-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ea89UloQ5deO4hGRo6SpWhg+SP18/3eqVkkZciMM1+bq/lEHmyTQT3ETYUZEy0Rp cD8D4CD46cCXJJB2/NjCbA== 0000931731-02-000238.txt : 20020628 0000931731-02-000238.hdr.sgml : 20020628 20020628113344 ACCESSION NUMBER: 0000931731-02-000238 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20020628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUA VIE BEVERAGE CORP CENTRAL INDEX KEY: 0001068104 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 820506425 STATE OF INCORPORATION: WA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24801 FILM NUMBER: 02690525 BUSINESS ADDRESS: STREET 1: 333 SOUTH MAIN STREET STREET 2: PO BOX 6759 CITY: KETCHUM STATE: ID ZIP: 83340 BUSINESS PHONE: 2086227792 MAIL ADDRESS: STREET 1: PO BOX 6759 STREET 2: 333 SOUTH MAIN STREET CITY: KETCHUM STATE: ID ZIP: 83340 FORMER COMPANY: FORMER CONFORMED NAME: BARHILL ACQUISITION CORP DATE OF NAME CHANGE: 19980812 10KSB/A 1 avbc10ksba.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSBA ------------ (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19341 For the fiscal year ended July 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from____________________ to _____________________ Commission file number 0-24801 AQUA VIE BEVERAGE CORPORATION ---------------------------------------------- (Name of small business issuer in its charter) Delaware 82-056425 ------------------------------ ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 6759 333 South Main Street Ketchum, Idaho 83340 - --------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number (208) 622-7792 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the act: - -------------------------------------------------------------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if disclosure of delinquent filers in response to Item 405 of regulation S-B is not contained in this form, and incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB ( ) State issuer's revenues for Its most recent fiscal year $912,000. State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. On October 31, 2001 the aggregate market value was $2,940,000. Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliated on the basis of reasonable assumptions, if the assumptions are stated. (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YE ARS) check whether the issuer has filed all documents and reports required to be filed by Section 12, 13, or 5(d) of the Exchange Act after the distribution of securities under a plan confirm by a court. Yes_______No______ (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of issuer's classes of common equity, as of the latest practicable date. 65,313,173 outstanding on October 31, 2001. 1 DOCUMENTS INCORPORATED BY REFERENCE: IF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE, BRIEFLY DESCRIBE THEM AND IDENTIFY THE PART OF THE FORM 10-KSB (e.g., Part I, Part II, etc.) into which the documents incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. Aqua Vie Beverage Corporation, a Delaware Corporation, ("Aqua Vie") was incorporated on July 29, 1998 and was initially a wholly owned subsidiary of BEVA ("BEVA") Corporation, which had been incorporated in Delaware in 1990. A merger procedure under Section 251(g) of the Delaware Corporate Code in October 1998 resulted in Aqua Vie becoming the parent, and BEVA becoming the wholly owned subsidiary, with the former shareholders of BEVA becoming by action of law the shareholders of Aqua Vie. BEVA retained certain liabilities it had prior to this procedure, but is now inactive. BEVA had been originally acquired in a Chapter 11 Bankruptcy proceeding. BARHILL EXCHANGE: Pursuant to an agreement and plan of merger dated August 31, 1999 between Barhill Acquisition Corporation (Barhill), a Delaware corporation, and Aqua Vie Beverage Corporation, all outstanding shares of common stock of Barhill were exchanged for 250,000 shares of common stock of Aqua Vie in a transaction in which Aqua Vie was the surviving company. Barhill had no assets, liabilities, or history of operations. This transaction is more fully described in Form 8-K/A dated October 28, 1999. BUSINESS OF ISSUER: PRODUCTS: Aqua Vie Beverage Corporation develops, manufactures, and markets new all-natural beverages. The Company has developed a new category of beverages called "water beverages", that includes Hydrators(TM), a line of spring water beverages that encourages personal hydration, "Eau Vin"(TM) a line of non-alcoholic wines and champagne made from spring water, and PurePlay(TM) a line of spring water beverages for children. 3 PROCESS: Aqua Vie presently enters into long term contracts with specialized beverage co-packing companies, to produce all of its product lines, utilizing a bottling filler technology that provides for all-natural beverage ingredients to be bottled in Polyethylene Terephthlate (PET) plastic bottles, a universally accepted container/vehicle for bottled water. This state-of-the-art aseptic filling technology protects the desired attributes of the all-natural ingredients, resulting in the exclusive, all-natural product lines that have been developed by Aqua Vie, all without preservatives. Spring water is cold filtered with micron filtration so fine that it can remove bacteria from water, and is then combined with crystalline fructose, and all-natural flavors and fragrances that undergo the same filtration process. No artificial ingredients or preservatives are used, and the entire process is reviewed for Kosher certification. The products are then aseptically bottled into distinctive shrink wrapped PET plastic bottles. They are sealed for freshness, capped with a sports cap and then sealed with a tamper-proof outer seal. Although a more expensive process than non-aseptic bottling, aseptic PET bottling provides for the complete sterilization of a PET bottle and its contents, without the addition of preservatives. Processes that utilize preservatives, destroy a substantial amount of the natural attributes of fruits 2 and beverages during the bottling process such as color, taste, and aroma, as well as many of the nutritional elements of these beverages including vitamins, minerals, and herbs. Aqua Vie's PET aseptic process retains the natural nutrients of spring water. When Aqua Vie's aseptic research began in the early 1990's, there was one aseptic/PET beta test site in the United States capable of processing Aqua Vie's new "water beverages", which Aqua Vie employed as its first domestic co-packer. Presently, numerous PET/aseptic production facilities are starting up in the US and Europe with equipment manufactured by several large manufacturing companies. Aqua Vie has designed all facets of the retail packaging systems for its product lines to accommodate high-speed production in bottling facilities in the U. S. as well as Europe, for both a co-packer and company owned equipment. Aqua Vie was the first company to introduce the use of a poly-shrink, full-body label on a PET plastic bottle, and in doing so created a system that can be applied by readily available commercial labelers onto a consumer-acceptable, generic PET bottle. Aqua Vie has developed a comprehensive quality assurance system for use in the bottling process. Bottlers are required to adhere to the quality assurance manual as part of their bottling contract. Bottler adherence to Aqua Vies QA manual, when strictly followed, assures perfect product quality. Aqua Vie has a total of 22 employees, consultants, and sales agents, 8 of which work out of corporate headquarters in Idaho. The additional 14 reside in offices within the southwestern states in which Aqua Vie products are presently being distributed. The Company also utilizes a consulting network of 8 people in a variety of beverage disciplines from across the U. S. DISTRIBUTION OF THE PRODUCT: The Company has retained a team of sales and marketing consultants and food brokers throughout California, Arizona, New Mexico, and Texas that focus their efforts on a pre-determined network of chain retail grocery, and club accounts, for direct sales and marketing of the Company's products throughout the southwestern U. S. As a result, Aqua Vie products are now consistently available within the geography of those states. The Company has also carried out consumer tests in Saudi Arabia, Israel, and China as a part of a bottling production agreement with a bottler in France. Aqua Vie offers information about its products and a product purchasing and subscription service on its Internet site. AQUA VIE'S PLACE IN THE MARKET: Aqua Vie Hydrators bridge two primary market categories in the beverage industry: soft drinks and bottled water. Standard & Poor's Foods & Nonalcoholic Beverages Industry Survey, May 2000, reports, "U.S. retail sales of the five major nonalcoholic refreshment beverage categories totaled approximately $81.7 billion in 1998 (latest available), up 2.8% from 1997's level, according to Beverage World magazine. These categories are soft drinks ($54.3 billion), fruit beverages ($17.5 billion), bottled water ($5.2 billion), ready-to-drink tea ($2.5 billion), and sports drinks ($2.3 billion)." Aqua Vie has entered the market with its unique packaging and product to establish a new market segment for all-natural flavored water that does not use preservatives or artificial sweeteners. GOVERNMENT APPROVAL: Other than normal corporate registration and licensing the Company does not need any additional and/or unique government license or permit. The food and beverage industries are highly regulated and subject to many federal and state government rules, regulations and oversight but compliance is part of the service furnished by the bottler under the bottling production contract. As to any future possible government regulations it is believed that if any are ever imposed that they will be broad market pervasive and of general application to all members of the beverage industry. 