include cash, trade accounts
receivable, accounts payable, accrued expenses and short-term borrowings. All
instruments are accounted for on a historical cost basis, which, due to the
short maturity of these financial instruments, approximates fair value.
F-9
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
--------------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides for the
elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. An early adoption provision exists for companies with
fiscal years beginning after March 15, 2001. The Company has adopted SFAS No.
142. Application of the nonamortization provision of SFAS No. 142 will have no
effect on the Company's financial statements as the Company does not currently
have assets with indefinite lives.
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 establishes guidelines related to the retirement of
tangible long-lived assets of the Company and the associated retirement costs.
This statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived assets.
This statement is effective for financial statements issued for the fiscal years
beginning after June 15, 2002 and with earlier application encouraged. The
Company adopted SFAS No. 143 and the adoption has no effect on the financial
statements of the Company at July 31, 2002.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This new standard establishes a single accounting model for long-lived
assets to be disposed of by sale, including discontinued operations. SFAS No.
144 requires that these long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations. This statement is effective beginning for
fiscal years after December 15, 2001, with earlier application encouraged. The
Company adopted SFAS No. 144 and the adoption has no effect on the financial
statements of the Company at July 31, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No.
4, and 64, Amendment of SFAS No. 13, and Technical Corrections," which updates,
clarifies and simplifies existing accounting pronouncements. SFAS No. 4, which
required all gains and losses from the extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related tax effect
F-10
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
was escinded, and as a result, SFAS No. 64, which amended SFAS No. 4, was
rescinded as it was no longer necessary. SFAS No. 145 amended SFAS No. 13 to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications which
have economic effects similar to those of sale-leaseback transactions. The
pronouncement will not affect the Company as it has not entered into any of the
aforementioned transactions.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs associated with
exit and disposal activities, including restructuring activities. SFAS No. 146
also addresses recognition of certain costs related to terminating a contract
that is not a capital lease, costs to consolidate facilities or relocate
employees, and termination benefits provided to employees that are involuntarily
terminated under the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual deferred-compensation contract.
SFAS No. 146 was issued in June 2002. The impact on the Company's financial
position or results of operations from adopting SFAS No. 146 has not been
determined.
Going Concern
-------------
As shown in the financial statements, the Company incurred a net loss of
$1,829,675 for the year ended July 31, 2002 and has an accumulated deficit of
$7,731,176. The Company has negative equity, negative working capital and
limited cash resources. These factors indicate that the Company may be unable to
continue in existence. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue existence. Management plans to sell new stock
issuances, which are expected to raise the capital needed to operate the
Company. Management is also actively pursuing the distribution of the Company's
products nationally and internationally.
Shipping and Handling Costs
---------------------------
The Company includes all shipping and handling costs in cost of sales.
Stock Based Compensation
------------------------
The Company accounts for non-cash issuances of stock and warrants under the
fair-value method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." Compensation cost is recognized over the service period.
Reclassification
----------------
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented.
F-11
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 3 - NET OPERATING LOSS CARRYFORWARD
The Company acquired, as part of the assets purchased in the bankruptcy
liquidation sale, the predecessor company's net operating loss carryforward
(NOL) in the approximate amount of $15,000,000. A valuation allowance has been
established so that no value is reflected at the balance sheet dates for any
deferred tax benefit. The value, if any, of the NOL will depend upon a number of
unknowns, including attaining profitable operations and other tax law issues
related to the acquisition of the NOL from the Company's predecessor. These
issues include the change in ownership limitations and any adjustments from the
relief of debts from prior operations. The aggregate net operating loss
carryforwards began to expire during the year ended July 31, 2001.
NOTE 4 - RELATED PARTY TRANSACTIONS
Advances from Officer
---------------------
At July 31, 2002 and 2001, the Company owed $95,121 and $128,520, respectively,
to its CEO. These amounts are payable on demand and carry no interest. During
the year ended July 31, 2001, the Company's CEO forgave $176,440 of the
previously accumulated obligation. This amount was recorded in the financial
statements as a capital contribution. The Company's chief executive officer has
the majority of the Company's common stock voting rights.
Forgiveness of Accrued Payroll
------------------------------
Capital contributions for the year ended July 31, 2001 were $499,968 of forgiven
accrued compensation and $120,000 of forgiven current period compensation. For
the year ended July 31, 2002, $60,000 of compensation was forgiven as a capital
contribution.
Issuance of Series G Preferred Shares
-------------------------------------
In June 2002, the Company issued to its chief executive officer 10,000 shares of
a newly created class of preferred stock in a transaction valued at $280,000.
The shares were issued as consideration for the CEO's waiver of prior year loans
made and earned compensation forgiven and for the CEO's agreeing not to withdraw
his waiver. The features of the new stock, Series G preferred shares, are
detailed in Note 7.
F-12
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 5 - STOCK WARRANTS
At July 31, 2002 and 2001, there were warrants outstanding to purchase 250,000
shares of the Company's common. During the fiscal year ended July 31, 2001,
warrants to purchase 172,800 shares of the Company's common stock expired
unused. At July 31, 2001 and 2002, the Company's outstanding warrants consisted
of the following:
Common Common
Date Expiration Price Number of Shares per Shares
Issued Date per Share Warrants Warrant Issuable
------- ---------- --------- --------- ---------- --------
8/31/00 8/31/04 $1.00 1 250,000 250,000
NOTE 6 - COMMON STOCK
The Company is authorized to issue a total of 5,000,000,000 shares of $0.001 par
value common stock. During the year ended July 31, 2002, the Company issued
5,300,000 shares of its common stock in exchange for notes payable valued at
$276,027, 15,393,333 shares of its common stock for services valued at $522,383,
6,250,000 shares of its common stock for cash of $253,895 and 240,000 shares of
its common stock valued at $1,200 for the settlement of a dispute. The shares
issued for services were valued at their fair market values on the dates of
issuance. Other issuances resulted from the conversion of 376 shares of
preferred Series A stock, 45 shares of preferred Series B stock, 11,112 shares
of preferred Series D stock and 600 shares of preferred Series E stock to
1,601,611, 191,236, 18,519,864 and 1,000,000 shares, respectively, of the
Company's common stock.