3 ITEM 2. DESCRIPTION OF PROPERTY. Aqua Vie leases approximately 3,800 square feet of office space in Ketchum, Idaho for its corporate headquarters. The two leases run to November 15, 2001 with an option to extend for one three-year period. Aqua Vie presently contracts with a co-packer in California to produce its product. ITEM 3. LEGAL PROCEEDINGS. There are a number of routine litigations involving claims against the company by past employees, past-due accounts payable and as regards a 1994 stock issuance issue, all of which are considered normal for a company at this stage of development and not of any consequence in the opinion of the registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Aqua Vie's common stock is traded in the over-the counter market and prices are quoted on the NASDAQ Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Year Ended July 31, 2000 High Low - - ------------------------------------------------------ First quarter 1.22 0.39 Second quarter 1.91 0.33 Third quarter 1.91 0.63 Fourth quarter 0.88 0.47 Year Ended July 31, 2001 High Low - - ------------------------------------------------------ First quarter 0.61 0.31 Second quarter 0.36 0.06 Third quarter 0.16 0.06 Fourth quarter 0.17 0.06 There is one class of common stock and approximately 600 shareholders plus an estimated 12,500 beneficial holders in street name. 4 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Matters discussed herein, contain forward-looking statements that involve risk and uncertainties. This is particularly true as it relates to comments about the development and funding of Aqua Vie's future production capability, expectations about profitability, and new product introduction. Results may differ significantly from results indicated by forward-looking statements. Factors that might cause some differences, include, but are not limited to: (1) changes in general economic conditions, including but not limited to increases in interest rates; (2) government regulations affecting customers and the bottling process for products; (3) the potential for product recall and related non-compliance issues by third parties;(4) similar products competing for shelf space and market share in the bottled water industry; (5) the ability of Aqua Vie to successfully bring new products from their development stage into full and profitable production and sales; (6) Aqua Vie's ability to raise sufficient debt and/or equity capital to implement its business plans; (7) the occurrences of incidents that could subject Aqua Vie to liability or fines; (8) the ability of Aqua Vie to attract the needed networks for product distribution, and secure the shelf space in stores necessary to achieve sales forecasts. PLAN OF OPERATION: During the last fiscal year Aqua Vie continued establishing a market presence for its line of Hydrators, the lightly flavored spring water beverages, and thereby increased sales revenue. Throughout calendar 2001, this effort has been concentrated exclusively in the southwestern U.S. Given Aqua Vie's market distribution presence, frequently based upon slotting fee arrangements with major grocery and convenience store chains, its present relationship with its co-packer, and the present production and overhead cost structure, adequate levels of profitability can be achieved in a timely fashion with adequate bridge financing. The immediate solution to profitability in this early growth scenario rests with Aqua Vie obtaining the adequate bridge financing to rapidly increase initial production to meet the increased product demand available within the account base the Company has presently secured shelf space, while building brand awareness through consumer marketing programs. In the future Aqua Vie expects to improve margins through economies of scale and by introducing new products that management believes will support higher gross margins even in today's competitive market environment. The first to be introduced will be a line of Hydrators especially designed for children. Subsequently, it is planned to follow with multi flavor line of non-alcoholic wine made from spring water. It has been designed to satisfy the desire for a glass or bottle of wine or champagne, without the presence of alcohol or preservatives. Aqua Vie's product line contains no directly patented or patentable features or components. Copyrighting, trade marking and the use of trade secret techniques and formulations are utilized extensively. Aqua Vie uses non-disclosure/non-compete agreements with employees, suppliers and co-packer bottlers. At present the Company has not issued any licenses, franchises, concessions, royalty agreements or labor contracts, though future development may include such actions being incorporated into the corporate strategy. Aqua Vie continues to offer information about its products and a subscription service on its Internet site. 5 Aqua Vies revenue from Internet sales remains a small portion of current revenue but it is projected to be an important part of future revenue. Management intends to expand and develop marketing of Aqua Vie beverages through the Internet. To date, the means and ability to obtain meaningful sales volume is in place, with product on the shelves in over 1200 major chain retail grocery and convenience store outlets. However, implementation of the company's consumer marketing and advertising strategies, and in-store consumer awareness programs was delayed, pending Aqua Vie's acceptance and approval for sale, of new product inventory produced by the co-packer who has consistently not provided Aqua Vie with acceptable product quality, for over two years; this has resulted in returns to the co-packer and the Company for re-inspection and replacement shipments which in the opinion of management has had a substantial impact on Company ability to meet and maintain sales and delivery schedules. The Company has recently engaged a Quality Assurance specialist and a comprehensive co-packer line and production inspection system and audit program. It is believed these inspections and oversight will ensure salable quality and assist the Company in maintaining delivery schedules. Investigation of the quality assurance issues, which was ongoing during the fiscal year ended July 31, 2001, led to a new agreement with the co-packer. Subsequent to the fiscal year end, the Company obtained the services of parties that had been directly involved in the Hydrator product design and development, including the quality assurance standards, protocols and procedures. LIQUIDITY AND CAPITAL RESOURCES: Aqua Vie's current capitalization is not sufficient to meet the necessity of maintaining a company presence and to fund the production of the anticipated growth in orders and apparent market acceptance. Company capital resources have traditionally been used for promotion, sales support, slotting fees, inventory support and general administration as more particularly described in prior filings. The Company has devoted substantial resources in the past several years and during the current year to inventory support in the expectation that sales would in part offset other working capital requirements and would thus result in less dependence on additional capital resources. As previously indicated, numerous quality assurance problems have arisen which has resulted in missed delivery schedules, product re-shipment for inspection, additional inspections by the Company, and other delays which has had the effect of reducing the amount of capital from sales which could be applied to other working capital needs, thus requiring more capital than anticipated by management to bring the product to market. Partially in resolution of these issues, and to provide additional liquidity for product development, the Company and the co-packer entered into an agreement in February, 2001 whereby the co-packer would finance production by it for minimal financing costs, secured by inventory and receivables as more particularly described in filings at that time. This required material expenditures by the Company for slotting fees, which was a condition imposed by the co-packer. The slotting fees were paid. However, due to what management considered unreasonably restrictive conditions based on the financing arrangements for pre-approval of production and final resolution of past quality assurance issues, this agreement was terminated, and the current Agreement was executed. The current Agreement provided for certain payments and concessions by the co-packer with respect to product produced by it that was unpaid, and for future production to be on a take and pay basis. 6 The Company is currently engaged in seeking new sources of inventory and general working financing to support the sales which it believes it can effect in 2002 in the 1200 outlets in which it has had product presence. The market for finance for developing companies has been difficult in the past several months particularly as a result of the September 11, 2001 Terrorist attack but management believes that climate has now begun to show some improvement and is cautiously optimistic about additional financing possibilities. From inception at July 31, 1998 through July 31, 2000 Aqua Vie sold stock for $2,145,124, and borrowed $792,000 and received loans from an officer of $446,521. In the year just ended, July 31, 2001, Aqua Vie sold additional stock for $1,207,023 in cash, decreased borrowing by $340,000 through the conversion of a loan into common stock of the company, and recognized the forgiveness of debt and accrued payroll owed to an officer by the company as a capital contribution which increased additional paid in capital by $796,408. This resulted in a remaining balance at year end due to the officer of $128,520. RESULTS OF OPERATIONS: Aqua Vie continues to build its sales and distribution network based on concentrating in the Southwestern part of the country through the payment of slotting fees to obtain shelf space in premier retail grocery and convenience stores. As a result, the Company received a meaningful increase in revenue from sales of $151,924 recognized in the last fiscal year ending July 31, 2000 to $912,000 during the current fiscal year end of July 31, 2001. Management believes these revenues would have been substantially higher based on the slotting arrangements it had made near year-end, had the inventory it believed was to be produced under the inventory financing agreement with the co-packer had been produced at the levels and with the timing required by Management to effect summer sales. The Company has paid, obligated, or committed to approximately $350,000 in slotting fees amortized over three years from the date incurred, much of which will be offset through product delivery. It is anticipated that the shelf space available based on these slotting fees and those to be incurred, will generate projected annual sales revenue in excess of $7 million for the coming fiscal year assuming availability of adequate funding and acceptable production quality control. General and administrative expenses changed from the previous year primarily due to increased compensation and contract services. 7 ITEM 7. FINANCIAL STATEMENTS AQUA VIE BEVERAGE CORPORATION Financial Statements July 31, 2001 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 and Comprehensive Income (Loss)....................F-4 Statement of Stockholders' Equity...........................................F-5 Statements of Cash Flows....................................................F-7 Notes to the Financial Statements...........................................F-8 To the Board of Directors and Stockholders Aqua Vie Beverage Corporation Ketchum, Idaho INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of Aqua Vie Beverage Corporation (a Delaware corporation) as of July 31, 2001, and the related statements of operations, stockholders' deficit and cash flows for the year 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 audit. The financial statements of Aqua Vie Beverage Corporation as of July 31, 2000, were audited by other auditors whose report dated September 26, 2000, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 audit provides 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 as of July 31, 2001 and the results of its operations and its cash flows for the year 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. As discussed in Note 14 to the financial statements, certain errors concerning settlements payable and forgiveness of debt and payroll by the Company's chief executive officer resulting in the understatement of previously reported losses as of July 31, 2001 were discovered by management of the Company during the current year. Accordingly, the July 31, 2001 financial statements have been restated to correct these errors, the net effect of which was to increase the Company's accumulated deficit by $806,408. /s/ Williams & Webster, P.S. ----------------------------- Williams & Webster, P.S. Certified Public Accountants Spokane, Washington November 12, 2001 except for Notes 2, 5, 8, 10, 11, and 14, as to which the date is April 30, 2002 F-1 AQUA VIE BEVERAGE CORPORATION Balance Sheets -------------- July 31, 2001 2000 (Restated) --------- --------- ASSETS CURRENT ASSETS Cash $ 3,608 $ 11,127 Accounts receivable 82,776 25,238 Inventory 155,372 249,790 Prepaid and other assets 24,434 93,476 --------- --------- Total Current Assets 266,190 379,631 --------- --------- PROPERTY AND EQUIPMENT Equipment 201,608 152,336 Less accumulated depreciation (85,615) (24,847) --------- --------- Total Property and Equipment 115,993 127,489 --------- --------- OTHER ASSETS Intangibles 305,040 97,500 Less accumulated amortization (58,159) (19,500) --------- --------- Total Other Assets 246,881 78,000 --------- --------- TOTAL ASSETS $ 629,064 $ 585,120 ========= ========= The accompanying notes are an integral part of these financial statements. F-2 AQUA VIE BEVERAGE CORPORATION Balance Sheets (Continued)
July 31, 2001 2000 (Restated) ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 362,312 $ 154,621 Bank overdraft 52,412 -- Settlements payable 10,000 -- Notes payable - current 455,135 792,000 Accrued expenses 64,101 467,564 Loan from related party 128,520 353,600 ----------- ----------- Total Current Liabilities 1,072,480 1,767,785 ----------- ----------- LONG-TERM DEBT Notes payable-net of current portion 14,632 18,362 ----------- ----------- COMMITMENTS AND CONTINGENCIES -- -- ----------- ----------- STOCKHOLDERS' DEFICIT Preferred stock, Series A, B, C, D, E and F,$0.001 par value, 1,000,000 shares authorized, 15,074 and 7,410 shares issued and outstanding, respectively 15 7 Common stock, $0.001 par value, 120,000,000 shares authorized, 58,253,173 and 30,811,408 shares issued and outstanding, respectively 58,253 30,811 Additional paid-in capital 5,562,162 2,422,236 Subscriptions receivable (176,977) -- Accumulated deficit (5,901,501) (3,654,081) ----------- ----------- Total Stockholders' Deficit (458,048) (1,201,027) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 629,064 $ 585,120 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 AQUA VIE BEVERAGE CORPORATION Statement of Operations Years Ended July 31, 2001 2000 (Restated) ------------ ------------ NET REVENUES $912,000 $ 151,924 COST OF GOODS SOLD 804,064 232,358 ------------ ------------ GROSS PROFIT (LOSS) 107,936 (80,434) ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSES Promotion and advertising 544,815 578,359 Legal and accounting 165,614 360,923 Depreciation and amortization 100,427 34,597 Bad debts 92,175 -- Other general and administrative expenses 1,396,772 715,770 ------------ ------------ Total expenses 2,229,803 1,689,649 ------------ ------------ OPERATING LOSS (2,191,867) (1,770,083) OTHER EXPENSES Interest expense (55,553) (77,139) ------------ ------------ Total other expenses (55,553) (77,139) ------------ ------------ LOSS BEFORE TAXES (2,247,420) (1,847,222) INCOME TAXES -- -- ------------ ------------ NET LOSS $ (2,247,420) $ (1,847,222) ============ ============ NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.06) $ (0.07) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 40,774,176 25,649,677 ============ ============ The accompanying notes are an integral part of these financial statements. F-4 AQAU VIE BEVERAGE CORPORATION Statement of stockholders' Deficit (SPLIT TABLE)