During the year ended July 31, 2001, the Company issued 850,000 shares of its
common stock in exchange for a convertible note payable valued at $340,850 and
5,335,000 shares of its common stock for services valued at $646,118. The shares
were valued at their fair market value on the date of issuance. Other issuances
resulted from the conversion of 1,368 shares of preferred Series A stock, 4,608
shares of preferred Series B stock and 200 shares of preferred Series C stock to
4,489,123, 16,567,642 and 200,000 shares, respectively, of the Company's common
stock.
NOTE 7 - PREFERRED STOCK
The Company is authorized to issue a total of 5,000,000 shares of preferred
stock, par value at $0.001. At July 31, 2002, the Company had seven classes of
preferred stock outstanding with an aggregate of 465,000 shares authorized. The
Company has been authorized to issue 200,000 shares of $0.001 par value Series A
preferred stock, 200,000 shares of $0.001 par value Series B preferred stock,
10,000 shares of $0.001 par value Series C preferred stock, 20,000 shares of
$0.001 par value Series D preferred stock, 5,000 shares of $0.001 par value
Series E preferred stock, 5,000 shares of $0.001 par value Series F preferred
stock and 25,000 shares of $0.001 par value Series G preferred stock. The board
of directors of the Company has the authority to issue shares of preferred stock
from time to time in one or more classes or series, which may have such voting
power, full or limited as fixed by the board of directors. The board of
directors may also determine the terms of any such series or class, including
dividend rights, dividend rates, conversion, exchange, voting rights and terms
of redemption, the redemption price and the liquidation preference of such class
or series.
F-13
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
The number of shares outstanding of preferred stock, Series A, B, C, D, E, F and
G and amounts were as follows:
July 31, 2002
-----------------------------------------
Number of Shares Amount
------------------------ ------------
Series A 813 $ 1
Series B -- --
Series C -- --
Series D 888 1
Series E -- --
Series F 1,240 1
Series G 10,000 10
------------------------ ------------
Total 12,941 $ 13
======================== ============
July 31, 2001
-----------------------------------------
Number of Shares Amount
------------------------ ------------
Series A 1,189 $ 1
Series B 45 --
Series C -- --
Series D 12,000 12
Series E 600 1
Series F 1,240 1
Series G -- --
------------------------ ------------
Total 15,074 $ 15
======================== ============
General Terms
All Series A, B, C, D, E, F and G preferred stock shares contain standard terms
relative to adjustment for stock splits and combinations, reorganizations,
mergers, and consolidations or sales of assets, registration of stock issued
upon conversion, and registration rights. For dividend, liquidation, mergers and
consolidations, the respective rights of each series are different. Series A
preferred stock is limited to $300 per share in non-cumulative preferential
dividends before common stock. Each Series A preferred share has liquidation
rights and merger or consolidation rights before common stock. Series B
preferred stock is limited to $6 per share in non-cumulative preferential
dividends before common stock. Each Series B preferred share has liquidation
rights and merger or consolidation rights before common stock. Series C
preferred stock is limited to $0.25 per share in non-cumulative preferential
dividends before common stock. Each Series C preferred share has liquidation
rights and merger or consolidation rights before common stock. Series D
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series D preferred share has liquidation
rights and merger or consolidation rights before common stock. Series E
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series E preferred share has liquidation
rights and merger or consolidation rights before common stock. Series F
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series F preferred share has liquidation
rights and merger or consolidation rights before common stock. Series G
preferred stock is limited to
F-14
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
General Terms (continued)
$80 per share in non-cumulative preferential dividends before common stock. Each
Series G preferred share has liquidation rights and merger or consolidation
rights before common stock.
As of the date of these financial statements, no dividends have been declared
due to the Company's accumulated deficit.
Voting Rights
All Series A, B, C, D, E, and F preferred shares have the right to vote based on
their conversion rights to common shares. Series D preferred shares have the
right to vote based on five and a half times their conversion rights to common
shares. Series G preferred shares have the right to vote based on four times
their conversion rights to common shares.
Conversion to Common Shares
Preferred stock is convertible to shares of common stock and common stock
equivalent voting rights as of July 31, 2002 and 2001 as follows.
July 31, 2002
Voting Right Preferred
Preferred Shares Conversion Common Shares Ratio of Equivalent
Outstanding Ratio Issuable on Conversion Preferred Voting Rights
----------------- ----------- ---------------------- ------------ -------------
A 813 1:4,259 3,462,567 4,259 3,462,567
D 888 1:l,667 1,480,296 9,167 8,140,296
F 1,240 1:2,000 2,480,000 2,000 2,480,000
G 10,000 1:8,000 80,000,000 32,000 320,000,000
---------------------- -------------
87,422,863 334,082,863
---------------------- -------------
July 31, 2001
Voting Right Preferred
Preferred Shares Conversion Common Shares Ratio of Equivalent
Outstanding Ratio Issuable on Conversion Preferred Voting Rights
----------------- ----------- ---------------------- ------------ -------------
A 1,189 1:3,721 4,424,269 3,721 4,424,269
B 45 1:3,721 167,445 6,000 270,000
D 12,000 1:1,667 20,000,000 9,167 110,004,000
E 600 1:1,667 1,000,000 1,667 1,000,000
F 1,240 1:2,000 2,480,000 2,000 2,480,000
---------------------- -------------
28,071,714 118,178,269
---------------------- -------------
The Series A and B preferred provide that each share is entitled to an
additional conversion share to common stock based on a formula that reflects
increased market value of the common stock when the common shares have a market
price in excess of $2 but not greater than $12 per share.
F-15
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
Conversion to Common Shares (continued)
Preferred Series A, B, and C stock have a basic conversion rate of 1,000 shares
of common stock for every share of preferred stock. The conversion ratio to
common for Series A and B preferred stock is adjusted upwards depending on any
future issue of common shares at below $1.65 per share. The conversion rates for
Series A and B preferred stock were 1:4,259 and 1:3,721 preferred to common as
of July 31, 2002 and 2001, respectively. Preferred Series D and E have a basic
conversion rate of 1,667 shares of common stock for every share of preferred
stock. Preferred Series F have a basic conversion rate of 2,000 shares of common
stock for every share of preferred stock. Preferred Series G have a basic
conversion rate of 8,000 shares of common stock for every share of preferred
stock.