Preferred, Series A, B, C, D, E and F Common Stock Additional Number Number Paid-in Subsctiption of Shares Amount of Shares Amount Capital Receivable ----------- ----------- ----------- ----------- ----------- ----------- Balance, August 1, 1999 8,884 $ 9 21,964,657 $ 21,964 $ 1,294,125 $ (10,000) Issuance of common stock for cash at $0.32 per share -- -- 2,596,000 2,596 833,928 -- Issuance of preferred, Series C for cash at $500.00 per share 200 -- -- -- 100,000 -- Issuance of common stock for services at $0.30 per share -- -- 2,703,500 2,704 68,772 10,000 Issuance of common stock for payment of note payable at $0.40 per share -- -- 322,400 322 128,638 -- Conversion of preferred, Series A to common stock (1,340) (1) 2,580,851 2,581 (2,582) -- Conversion of preferred Series B to common stock (334) (1) 644,000 644 (645) -- Net loss for the year ended July 31, 2000 -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance, July 31, 2000 7,410 $ 7 30,811,408 $ 30,811 $ 2,422,236 $ -- ----------- ----------- ----------- ----------- ----------- -----------
Accumulated Deficit Total ----------- ----------- Balance, August 1, 1999 $(1,806,859) $ (500,761) Issuance of common stock for cash at $0.32 per share -- 836,524 Issuance of preferred, Series C for cash at $500.00 per share -- 100,000 Issuance of common stock for services at $0.30 per share -- 81,476 Issuance of common stock for payment of note payable at $0.40 per share -- 128,960 Conversion of preferred, Series A to common stock -- (2) Conversion of preferred Series B to common stock -- (2) Net loss for the year ended July 31, 2000 (1,847,222) (1,847,222) ----------- ----------- Balance, July 31, 2000 $(3,654,081) $(1,201,027) ----------- ----------- The accompanying notes are an integral part of these financial statements. F-5 AQUA VIE BEVERAGE CORPORATION Statement of Stockholders' Deficit (SPLIT TABLE)
Preferred, Series A, B, C, D, E and F Common Stock Additional Number Number Paid-in Subsctiption of Shares Amount of Shares Amount Capital Receivable ----------- ----------- ----------- ----------- ----------- ----------- Balance brough forward 7,410 $ 7 30,811,408 $ 30,811 $ 2,422,236 $ -- Issuance of common stock for services at prices ranging from $0.02 to $0.42 -- -- 5,335,000 5,335 640,783 -- Issuance of common stock for debt conversion at $0.40 per share -- -- 850,000 850 340,000 -- 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) Issuance of preferred Series E for cash at $100 per share 600 1 -- -- 59,999 (25) Issuance of preferred Series F for cash at $100 per share 1,240 1 -- -- 123,999 -- Forgiveness of debt and accrued payroll by officer and majority stockholder -- -- -- -- 796,408 -- Net loss for the year ended July 31, 2001 (Restated) -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance, July 31, 2001 (Restated) 15,074 $ 15 58,253,173 $ 58,253 $ 5,562,162 $ (176,977) =========== =========== =========== =========== =========== ===========
Accumulated Deficit Total ----------- ----------- Balance brough forward $(3,654,081) $(1,201,027) Issuance of common stock for services at prices ranging from $0.02 to $0.42 -- 646,118 Issuance of common stock for debt conversion at $0.40 per share -- 340,850 Conversion of preferred Series A to common stock -- -- Conversion of preferred Series B to common stock -- -- Conversion of preferred Series C to common stock -- -- Issuance of preferred Series D for cash and receivable at $100 per share -- 1,023,048 Issuance of preferred Series E for cash at $100 per share -- 59,975 Issuance of preferred Series F for cash at $100 per share -- 124,000 Forgiveness of debt and accrued payroll by officer and majority stockholder -- 796,408 Net loss for the year ended July 31, 2001 (Restated) (2,247,420) (2,247,420) ----------- ----------- Balance, July 31, 2001 (Restated) $(5,901,501) $ (458,048) =========== =========== The accompanying notes are an integral part of these financial statements. F-6 AQUA VIE BEVERAGE CORPORATION Statements of Cash Flows
Years Ended July 31, 2001 2000 (Restated) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,247,420) $(1,847,222) Adjustments to reconcile net loss to net cash used by operating activities: Bad debts 92,175 -- Depreciation and amortization 100,427 34,597 Interest paid on notes payable converted to stock 850 -- Compensation paid by stock issuance 646,118 81,475 Compensation of officer as additional paid-in capital 240,000 -- Compensation paid by issuance of notes payable -- 115,000 Expenses paid by the issuance of note payable 128,520 -- Changes in assets and liabilities: Accounts receivable (57,538) (25,238) Inventory 94,418 (249,790) Prepaid expenses 69,042 (62,707) Accounts payable 207,691 (114,382) Settlements payable 10,000 -- Accrued expenses (403,463) 183,262 Accrued compensation -- 240,000 ----------- ----------- Net cash used by operating activities (1,119,180) (1,645,005) ----------- ----------- CASH USED BY INVESTING ACTIVITIES: Increase in intangible assets for slotting (207,540) -- Purchases of equipment (49,272) (56,796) ----------- ----------- Net cash used by investing activities (256,812) (56,796) ----------- ----------- CASH PROVIDED BY FINANCING ACTIVITIES Sale of common stock -- 836,525 Sale of preferred stock, Series C, D, E and F 1,207,023 100,000 Payments on notes payable (595) -- Proceeds from notes payable -- 345,000 Proceeds from bank overdraft 52,412 -- Payment of advance from stockholders (77,681) -- Advances from stockholders 187,314 404,105 ----------- ----------- Net cash provided by financing activities 1,368,473 1,685,630 ----------- ----------- INCREASE (DECREASE) IN CASH (7,519) (16,171) BEGINNING BALANCE 11,127 27,298 ----------- ----------- ENDING BALANCE $ 3,608 $ 11,127 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ -- $ -- Interest paid $ -- $ -- NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for notes payable $ 340,850 $ 128,638 Issuance of common stock for services $ 646,118 $ 81,475 Issuance of notes payable for compensation and accounts payable $ -- $ 115,000 Issuance of common stock for retainer $ -- $ 20,000 Issuance of note payable for equipment $ -- $ 21,000 Forgiveness of debt and accrued payroll by officer and majority stockholder $ 796,408 $ --
The accompanying notes are an integral part of these financial statements. F-7 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 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. 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. F-8 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories - ----------- Inventories consist primarily of raw materials and finished product and are valued at the lower of cost (first in, first out) or market. 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, 2001 and 2000 was $60,768 and $24,847, respectively. 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, 2001 and 2000 was $38,659 and $9,750, respectively. 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 on 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. At July 31, 2001, the Company had net deferred tax assets of approximately $2,970,000, 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 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, 2001. See Note 4. At July 31, 2001, the Company has net operating loss carryforwards of approximately $14,880,000, which expire in the fiscal years ending July 31, 2002 through July 31, 2021. F-9 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Outstanding warrants were not included in the computation of loss per share because they would be 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, 2001, 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. These costs are 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-10 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 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, 2001. Fair Value of Financial Instruments - ----------------------------------- The Company has adopted the fair value accounting rules to record all transactions in equity instruments for goods or services. Goodwill - -------- Goodwill represents the excess of the purchase price and related direct costs over the fair value of net assets acquired as of the date of the acquisition. Goodwill is amortized on a straight-line basis over 10 years. The Company periodically reviews its goodwill to assess recoverability based on projected undiscounted cash flows from operations. Impairments are recognized in operating results when a permanent diminution in value occurs. Derivative Instruments - ---------------------- The Financial Accounting Standards Board 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 FASB 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. This standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. F-11 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Derivative Instruments (Continued) - ---------------------------------- 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 derivatives contracts to hedge existing risks or for speculative purposes. At July 31, 2001, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities. Accounting Pronouncements - ------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), and No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. SFAS 131 establishes standards for the way that companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements. Both SFAS 130 and SFAS 131 are effective for periods beginning after December 15, 1997. The Company adopted these accounting standards, and since the Company has no reportable segments, their adoption had no effect on the Company's financial statements and disclosures. In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities and also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000, and is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Company believes that the adoption of this standard will not have a material effect on the Company's results of operations or financial position. F-12 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Going Concern - ------------- As shown in the financial statements, the Company incurred a net loss of $2,247,420 for the year ended July 31, 2001 and has an accumulated deficit of $5,901,501 and negative stockholders' equity at July 31, 2001. The Company has negative equity, and 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's plans for ensuring the Company's continued viability are as follows: Management's 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. NOTE 3 - STOCK BASED COMPENSATION Financial Accounting Standards No. 123 (SFAS 123) addresses the accounting for stock-based compensation arrangements. SFAS 123 permits a company to choose either a new fair-value-based method or the APB Opinion 25 intrinsic value-based method of accounting for stock option-based compensation arrangements. During the year ended July 31, 2001, the Company adapted the fair-value method of accounting for stock-based compensation. In accordance with this policy, the Company values stock issued to employees, officers, directors and consultants, at its fair market value on the date issued. During the year ended July 31, 2000, the Company recorded stock based compensation using APB Opinion 25 intrinsic-value-based method. The pro forma effect on the income statement if the Company had adopted the SFAS 123 fair value-based method to account for stock-based compensation arrangements would have been to increase net loss by an estimated $250,000 for fiscal year ended July 31, 2000. F-13 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 4 - 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 5 - RELATED PARTY TRANSACTIONS Advances from Officer - --------------------- At July 31, 2001 and 2000, the Company owed $128,520 and $353,850, 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 $176,441 of the previously accumulated obligation. This amount was recorded in the revised 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 - ------------------------------ During the year ended July 31, 2001, the Company's CEO forgave $499,968 of compensation accrued and $120,000 of current period compensation. These amounts were also recorded as a capital contribution in the revised financial statements. NOTE 6 - STOCK WARRANTS At July 31, 2001 and 2000, there were warrants outstanding to purchase 250,000 and 422,800 shares, respectively, 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, 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
F-14 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 7 - COMMON STOCK During the year ended July 31, 2000, the Company sold 2,596,000 shares of its common stock for $836,524. The Company also issued 2,703,500 shares of its common stock for services valued at $81,476 and 322,400 shares of its common stock in payment of notes payable valued at $128,960. The stock issued for services was valued at its intrinsic value on the date of issuance. See Note 3. Other issuances resulted from the conversion of 1,340 shares of preferred, Series A stock and 334 shares of preferred, Series B stock to 2,580,851 and 644,000 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 8 - PREFERRED STOCK The Company has 1,000,000 shares authorized of preferred stock, par value at $0.001. 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, and 5,000 shares of $0.001 par value Series F preferred stock. The board of directors of the Company has the authority to issue shares of preferred stock from time to time in one or more classes or series, which may have such voting power, full or limited as fixed by the board of directors. The board of directors may also determine the terms of any such series or class, including dividend rights, dividend rates, conversion, exchange, voting rights and terms of redemption, the redemption price and the liquidation preference of such class or series. The number of shares outstanding of preferred stock, Series A, B, C, D, E and F and amounts were as follows: July 31, 2000 ------------- Number of Shares Amount --------- ------ Series A 2,557 $ 3 Series B 4,653 $ 4 Series C 200 $ - July 31, 2001 ------------- Number of Shares Amount --------- ------ Series A 1,189 $ 1 Series B 45 $ - Series C - $ - Series D 12,000 $12 Series E 660 $ 1 Series F 1,240 $ 1 F-15 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 General Terms All Series A, B, C, D, E and F preferred stock 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, liquidation rights of each Series A preferred share before common stock and merger or consolidation right of each Series A preferred share before common stock. Series B preferred stock is limited to $6 per share in non-cumulative preferential dividends before common stock, liquidation rights of each Series B preferred share before common stock and merger or consolidation right of each Series B preferred share before common stock. Series C preferred stock is limited to $0.25 per share in non-cumulative preferential dividends before common stock, liquidation rights of each Series C preferred share before common stock and merger or consolidation right of each Series C preferred share before common stock. Series D preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock, liquidation rights of each Series D preferred share before common stock and merger or consolidation right of each Series D preferred share before common stock. Series E preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock, liquidation rights of each Series E preferred share before common stock and merger or consolidation right of each Series E preferred share before common stock. Series F preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock, liquidation rights of each Series F preferred share before common stock and merger or consolidation right of each Series F preferred share before common stock. As of the date of these financial statements, the Company had an accumulated deficit in the amount of $6,080,133 and no dividends have been declared. 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. F-16 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 8 - PREFERRED STOCK (Continued) Conversion Features All Series A, B and C preferred shares outstanding have the right to convert in accordance with their conversion provisions subject to authorized common stock being available. The Company can elect to convert all preferred stock under certain stated limited events occurring. Holders of Series A and B preferred shares have the right to convert 5% of their shares to common stock after a 12 month period which started October 14, 1998 and to convert an additional 10% of their shares to common stock after an additional 12 month holding period which started on October 14, 1999 and to convert all of their shares to common stock after October 14, 2001. Series C preferred stockholders have the right to convert their shares to common stock after 180 days from the original date of issue. Conversion to Common Shares Preferred stock is convertible to shares of common stock and common stock equivalent voting rights as of July 31, 2001 and 2000 as follows.