F-16
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 8 - NOTES PAYABLE
Current notes payable at July 31, 2002 and 2001 consisted of the following:
Creditor and Conditions 2002 2001
--------------------------------
Note payable to GMAC, interest at 13.99%,
secured by 2000 Plymouth Voyager,
payable in monthly installments
of $452.07 through April 28, 2006 $ 9,130 $ 17,767
Bruce Butcher, unsecured, interest at
8%, convertible to one share of common
stock per $0.80 of debt, due on
September 1, 2001 75,000 75,000
Joe Wozniak, unsecured, interest at 8%,
convertible to one share of common stock
per $0.80 of debt, due on demand.
See Note 11. 80,000 80,000
Keely Smith, secured by product
inventory of subsidiary, interest at
24%, due on September 25, 1998. Delinquent 60,000 60,000
Roy Schneiderman, unsecured, interest at
8%, due on March 15, 2000. -- 237,000
Total notes payable 224,130 469,767
Less current portion 218,479 455,135
Net long-term debt $ 5,651 $ 14,632
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Officer's Salary
The Company has a compensation agreement to pay its CEO a salary of $20,000 per
month. During the years ended July 31, 2002 and 2001, the Company's CEO forgave
$60,000 and $499,968 of accrued compensation, respectively, which were recorded
as capital contributions. See Note 4.
F-17
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
Office Lease
------------
The Company maintains its administrative offices in Ketchum, Idaho under a lease
which expires in November 2002 and is personally guaranteed by the Company's
CEO. Lease payments for the years ended July 31, 2002 and 2001 totaled $70,903
and $96,880 respectively. The Company plans to renew the lease for one year on a
reduced level in the amount of $3,906 per month.
Equipment Leases
----------------
The Company leases two autos with monthly lease payments, which total $1,130.
The leases on the automobiles are for five years and are set to expire in May
2003.
Distribution Agreements
-----------------------
The Company has several agreements with distributors for the selling of product
with no ongoing commitment on the part of either party.
Merchant Service Agreement
--------------------------
The Company has an ongoing month-to-month merchant service agreement with Yahoo!
Store for internet sales of its products. The agreement calls for a hosting fee
in the amount of $50 per month, a monthly insertion fee in the amount of $0.10
for every product available from the Merchant's Store, a monthly transaction fee
equal to 0.5% of total revenue and a monthly revenue share fee equal to 3.5% of
network revenue. At July 31, 2002, there were no amounts owed under this
agreement.
Litigation
----------
Certain vendors of the Company are pursuing legal action for payment of overdue
amounts. The Company is working to resolve these issues. In management's
opinion, all reasonable amounts relating to these past due and disputed
liabilities have been accrued in the accompanying financial statements.
F-18
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 10 - CONCENTRATIONS
During the year ended July 31, 2002, 63% of the Company's revenues were derived
from sales to one customer, a national supermarket chain.
NOTE 11 - SUBSEQUENT EVENTS
Stock Symbol Change
The symbol changed from AVBC to AQVB on September 3, 2002.
Reverse Stock Split
On September 3, 2002, the Company's common stock reverse split 1:20.
F-19
19
NOTE 11 - SUBSEQUENT EVENTS (continued)
Conversion of Note Payable
In September 2002, an $80,000 note payable together with accrued interest in the
amount of $16,000 was converted to 1,920,000 shares of common stock in the
Company. See Note 8.
Common Stock Issuance
A disputed liability was settled in September 2002 by the Company's issuance of
150,000 shares of common stock to a vendor. The fair value of this issuance has
been estimated at $36,000, and is accrued in the accompanying financial
statements under settlements payable.
20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed since the third quarter.
Aqua Vie Beverage Corporation
FORM 10KSB Exhibit List
2.1 Auditor's letter April 10,
2001
4.1 Designation Series D November 15, 2000
4.2 Designation Series E November 15, 2000
4.3 Designation Series F July 27, 2001
SIGNATURES
In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aqua Vie Beverage Corp.
(Registrant)
Date 11-13-01 By /s/ Thomas J. Gillespie
-------- --------------------------
Thomas J. Gillespie, CEO and President
Signature Title Date
/s/ Thomas J. Gillespie 11-13-01
----------------------- ------------------------ --------
Thomas J. Gillespie CEO, President, Director
21
CERTIFICATIONS
I, Thomas Gillespie certify that:
1. I have reviewed this annual report on Form 10-KSB of Aqua Vie
Beverage Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 19, 2002
22
EXHIBIT 99
CERTIFICATION OF CHIEF FINANCIAL OFFICER and CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Aqua Vie Beverage Corporation (the
"Company") on Form 10-KSB for the year ended July 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Periodic Report"),
I, Thomas Gillespie>, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the Periodic Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: November 19, 2002
PART III
"The Items contained in this Part III will be updated to the end of the current
fiscal year by either a Definitive proxy or Information Statements, or and
amendment to this Report made within 120 days of the end of the fiscal year, as
provided in General Instruction E-3 to the Form."
SIGNATURES
In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aqua Vie Beverage Corp.