Preferred Common Shares Voting Right Preferred Shares Conversion Issuable on Ratio of Equivalent Outstanding Ratio Conversion Preferred Voting Rights ----------- ----- ---------- --------- ------------- July 31, 2001: A 1,189 3,721 4,424,269 3,721 4,424,269 B 45 3,721 167,445 6,000 270,000 D 12,000 1,667 20,000,000 1,667 20,000,000 E 600 1,667 1,000,000 1,667 1,000,000 F 1,240 2,000 2,480,000 2,000 2,480,000 ------------- ----------- 28,071,714 28,174,269 ============= ===========
Series D preferred shares also confer additional voting rights. Each Series D preferred share entitles its holder to a vote equivalent to that of 9,167 shares of the Company's common stock. F-17 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 8 - PREFERRED STOCK (Continued)
Preferred Common Shares Voting Right Preferred Shares Conversion Issuable on Ratio of Equivalent Outstanding Ratio Conversion Preferred Voting Rights ----------- ----- ---------- --------- ------------- July 31, 2001: A 2,557 2,166 5,538,462 2,166 5,538,462 B 4,653 2,166 10,078,398 6,000 27,918,000 C 200 1,000 200,000 1,000 200,000 ------------ ------------ 15,816,860 33,656,462 ============ ============
The Series B preferred provides that each share is entitled to an additional conversion share to common stock based on a formula that reflects increased market value of the common stock when the common shares have a market price in excess of $2 but not greater than $12 per share. Preferred Series A, B, and C stock have a basic conversion rate of 1,000 shares of common stock for every share of preferred stock. 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. 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 1:3,721 and 1:2,166 preferred to common as of July 31, 2001 and 2000, respectively. NOTE 9 - NOTES PAYABLE Current notes payable at July 31, 2001 and 2000 consisted of the following: F-18 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 9 - NOTES PAYABLE (Continued)
Creditor and Conditions 2001 2000 - ------------------------ ------------ ------------- Note payable to GMAC, interest at 13.99%, secured by 2000 Plymouth Voyager, payable in monthly installments of $452.07 through April 28, 2006. $ 17,767 $ 18,362 Roy Schneiderman, unsecured, interest at 8%, due on July 27, 2002, (converted to common stock in fiscal year ended July 31, 2001) - 340,000 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 September 1, 2001 80,000 80,000 Keely Smith, secured by product inventory, interest at 24%, due on September 25, 1998, delinquent. 60,000 60,000 Roy Schneiderman, unsecured, interest at 8%, due on March 15, 2000, delinquent. 237,000 237,000 ------------ ------------- Total notes payable 469,767 810,362 Less current portion 455,135 792,000 ------------ ------------- Net long-term debt $ 14,632 $ 18,362 ============ =============
F-19 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 10 - COMMITMENTS AND CONTINGENCIES Officer's Salary - ---------------- The Company formerly agreed to pay its CEO a salary of $20,000 per month. As of July 31, 2000, $420,000 had been accrued for this commitment. During the year ended July 31, 2001, the Company's CEO forgave $499,968 of accrued compensation and waived any further compensation through October 31, 2001. This amount plus compensation for the year ended July 31, 2001 was recorded as a capital contribution. See Note 5. Office Lease - ------------ The Company maintains its administrative offices in Ketchum, Idaho under two annual leases, which total $6,514 per month. The leases expire in November 2001 and contain options to renew for three years. The Company's CEO has personally guaranteed this lease. Lease payments for the years ended July 31, 2001 and 2000 totaled $96,880 and $93,996 respectively. The Company plans to renew only one lease in the amount of $3,545 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 distribution agreements, which consist of selling initial product with no ongoing commitment. 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 equal to 0.5% of total revenue and a monthly revenue share fee equal to 3.5% of network revenue. NOTE 11 - LITIGATION Atlas Stock Transfer - -------------------- This transfer agent claims that the Company owes it $68,536 for costs it incurred in defending against a wrongful refusal to transfer respecting a predecessor company during 1993 and 1994. Management believes that this claim is likely to be barred by the limitations statute therefore no amounts have been accrued in these financial statements. F-20 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 11 - LITIGATION (Continued) Creditor's Judgment - ------------------- A creditor brought action against the Company for a delinquent account payable in the amount of $5,214 and was awarded a judgment in this amount. This amount remains unpaid at July 31, 2001 and is included in the Company's accounts payable. Former Commissions and Wages - ---------------------------- The Company received notice from a former sales agent that he is bringing action for nonpayment of commissions and/or wages during the calendar year 1999. The Company plans to vigorously contest this action and expects to prevail. Accordingly, no amounts have been recognized in these financial statements. Other Claims - ------------ An individual has filed a breach of contract claim against the Company disputing prior employment status. The claim is currently in litigation with settlement discussion continuing. The Company expects to settle for an unspecified amount less then $10,000. This amount has been accrued in the financial statements as settlements payable at July 31, 2001. An individual has filed a breach of contract claim against the Company claiming that he is entitled to receive additional shares of common stock. The claim is in initial stages of litigation and the Company expects a vigorous defense against it. It is too early to estimate any potential loss or liability and, accordingly, no amount has been accrued in the financial statements. There are several individuals who have filed a joint action alleging that the Company owes them shares of common stock for settlement of loans made to the Company's CEO in connection with the bankruptcy of a predecessor company. The outcome of this action is uncertain and, accordingly, no amounts have been accrued in these financial statements. NOTE 12 - CONCENTRATIONS During the last three months of its fiscal year, most of the Company's revenues were derived from sales to one customer, a national supermarket chain. At July 31, 2001, 69% of the Company's trade accounts receivable were from this same customer. F-21 AQUA VIE BEVERAGE CORPORATION NOTES TO THE FINANCIAL STATEMENTS July 31, 2001 NOTE 13 - SUBSEQUENT EVENTS In August and September 2001, subsequent to the date of these financial statements, the Company finalized new retail agreements. These agreements will allow for product expansion into additional regions of the United States of America. In October 2001, the Company established a department to oversee quality assurance throughout the manufacturing and bottling process, and oversee technology transfer issues. NOTE 14 - RESTATEMENT AND CORRECTION OF AN ERROR The Company's financial statements for the year ended July 31, 2001 have been restated to reflect the correction of errors as follows. 1. Settlements payable have been accrued to reflect an expected settlement on a breach of contract claim for $10,000. 2. Forgiveness of advances and payroll by the Company's chief executive officer is shown as a capital contribution which increased additional paid-in capital by $796,408 and expenses by $120,000 for salary not recognized in the last six months of the Company's fiscal year. The effect of these corrections was restated financial statements, which thereby increased net loss for the year ended July 31, 2001 by $806,408, and increased liabilities by $10,000. F-22 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Name Age Position - ----- --- -------- Thomas Gillespie 54 President, Director Thomas Gillespie is the founder of Aqua Vie Beverage Corporation and has served as president and director since its original formation in 1991. From 1986 to 1991, Mr. Gillespie was the principal of Kauai Water Company, Kauai, Hawaii. Prior to 1986, Mr. Gillespie founded and served as president of Marketing Design, a retail package design and product development company. Since 1996, Mr. Gillespie has owned Aqua Vie Advance Corporation. From 1991 to 1997, Mr. Gillespie served in various positions with Aqua Vie Beverage Corporation, the predecessor corporation to the Aqua Vie subsidiary BEVA Corporation. Thomas Gillespie was president and founder of Aqua Vie Beverage Corporation (BEVA) when it was subjected to an involuntary Chapter 11 Bankruptcy petition in January 1995 as part of a hostile takeover attempt of the company by an outsider. All of the assets associated therewith were transferred by court order in December 1997, which provided for a continuing corporate existence. Series B Preferred shares were issued as a consequence of this transfer. ITEM 10. EXECUTIVE COMPENSATION Thomas Gillespie per terms with the company is entitled to a salary of $20,000 a month; however he has never collected any of this compensation and has forgiven $600,000 accrued compensation during this current fiscal year which was recorded as a capital contribution. 8 Mr. Gillespie was granted 700,000 restricted shares pursuant to rule 701, as a benefit for minimal consideration, in August 1999. During the fiscal year Mr. Gillespie was granted 600,000 registered common shares as a benefit for minimal consideration pursuant to Form S-8. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Title of class Percent of Amount and class Name and address of beneficial owner nature of - ----- ------------------------------------ --------- Common Stock Thomas J. Gillespie, 333 S Main St #204, Ketchum, ID 83340 1,383,829 2.38% Series A preferred Bruce Butcher, 1001 4th Ave Plaza Bldg #3827, Seattle, WA 98154 703.191 59.16% Series A preferred Roy Schneiderman, 20 Woodbridge Ave, Buffalo, NY 14225 141.00 11.87% Common Stock 952,451 1.64% Series A preferred Joseph J. Wozniak, 15404 20th SW, Burien, WA 98166 324.82 28.97% Series F preferred 1,240.00 100.00% Common Stock 980,000 1.68% Series B Preferred Brace Foundation Trust, C/O Bruce Butcher 44.84 100.00% Series D Preferred 12,000 100.00% Common Stock 620,329 1.06% Series E preferred Valerie Gillespie, P.O. Box 4815, Ketchum, Idaho 83340 600.00 100.00% Common Stock CEDE, P.O. Box 20, Bowling Green Station, NY, NY 10274 46,188,666 79.29% Common Stock Directors and executive officers as a group 1,383,829 2.38%