(Registrant)
Date 11-13-01 By /s/ Thomas J. Gillespie
-------- --------------------------
Thomas J. Gillespie, CEO and President
CEO, President, Director
Signature
/s/ Thomas J. Gillespie Title Date
----------------------- ------------------------ --------
Thomas J. Gillespie CEO, President, Director 11-13-01
15
CERTIFICATIONS
I, Thomas Gillespie certify that:
1. I have reviewed this annual report on Form 10-KSB of Aqua Vie
Beverage Corporation >;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 19, 2002
16
AQUA VIE BEVERAGE CORPORATION
Financial Statements
July 31, 2002
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
Bank of America Financial Center
601 W. Riverside, Suite 1940
Spokane, Washington 99201
(509) 838-5111
AQUA VIE BEVERAGE CORPORATION
C O N T E N T S
Independent Auditor's Report................................................F-1
Balance Sheets..............................................................F-2
Statements of Operations....................................................F-3
Statement of Stockholders' Deficit..........................................F-4
Statements of Cash Flows....................................................F-55
Notes to the Financial Statements...........................................F-6
Board of Directors and Stockholders
Aqua Vie Beverage Corporation
Ketchum, Idaho
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Aqua Vie Beverage Corporation
(a Delaware corporation) as of July 31, 2002 and 2001, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aqua Vie Beverage Corporation
as of July 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company's
significant operating losses raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
------------------------------
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
November 7, 2002
F-1
AQUA VIE BEVERAGE CORPORATION
BALANCE SHEETS
July 31,
---------------------------------
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 2,179 $ 3,608
Accounts receivable 6,471 82,776
Inventory 120,006 155,372
Prepaid and other assets 6,737 24,434
----------- -----------
Total Current Assets 135,393 266,190
----------- -----------
PROPERTY AND EQUIPMENT, net of depreciation 51,386 115,993
----------- -----------
OTHER ASSETS
Intangibles, net of accumulated amortization 175,731 246,881
----------- -----------
TOTAL ASSETS $ 362,510 $ 629,064
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 374,322 $ 362,312
Bank overdraft 16,388 52,412
Settlements payable 36,000 10,000
Accrued expenses 87,367 64,101
Accrued compensation - related party 180,000 --
Loan from related party 161,544 128,520
Notes payable - current 218,479 455,135
----------- -----------
Total Current Liabilities 1,074,100 1,072,480
----------- -----------
LONG-TERM DEBT
Notes payable, net of current portion 5,651 14,632
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, Series A, B, C, D, E, F and G, $0.001 par
value; 5,000,000 shares authorized, 12,941 and 15,074
shares issued and outstanding, respectively 13 15
Common stock, $0.001 par value; 5,000,000,000 shares
authorized, 106,749,217 and 58,253,173 shares
issued and outstanding, respectively 106,749 58,253
Additional paid-in capital 6,907,173 5,562,162
Subscriptions receivable -- (176,977)
Accumulated deficit (7,731,176) (5,901,501)
----------- -----------
Total Stockholders' Deficit (717,241) (458,048)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 362,510 $ 629,064
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF OPERATIONS
Years Ended July 31,
---------------------------------------
2002 2001
------------ -------------
NET REVENUES $ 162,809 $ 912,000
COST OF GOODS SOLD 182,013 804,064
------------ ------------
GROSS PROFIT (LOSS) (19,204) 107,936
------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Promotion and advertising 157,064 544,815
Legal and accounting 141,234 165,614
Depreciation and amortization 149,111 100,427
Bad debts -- 92,175
Other general and administrative expenses 1,328,889 1,396,772
------------ ------------
Total expenses 1,776,298 2,299,803
------------ ------------
OPERATING LOSS (1,795,502) (2,191,867)
OTHER EXPENSE
Interest expense (34,173) (55,553)
------------ ------------
Total other expense (34,173) (55,553)
------------ ------------
LOSS BEFORE TAXES (1,829,675) (2,247,420)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (1,829,675) $ (2,247,420)
============ ============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.03) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 72,226,565 40,774,176
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Preferred Series A - G Common Stock Additional
----------------------- ----------------------
Number Number Paid-in SubscriptionsAccumulated
of Shares Amount of Shares Amount Capital Receivable Deficit Total
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2000 7,410 $ 7 30,811,408 $ 30,811 $ 2,422,236 $ -- ($3,654,081) $(1,201,027)
Issuance of common stock for services
at an average of $0.13 per share -- -- 5,335,000 5,335 640,783 -- -- 646,118
Issuance of common stock
for debt at $0.41 per share -- -- 850,000 850 340,000 -- -- 340,850
Conversion of preferred Series A to
common stock (1,368) (2) 4,489,123 4,489 (4,487) -- -- --
Conversion of preferred Series B to
common stock (4,608) (4) 16,567,642 16,568 (16,564) -- -- --
Conversion of preferred Series C to
common stock (200) -- 200,000 200 (200) -- -- --
Issuance of preferred Series D
for cash and receivable
at $100 per share 12,000 12 -- -- 1,199,988 (176,952) -- -- 1,023,048
Issuance of preferred Series E
for cash and receivable
at $100 per share 600 1 -- -- 59,999 (25) -- 59,975
Issuance of preferred Series F
for cash and receivable
at $100 per share 1,240 1 -- -- 123,999 -- -- 124,000
Forgiveness of debt and accrued
payroll by officer -- -- -- -- 796,408 -- -- 796,408
Net loss for the year ended
July 31, 2001 -- -- -- -- -- -- (2,247,420) (2,247,420)
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2001 15,074 15 58,253,173 58,253 5,562,162 (176,977) (5,901,501) (458,048)
Issuance of common stock
for cash at $0.04 per share -- -- 6,250,000 6,250 247,645 -- -- 253,895
Issuance of common stock
for services at at an average
of $0.04 per share -- -- 15,393,333 15,393 506,990 -- -- 522,383
Issuance of common stock
for debt at $0.05 per share -- -- 5,300,000 5,300 270,727 -- -- 276,027
Issuance of common stock for
settlement at $0.005 per share -- -- 240,000 240 960 -- -- 1,200
Conversion of preferred Series A
to common stock (376) -- 1,601,611 1,602 (1,602) -- -- --
Conversion of preferred Series B
to common stock (45) -- 191,236 191 (191) -- -- --
Conversion of preferred Series D
to common stock (11,112) (11) 18,519,864 18,520 (18,509) -- -- --
Conversion of preferred Series E
to common stock (600) (1) 1,000,000 1,000 (999) -- -- --
Forgiveness of payroll by officer -- -- -- -- 60,000 -- -- 60,000
Issuance of preferred Series G for
waiver from officer 10,000 10 -- -- 279,990 -- -- 280,000
Payment of stock subscriptions
receivable -- -- -- -- -- 176,977 -- 176,977
Net loss for the year ended
July 31, 2002 -- -- -- -- -- -- (1,829,675) (1,829,675)
----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
Balance, July 31, 2002 12,941 $ 13 106,749,217 $106,749 $ 6,907,173 $ -- $(7,731,176) $ (717,241)
=========== =========== ============ ======== =========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-4
AQUA VIE BEVERAGE CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended July 31,
-----------------------------------
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,829,675) $(2,247,420)
Adjustments to reconcile net loss to net cash
used by operating activities:
Bad debts -- 92,175
Depreciation and amortization 149,111 100,427
Common stock issued for interest 276,027 850
Common stock issued for services 522,383 646,118
Common stock issued for settlement 1,200 --
Preferred stock issued for waiver from officer 280,000 --
Compensation of officer as additional paid-in capital 60,000 240,000
Expenses paid by the issuance of note payable -- 128,520
Changes in assets and liabilities:
Accounts receivable 76,305 (57,538)
Inventory 35,366 94,418
Prepaid expenses 17,697 69,042
Accounts payable 12,010 207,691
Settlements payable 26,000 10,000
Accrued expenses (13,620) (403,463)
Accrued compensation 180,000 --
----------- -----------
Net cash used by operating activities 444,196) (1,119,180)
----------- -----------
CASH USED BY INVESTING ACTIVITIES:
Refund of intangible assets 57,088 (207,540)
Purchase of intangible assets (33,212) --
Purchases of equipment -- (49,272)
----------- -----------
Net cash provided (used) by investing activities 23,876 (256,812)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES
Sale of common stock 253,895 --
Sale of preferred stock, Series C, D, E and F -- 1,207,023
Payments on notes payable (8,981) (595)
Receipts from stock subscription 176,977 --
Bank overdraft (36,024) 52,412
Loans - related parties 33,024 109,633
----------- -----------
Net cash provided by financing activities 418,891 1,368,473
----------- -----------
INCREASE (DECREASE) IN CASH (1,429) (7,519)
BEGINNING BALANCE 3,608 11,127
----------- -----------
ENDING BALANCE $ 2,179 $ 3,608
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ -- $ --
Interest paid $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for debt $ 276,027 $ 340,850
Issuance of common stock for services $ 522,383 $ 646,118
Issuance of common stock for settlement $ 1,200 $ --
Issuance of preferred stock for waiver from officer $ 280,000 $ --
Forgiveness of debt and accrued payroll by officer $ 60,000 $ 796,408
The accompanying notes are an integral part of these financial statements.
F-5
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Aqua Vie Beverage Corporation was incorporated on July 31, 1998 in the State of
Delaware. The Company's principal assets were acquired through a bankruptcy
court ordered liquidation of a predecessor company and included the trade name,
beverage formula and the predecessor's public status. These assets were acquired
by the issuance of Series B preferred stock. The Company's business activities
have been financed primarily through the issuance of equity securities, outside
loans, and loans from officers and stockholders.
The Company's principal products include low calorie, non-preservative, lightly
flavored bottled water. Management plans include the marketing and distribution
of the Company's products nationally and internationally.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Aqua Vie Beverage Corporation
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
Accounting Method
-----------------
The Company's financial statements are prepared using the accrual method of
accounting.
Advertising Costs
-----------------
The Company expenses all advertising expenditures as incurred.
Principles of Consolidation
---------------------------
The accompanying financial statements are not deemed to be consolidated because
the Company's wholly owned subsidiary, BEVA Corporation is dormant.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with maturity of three months or less to be
cash equivalents.
Allowance for Doubtful Accounts
-------------------------------
Provision for losses on trade accounts receivable is made in amounts required to
maintain an adequate allowance to cover anticipated bad debts. Accounts
receivable are charged against the allowance when it is determined by the
Company that payment will not be received.
Inventories
-----------
Inventories consist primarily of raw materials and finished product and are
valued at the lower of cost (first in, first out) or market.
F-6
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories (continued)
Inventory is comprised of the following at July 31:
2002 2001
------------- ------------
Finished goods $ 72,006 $ 113,013
Raw materials 48,000 42,359
------------- ------------
Total $ 120,006 $ 155,372
============= ============
Property and Equipment
----------------------
Property, plant and equipment are stated at cost. All expenditures for
improvements, replacements and additions are added to the asset accounts at
cost.
Expenditures for normal repairs and maintenance are charged against earnings as
incurred. The cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in the statements of
operations when depreciable assets are retired or otherwise disposed.
Depreciation is provided for by the use of straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended July 31, 2002 and 2001 was $64,608 and $60,768, respectively.
The following is a summary of property and equipment at July 31:
2002 2001
-------------- --------------
Total property and equipment $ 201,608 $ 201,608
Less accumulated depreciation (150,222) (85,615)
-------------- --------------
Net property and equipment $ 51,386 $ 115,993
============== ==============
Intangible Assets
-----------------
Most intangible assets are amortized over their estimated useful lives of 3 to
10 years on a straight-line basis. Amortization expense for the years ending
July 31, 2002 and 2001 was $93,676 and $38,659, respectively. In the year ended
July 31, 2002, the Company received $52,089 from a customer, which represents a
refund of slotting fees paid and was recorded as a reduction of intangibles.
Income Taxes
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109 "Accounting for Income Taxes." Under this approach, deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the "more
likely than not" standard imposed by SFAS No. 109 to allow recognition of such
an asset.
F-7
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
At July 31, 2002, the Company had net deferred tax assets of approximately
$1,900,000, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes (continued)
------------------------
will realize the benefit of the net deferred tax asset, a valuation allowance
equal to the net deferred tax asset has been established at July 31, 2002. See
Note 3.
At July 31, 2002, the Company has net operating loss carryforwards of
approximately $13,100,000, which expire in the fiscal years ending July 31, 2002
through July 31, 2022.
Basic and Diluted Loss Per Share
--------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of common shares and common share equivalents outstanding during the
year. The weighted average number of shares was calculated by taking the number
of shares outstanding and weighting them by the amount of time they were
outstanding. Basic and diluted loss per share were the same because the
inclusion of outstanding warrants and other convertible instruments would be
considered antidilutive.
Revenue Recognition and Slotting Fees
-------------------------------------
Revenues from sales of product are recognized when the product is shipped and
collectibility is reasonably assured with title passing at the shipping point.
Sales terms for distributors and retail customers are 2%, net 30. At July 31,
2002, the Company was not selling to or through distributors. Sales terms
generally do not allow a right of return. Products are drop shipped from the
bottler to the customer and the customer pays all shipping charges.
Sales of products directly to customers through e-commerce and traditional
channels are recognized when shipped. In these transactions, the Company acts as
merchant-of-record. Accordingly, the Company records as revenue the full sales
price of the product sold and records the full cost of the product to the
Company as cost of revenues, upon shipment of the product. All internet sales
are paid via credit card and are considered immediately collectible.
The Company pays slotting or shelving fees to retailers. In past years, these
costs were deferred and expensed over an estimated time frame of 3 years.