Thomas Gillespie, President, his wife, Marie, and his four children are the named beneficiaries of the Brace Trust, without designated remainder interest, and T. Gillespie, father of Thomas Gillespie is a designated remainder holder of 30% of the Trust. All voting rights of Trust shares, which constitute a majority of all voting shares, have been granted to Thomas Gillespie by irrevocable proxy. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None other than as noted in Note 6 of the Notes to the Consolidated Financial Statements. 9 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 6/27/02 By /s/ Thomas J. Gillespie -------- -------------------------- Thomas J. Gillespie, CEO and President Signature Title Date /s/ Thomas J. Gillespie 06-27-02 - ------------------------ ------------------------ -------- Thomas J. Gillespie CEO, President, Director 10 EX-99.1 3 ex99no1.txt ADDITIONAL EXHIBITS EX-99.1 Amended Certificate of Designation of Rights of Series D Preferred Shares of Aqua Vie Beverage Corporation Pursuant to Section 151 (g) of Title 8 of the General Corporate Law of the State of Delaware and Article V of the Articles of Incorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualifications, limitations and restrictions of: "Series D Preferred Shares" And there is authorized to be issued 20,000 shares thereof with the following rights, terms and preferences: 1. Dividends. Right to Non-Cumulative Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series D Preferred Shares {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} shall be entitled to receive, if, when, and as declared by the Board, out of any funds legally available therefor, a non-cumulative preference of 10% on cash dividends up to $100.00 maximum total accumulated dividends per Series D Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series D Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series D Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series D Preferred Shares, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the number of outstanding Series D Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. The balance of any such dividends so declared shall be allocated as between Series D Preferred Shares and Common Shares as if said Series D Preferred Shares had been converted to Common Shares based on the Conversion Ratio (as adjusted) provided herein, and as to any other classes or series of Preferred Shares in accordance with the rights and preferences thereof. 2. Liquidation Rights of Series D Preferred Shares. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a 1 conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series D Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $100.00 per Series D Preferred Share held thereby plus an amount equal to all declared and unpaid dividends thereon, less accumulated total dividends paid thereto (but not less than zero). If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the Holders of the Series D Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amount aforesaid, then all of the assets of the Company to be distributed shall be distributed ratably to the Holders of the Series D Preferred Shares, subject to any rights or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series D Preferred Shares so held. (b) Payments to Common Stock. After the preferred payment of $100.00 per Series D Preferred Share is made to Holders of the Series D Preferred Shares the Holders of the Series D Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series D Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted or as otherwise provided in the rights and designations thereof as may from time to time be made by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjustments of Shares. In the event that the number of outstanding Series D Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 3. Merger, Consolidation. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any merger or share exchange of the Company, or a sale or other disposition of all or substantially all of the assets of the Company {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series D Preferred Shares then outstanding shall be entitled to receive, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, for each share of such Series D Preferred Stock so held, in cash or in securities (including, without limitation, debt securities) received from the acquiring corporation, at the closing of any such transaction, an amount equal 2 to $100.00 per Series D Preferred Share, plus an amount equal to all declared and unpaid dividends thereon, less total accumulated dividends paid thereto (but not less than zero). In the event that the number of outstanding Series D Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly (b) Remaining Proceeds. Subject to the rights and preferences of other classes or series of Preferred Shares after the payment or distribution to the Holders of the Series D Preferred Shares of the full preferential amount, the Holders of the Series D Preferred Shares, Holders of other Series or Classes of Preferred Shares according to the Rights and Designations thereof and Holders of Common Stock then outstanding shall be entitled to receive ratably, with all Series D Preferred Shares treated as if it had been converted into Common Stock pursuant to Section 5 hereof, all remaining proceeds of the Company to be distributed. (c) Valuation of securities received pursuant to a merger, share exchange, sale of substantially all the assets or similar transaction. In the event that a transaction occurs pursuant to which non-cash assets are received and to which this Section applies, the assets received for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are listed on NASDAQ or an exchange, the value shall be deemed to be the 3 day high average closing price (or average between bid/ask if OTC) on such exchange or NASDAQ over the 30 day period prior to the closing of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value, then that value shall be used. (iii) If the assets are unlisted securities or other assets that do not have a readily ascertainable value, the Board of Directors in good faith will value said assets. (iv) The fact that assets exist which may require a valuation process as described herein shall not delay closing the transaction by which the assets are being received. (d) Notice. With respect to any transaction which involves a merger or exchange of shares, or a sale of substantially all the assets not in the ordinary course of business, the Series D shareholders shall receive not less than ten days notice of the transaction and the terms and conditions thereof. 4. Voting Rights. (a) Each Holder of Series D Preferred Shares shall be entitled to vote on all matters including election of the Board of Directors and, except as otherwise expressly provided herein, shall be entitled to a vote equal to 9,167 Common Shares or if the Conversion Rate provided herein is adjusted, to the maximum number of votes that equal the number of Common Shares to which said Series D Preferred Shares could be converted, but not less than the adjusted equivalent to 9,167 shares voting weight of Common Shares for each Share of Series D Preferred. 3 (b) Unless otherwise required by law, Series D Preferred shareholders and Common shareholders shall vote together on all matters upon which shareholders are permitted to vote and not as separate classes. In those cases where Series D Preferred Shareholders are required by law to vote as a separate class, the vote required by said class for approval of the proposed action shall be a simple majority of the class. (c) Voting rights shall be adjusted in the event of adjustments in the Conversion Ratio, except that increases or reductions that apply equally to Series D Preferred Shares and Common Shares shall not cause an adjustment to be made. 5. Conversion. The Company and the Holders of Series D Preferred Shares shall have the following conversion rights: (a) Right to Convert. Each share of Series D Preferred Shares shall be convertible, if there shall be sufficent Common Shares authorized and issuable therefor at the option of the Holder as follows: all Series D Preferred Shares held by the Holder may be converted at any time after June 30, 2002 into fully paid and non assessable shares of Common Stock at the Conversion Rate set forth in Section 5(c) hereunder (as adjusted). (b) Automatic Conversion at Election of Company. -------------------------------------------- (i) Each share of Series D Preferred Shares shall automatically at the election of the Company be converted into shares of Common Stock based on the then effective Conversion Rate set forth in Section 5(c) hereunder (as adjusted) if any one of the following shall occur: (A) The Holders of 51% of the Series D Preferred Shares outstanding have given notice of election to convert as provided herein in Section 6; (B) The Board of Directors of the Company shall have approved a plan of reorganization, exchange, merger or consolidation to which the Company is a party, or an acquisition of the Company; (C) Immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, with respect to the Common Stock of the Company (including shares registered by selling Series D Preferred shareholders) where the amount of such securities sold is $10,000,000. or more; (D) When the Company shall have a net worth of $10,000,000 or more; (E) After the Common Shares shall have been listed on NASDAQ for a period of not less than three months. 