Slotting fees paid during the year ended July 31, 2001 were $207,540. This
amount is included in intangibles. Effective with its April 30, 2002 financial
statements, the Company has changed its accounting policy to record slotting
fees as a reduction of revenue. This new policy is in accord with the consensus
of EITF 01-09 "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which affirms that the payment of
consideration by a vendor to a customer should not be recognized as an asset of
the vendor and further affirms that slotting fees should be accounted for as a
reduction of revenues. If the Company had implemented this new policy in the
year ended July 31, 2001, then the Company's net loss would have increased by
$168,881.
Compensated Absences
--------------------
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off, depending on job classification, length of service, and other
factors. The Company's policy is to recognize the costs of compensated absences
when actually paid to employees. The related liability, due to immateriality,
has not been recorded.
F-8
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
---------
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Impaired Asset Policy
---------------------
The Company reviews its long-lived assets quarterly to determine if any events
or changes in circumstances have transpired which indicate that the carrying
value of its assets may not be recoverable. The Company does not believe any
adjustments are needed to the carrying value of its assets at July 31, 2002.
Derivative Instruments
----------------------
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which is effective for the Company as of January 1,
2001. These standards establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. They require that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
Historically, the Company has not entered into derivative contracts to hedge
existing risks or for speculative purposes.
At July 31, 2002 and 2001, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments as defined by SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," include cash, trade accounts
receivable, accounts payable, accrued expenses and short-term borrowings. All
instruments are accounted for on a historical cost basis, which, due to the
short maturity of these financial instruments, approximates fair value.
F-9
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
--------------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides for the
elimination of the pooling-of-interests method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. An early adoption provision exists for companies with
fiscal years beginning after March 15, 2001. The Company has adopted SFAS No.
142. Application of the nonamortization provision of SFAS No. 142 will have no
effect on the Company's financial statements as the Company does not currently
have assets with indefinite lives.
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 establishes guidelines related to the retirement of
tangible long-lived assets of the Company and the associated retirement costs.
This statement requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived assets.
This statement is effective for financial statements issued for the fiscal years
beginning after June 15, 2002 and with earlier application encouraged. The
Company adopted SFAS No. 143 and the adoption has no effect on the financial
statements of the Company at July 31, 2002.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This new standard establishes a single accounting model for long-lived
assets to be disposed of by sale, including discontinued operations. SFAS No.
144 requires that these long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations. This statement is effective beginning for
fiscal years after December 15, 2001, with earlier application encouraged. The
Company adopted SFAS No. 144 and the adoption has no effect on the financial
statements of the Company at July 31, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No.
4, and 64, Amendment of SFAS No. 13, and Technical Corrections," which updates,
clarifies and simplifies existing accounting pronouncements. SFAS No. 4, which
required all gains and losses from the extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related tax effect
F-10
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
was escinded, and as a result, SFAS No. 64, which amended SFAS No. 4, was
rescinded as it was no longer necessary. SFAS No. 145 amended SFAS No. 13 to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications which
have economic effects similar to those of sale-leaseback transactions. The
pronouncement will not affect the Company as it has not entered into any of the
aforementioned transactions.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs associated with
exit and disposal activities, including restructuring activities. SFAS No. 146
also addresses recognition of certain costs related to terminating a contract
that is not a capital lease, costs to consolidate facilities or relocate
employees, and termination benefits provided to employees that are involuntarily
terminated under the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual deferred-compensation contract.
SFAS No. 146 was issued in June 2002. The impact on the Company's financial
position or results of operations from adopting SFAS No. 146 has not been
determined.
Going Concern
-------------
As shown in the financial statements, the Company incurred a net loss of
$1,829,675 for the year ended July 31, 2002 and has an accumulated deficit of
$7,731,176. The Company has negative equity, negative working capital and
limited cash resources. These factors indicate that the Company may be unable to
continue in existence. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue existence. Management plans to sell new stock
issuances, which are expected to raise the capital needed to operate the
Company. Management is also actively pursuing the distribution of the Company's
products nationally and internationally.
Shipping and Handling Costs
---------------------------
The Company includes all shipping and handling costs in cost of sales.
Stock Based Compensation
------------------------
The Company accounts for non-cash issuances of stock and warrants under the
fair-value method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation." Compensation cost is recognized over the service period.
Reclassification
----------------
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented.
F-11
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 3 - NET OPERATING LOSS CARRYFORWARD
The Company acquired, as part of the assets purchased in the bankruptcy
liquidation sale, the predecessor company's net operating loss carryforward
(NOL) in the approximate amount of $15,000,000. A valuation allowance has been
established so that no value is reflected at the balance sheet dates for any
deferred tax benefit. The value, if any, of the NOL will depend upon a number of
unknowns, including attaining profitable operations and other tax law issues
related to the acquisition of the NOL from the Company's predecessor. These
issues include the change in ownership limitations and any adjustments from the
relief of debts from prior operations. The aggregate net operating loss
carryforwards began to expire during the year ended July 31, 2001.
NOTE 4 - RELATED PARTY TRANSACTIONS
Advances from Officer
---------------------
At July 31, 2002 and 2001, the Company owed $95,121 and $128,520, respectively,
to its CEO. These amounts are payable on demand and carry no interest. During
the year ended July 31, 2001, the Company's CEO forgave $176,440 of the
previously accumulated obligation. This amount was recorded in the financial
statements as a capital contribution. The Company's chief executive officer has
the majority of the Company's common stock voting rights.
Forgiveness of Accrued Payroll
------------------------------
Capital contributions for the year ended July 31, 2001 were $499,968 of forgiven
accrued compensation and $120,000 of forgiven current period compensation. For
the year ended July 31, 2002, $60,000 of compensation was forgiven as a capital
contribution.
Issuance of Series G Preferred Shares
-------------------------------------
In June 2002, the Company issued to its chief executive officer 10,000 shares of
a newly created class of preferred stock in a transaction valued at $280,000.
The shares were issued as consideration for the CEO's waiver of prior year loans
made and earned compensation forgiven and for the CEO's agreeing not to withdraw
his waiver. The features of the new stock, Series G preferred shares, are
detailed in Note 7.
F-12
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 5 - STOCK WARRANTS
At July 31, 2002 and 2001, there were warrants outstanding to purchase 250,000
shares of the Company's common. During the fiscal year ended July 31, 2001,
warrants to purchase 172,800 shares of the Company's common stock expired
unused. At July 31, 2001 and 2002, the Company's outstanding warrants consisted
of the following:
Common Common
Date Expiration Price Number of Shares per Shares
Issued Date per Share Warrants Warrant Issuable
------- ---------- --------- --------- ---------- --------
8/31/00 8/31/04 $1.00 1 250,000 250,000
NOTE 6 - COMMON STOCK
The Company is authorized to issue a total of 5,000,000,000 shares of $0.001 par
value common stock. During the year ended July 31, 2002, the Company issued
5,300,000 shares of its common stock in exchange for notes payable valued at
$276,027, 15,393,333 shares of its common stock for services valued at $522,383,
6,250,000 shares of its common stock for cash of $253,895 and 240,000 shares of
its common stock valued at $1,200 for the settlement of a dispute. The shares
issued for services were valued at their fair market values on the dates of
issuance. Other issuances resulted from the conversion of 376 shares of
preferred Series A stock, 45 shares of preferred Series B stock, 11,112 shares
of preferred Series D stock and 600 shares of preferred Series E stock to
1,601,611, 191,236, 18,519,864 and 1,000,000 shares, respectively, of the
Company's common stock.
During the year ended July 31, 2001, the Company issued 850,000 shares of its
common stock in exchange for a convertible note payable valued at $340,850 and
5,335,000 shares of its common stock for services valued at $646,118. The shares
were valued at their fair market value on the date of issuance. Other issuances
resulted from the conversion of 1,368 shares of preferred Series A stock, 4,608
shares of preferred Series B stock and 200 shares of preferred Series C stock to
4,489,123, 16,567,642 and 200,000 shares, respectively, of the Company's common
stock.
NOTE 7 - PREFERRED STOCK
The Company is authorized to issue a total of 5,000,000 shares of preferred
stock, par value at $0.001. At July 31, 2002, the Company had seven classes of
preferred stock outstanding with an aggregate of 465,000 shares authorized. The
Company has been authorized to issue 200,000 shares of $0.001 par value Series A
preferred stock, 200,000 shares of $0.001 par value Series B preferred stock,
10,000 shares of $0.001 par value Series C preferred stock, 20,000 shares of
$0.001 par value Series D preferred stock, 5,000 shares of $0.001 par value
Series E preferred stock, 5,000 shares of $0.001 par value Series F preferred
stock and 25,000 shares of $0.001 par value Series G preferred stock. The board
of directors of the Company has the authority to issue shares of preferred stock
from time to time in one or more classes or series, which may have such voting
power, full or limited as fixed by the board of directors. The board of
directors may also determine the terms of any such series or class, including
dividend rights, dividend rates, conversion, exchange, voting rights and terms
of redemption, the redemption price and the liquidation preference of such class
or series.
F-13
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
The number of shares outstanding of preferred stock, Series A, B, C, D, E, F and
G and amounts were as follows:
July 31, 2002
-----------------------------------------
Number of Shares Amount
------------------------ ------------
Series A 813 $ 1
Series B -- --
Series C -- --
Series D 888 1
Series E -- --
Series F 1,240 1
Series G 10,000 10
------------------------ ------------
Total 12,941 $ 13
======================== ============
July 31, 2001
-----------------------------------------
Number of Shares Amount
------------------------ ------------
Series A 1,189 $ 1
Series B 45 --
Series C -- --
Series D 12,000 12
Series E 600 1
Series F 1,240 1
Series G -- --
------------------------ ------------
Total 15,074 $ 15
======================== ============
General Terms
All Series A, B, C, D, E, F and G preferred stock shares contain standard terms
relative to adjustment for stock splits and combinations, reorganizations,
mergers, and consolidations or sales of assets, registration of stock issued
upon conversion, and registration rights. For dividend, liquidation, mergers and
consolidations, the respective rights of each series are different. Series A
preferred stock is limited to $300 per share in non-cumulative preferential
dividends before common stock. Each Series A preferred share has liquidation
rights and merger or consolidation rights before common stock. Series B
preferred stock is limited to $6 per share in non-cumulative preferential
dividends before common stock. Each Series B preferred share has liquidation
rights and merger or consolidation rights before common stock. Series C
preferred stock is limited to $0.25 per share in non-cumulative preferential
dividends before common stock. Each Series C preferred share has liquidation
rights and merger or consolidation rights before common stock. Series D
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series D preferred share has liquidation
rights and merger or consolidation rights before common stock. Series E
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series E preferred share has liquidation
rights and merger or consolidation rights before common stock. Series F
preferred stock is limited to $100 per share in non-cumulative preferential
dividends before common stock. Each Series F preferred share has liquidation
rights and merger or consolidation rights before common stock. Series G
preferred stock is limited to
F-14
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
General Terms (continued)
$80 per share in non-cumulative preferential dividends before common stock. Each
Series G preferred share has liquidation rights and merger or consolidation
rights before common stock.
As of the date of these financial statements, no dividends have been declared
due to the Company's accumulated deficit.
Voting Rights
All Series A, B, C, D, E, and F preferred shares have the right to vote based on
their conversion rights to common shares. Series D preferred shares have the
right to vote based on five and a half times their conversion rights to common
shares. Series G preferred shares have the right to vote based on four times
their conversion rights to common shares.
Conversion to Common Shares
Preferred stock is convertible to shares of common stock and common stock
equivalent voting rights as of July 31, 2002 and 2001 as follows.
July 31, 2002
Voting Right Preferred
Preferred Shares Conversion Common Shares Ratio of Equivalent
Outstanding Ratio Issuable on Conversion Preferred Voting Rights
----------------- ----------- ---------------------- ------------ -------------
A 813 1:4,259 3,462,567 4,259 3,462,567
D 888 1:l,667 1,480,296 9,167 8,140,296
F 1,240 1:2,000 2,480,000 2,000 2,480,000
G 10,000 1:8,000 80,000,000 32,000 320,000,000
---------------------- -------------
87,422,863 334,082,863
---------------------- -------------
July 31, 2001
Voting Right Preferred
Preferred Shares Conversion Common Shares Ratio of Equivalent
Outstanding Ratio Issuable on Conversion Preferred Voting Rights
----------------- ----------- ---------------------- ------------ -------------
A 1,189 1:3,721 4,424,269 3,721 4,424,269
B 45 1:3,721 167,445 6,000 270,000
D 12,000 1:1,667 20,000,000 9,167 110,004,000
E 600 1:1,667 1,000,000 1,667 1,000,000
F 1,240 1:2,000 2,480,000 2,000 2,480,000
---------------------- -------------
28,071,714 118,178,269
---------------------- -------------
The Series A and B preferred provide that each share is entitled to an
additional conversion share to common stock based on a formula that reflects
increased market value of the common stock when the common shares have a market
price in excess of $2 but not greater than $12 per share.
F-15
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 7 - PREFERRED STOCK (continued)
Conversion to Common Shares (continued)
Preferred Series A, B, and C stock have a basic conversion rate of 1,000 shares
of common stock for every share of preferred stock. The conversion ratio to
common for Series A and B preferred stock is adjusted upwards depending on any
future issue of common shares at below $1.65 per share. The conversion rates for
Series A and B preferred stock were 1:4,259 and 1:3,721 preferred to common as
of July 31, 2002 and 2001, respectively. Preferred Series D and E have a basic
conversion rate of 1,667 shares of common stock for every share of preferred
stock. Preferred Series F have a basic conversion rate of 2,000 shares of common
stock for every share of preferred stock. Preferred Series G have a basic
conversion rate of 8,000 shares of common stock for every share of preferred
stock.
F-16
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 8 - NOTES PAYABLE
Current notes payable at July 31, 2002 and 2001 consisted of the following:
Creditor and Conditions 2002 2001
--------------------------------
Note payable to GMAC, interest at 13.99%,
secured by 2000 Plymouth Voyager,
payable in monthly installments
of $452.07 through April 28, 2006 $ 9,130 $ 17,767
Bruce Butcher, unsecured, interest at
8%, convertible to one share of common
stock per $0.80 of debt, due on
September 1, 2001 75,000 75,000
Joe Wozniak, unsecured, interest at 8%,
convertible to one share of common stock
per $0.80 of debt, due on demand.
See Note 11. 80,000 80,000
Keely Smith, secured by product
inventory of subsidiary, interest at
24%, due on September 25, 1998. Delinquent 60,000 60,000
Roy Schneiderman, unsecured, interest at
8%, due on March 15, 2000. -- 237,000
Total notes payable 224,130 469,767
Less current portion 218,479 455,135
Net long-term debt $ 5,651 $ 14,632
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Officer's Salary
The Company has a compensation agreement to pay its CEO a salary of $20,000 per
month. During the years ended July 31, 2002 and 2001, the Company's CEO forgave
$60,000 and $499,968 of accrued compensation, respectively, which were recorded
as capital contributions. See Note 4.
F-17
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
Office Lease
------------
The Company maintains its administrative offices in Ketchum, Idaho under a lease
which expires in November 2002 and is personally guaranteed by the Company's
CEO. Lease payments for the years ended July 31, 2002 and 2001 totaled $70,903
and $96,880 respectively. The Company plans to renew the lease for one year on a
reduced level in the amount of $3,906 per month.
Equipment Leases
----------------
The Company leases two autos with monthly lease payments, which total $1,130.
The leases on the automobiles are for five years and are set to expire in May
2003.
Distribution Agreements
-----------------------
The Company has several agreements with distributors for the selling of product
with no ongoing commitment on the part of either party.
Merchant Service Agreement
--------------------------
The Company has an ongoing month-to-month merchant service agreement with Yahoo!
Store for internet sales of its products. The agreement calls for a hosting fee
in the amount of $50 per month, a monthly insertion fee in the amount of $0.10
for every product available from the Merchant's Store, a monthly transaction fee
equal to 0.5% of total revenue and a monthly revenue share fee equal to 3.5% of
network revenue. At July 31, 2002, there were no amounts owed under this
agreement.
Litigation
----------
Certain vendors of the Company are pursuing legal action for payment of overdue
amounts. The Company is working to resolve these issues. In management's
opinion, all reasonable amounts relating to these past due and disputed
liabilities have been accrued in the accompanying financial statements.
F-18
AQUA VIE BEVERAGE CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
July 31, 2002 DRAFT
NOTE 10 - CONCENTRATIONS
During the year ended July 31, 2002, 63% of the Company's revenues were derived
from sales to one customer, a national supermarket chain.
NOTE 11 - SUBSEQUENT EVENTS
Stock Symbol Change
The symbol changed from AVBC to AQVB on September 3, 2002.
Reverse Stock Split
On September 3, 2002, the Company's common stock reverse split 1:20.
F-19
19
NOTE 11 - SUBSEQUENT EVENTS (continued)
Conversion of Note Payable
In September 2002, an $80,000 note payable together with accrued interest in the
amount of $16,000 was converted to 1,920,000 shares of common stock in the
Company. See Note 8.
Common Stock Issuance
A disputed liability was settled in September 2002 by the Company's issuance of
150,000 shares of common stock to a vendor. The fair value of this issuance has
been estimated at $36,000, and is accrued in the accompanying financial
statements under settlements payable.
20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed since the third quarter.
Aqua Vie Beverage Corporation
FORM 10KSB Exhibit List
2.1 Auditor's letter April 10,
2001
4.1 Designation Series D November 15, 2000
4.2 Designation Series E November 15, 2000
4.3 Designation Series F July 27, 2001
SIGNATURES
In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aqua Vie Beverage Corp.
(Registrant)
Date 11-13-01 By /s/ Thomas J. Gillespie
-------- --------------------------
Thomas J. Gillespie, CEO and President
Signature Title Date
/s/ Thomas J. Gillespie 11-13-01
----------------------- ------------------------ --------
Thomas J. Gillespie CEO, President, Director
21
CERTIFICATIONS
I, Thomas Gillespie certify that:
1. I have reviewed this annual report on Form 10-KSB of Aqua Vie
Beverage Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: November 19, 2002
22
EXHIBIT 99
CERTIFICATION OF CHIEF FINANCIAL OFFICER and CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Aqua Vie Beverage Corporation (the
"Company") on Form 10-KSB for the year ended July 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Periodic Report"),
I, Thomas Gillespie>, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. the Periodic Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Dated: November 19, 2002
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