4 (ii) Upon the occurrence of any of the events specified in paragraph 5(b)(i) and the election (if applicable) being so made by the Company, the outstanding shares of Series D Preferred Shares shall be converted automatically without any further action by the Holders of such Series D Preferred Shares and whether or not the certificates representing such Series D Preferred Shares are surrendered to the Company or its transfer agent; provided however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon the conversion unless the certificates evidencing such Series D Preferred Shares are either delivered to the Company or its transfer agent, or the Holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. The conversion shall be deemed to have occurred immediately prior to the business day on which the Series D certificates are to be surrendered, and the person entitled to receive the Common shares upon such a conversion shall be deemed a Common Shareholder of record as of that date. (c) Conversion Rate, adjustments. Except as provided elsewhere herein for adjustment of conversion based on share price, recapitalization or other factors, the Conversion Rate is 1666.7 Common Shares for One Series D Preferred Share. The Conversion Rate shall be subject to adjustment from time to time as provided below; no adjustment shall apply after a Series D Preferred Share has been converted. (d) Mechanics of Conversion. Each Holder of Series D Preferred Shares who desires to convert the same into shares of Common Stock shall surrender the certificate, duly endorsed, at the office of the Company or of any transfer agent for the Series D Preferred Shares or Common Stock, and shall give written notice to the Company at such office that such Holder elects to convert the same and shall state therein the number of shares of Series D Preferred Shares being converted. Thereupon the Company shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such Holder is entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the Series D Preferred Shares to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding Common Stock, the Conversion Rate then in effect immediately before that subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to time combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Rate then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this subsection (e) shall become effective at the close of business on the date the subdivision or combination becomes effective. Subdivisions or combinations of Series D Preferred Shares shall be similarly considered to compute the final adjustment to the Conversion Rate to reflect stock splits and combinations. 5 (f) Adjustments for Reclassification, Exchange and Substitution. In the event that at any time or from time to time, the Common Stock issuable upon the conversion of the Series D Preferred Shares is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, exchange of shares, or sale of assets, provided for elsewhere in this Section), then and in any such event each Holder of Series D Preferred Shares shall have the right thereafter to convert such stock into the kind and the maximum amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by Holders of shares of Common Stock into which such shares of Series D Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. (g) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or exchange of shares of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holders of the Series D Preferred Shares shall have the right thereafter to convert such stock into the number of shares of stock or other securities or property to which a Holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the right of the Holders of the Series D Preferred Shares after the reorganization, merger, consolidation or sale to the end that the provisions of this Section (including adjustment of the Conversion Rate then in effect and the number of shares receivable upon conversion of the Series D Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable. (h) Fractional Shares. Series D Preferred Shares may be issued in fractional amounts. (i) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series D Shares, such number of its shares of Common Stock as 6 shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series D Preferred Shares that shall be convertible at that time; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Should this action require the affirmative vote of the Holders of Series D Preferred Shares, whether as a Class or voted with Common Shares, said Holders of Series D Preferred Shares shall be deemed solely for this purpose to have consented thereto, and shall be deemed to irrevocably constituted management of the Company as their proxy and attorney in fact solely for this purpose to execute such documents as may be required to effect this consent. (j) Adjustment Based on Market Success. ---------------------------------- (i) In the event that Common Shares shall have had an average price as defined hereunder of $ .25 per Common Share, then for each $.05 over $ .25, but not over $2.50 per Common Share, then the amount of Common Shares into which these Series D Preferred Shares may be converted shall increase by 5%. (ii) The average price shall be computed by the average between the bid and ask price of the Common Shares for a period of ten days prior to the conversion request on such markets as the Common Shares may be regularly traded, and if there is more than one market, then the average of the markets upon which 75% or more of the Common Shares are traded; if the Common Shares shall not have been trading during said 10 day period, for regulatory reasons or any other reason, then the ten day prior period in which such trading did occur, or the last placement price of $200,000 or more of the Common Shares, or in the event of an acquisition or merger, the merger or acquisition price, whichever is higher. The average price shall be adjusted in the event that there shall be recapitalizations such as a share split. 6. Registration Rights (a) At any time after Series D Preferred Shares shall have been converted into Common Shares at the election of the Company as provided in Section 5(b) and the Company shall have exercised its right to require conversion thereunder, or if the Holders of a majority of the Series D Preferred Shares shall have given notice of election for Conversion as provided in Section 5(a), the Holders of a majority of the Series D Preferred Shares may request "piggyback' registration of the Common Shares in conjunction with a registration planned by the Company subject to underwriter approval. (b) Upon such a request being made by the Holders of a majority of the Series D Preferred Shares, the Company will notify all of the remaining Holders of Series D Preferred Shares as well as all Holders of Common Shares who shall have previously converted Series D Preferred Shares (but not the successor thereof if by sale), and they shall be deemed to have requested the registration and shall be fully subject thereto. 7 (c) The Company will use its best efforts to effect a single public registration on the appropriate form available thereto of all converted shares. The Company will be under no obligation to secure an underwriter or other seller for the shares and sales of shares after the registration will be solely the responsibility of the Holder thereof. (d) To the extent required to effect the registration, converting shareholders shall fully cooperate with the Company and its counsel. Failure to cooperate will entitle the Company to exclude a Holder from the registration. 7. Effect of Issuance of other Series of Preferred Shares (a) Nothing contained in this designation of rights shall limit the ability of the Company to authorize and issue other Series of Preferred Shares or other classes of Preferred Shares with rights or preferences that are senior to these Series D Preferred Shares or that limit or reduce the rights or preferences of these Series D Preferred Shares. In the event that other Series or Classes of Preferred Shares are authorized and issued, unless otherwise provided in the designation of rights of said other Series or Classes, these Series D Preferred Shares shall vote on all matters based on the conversion rates adjusted into common shares provided herein, and said such other preferred shares shall have such voting rights as is provided in the designation thereof; in all votes for the Board of Directors, or any other matters in which shareholders may vote, all Common Shareholders, and all Preferred Shareholders shall vote together, and Preferred Shares will have the weight based on their conversion into common. There shall be no class votes of these Series D Preferred Shares unless said vote is non-waivable and is required by law. (b) Unless otherwise provided in the designation of rights and preferences of other preferred shares, any preferences of these Series D Preferred Shares shall be ratable with other series or classes of Preferred Shares that may have been or be hereafter designated. 8. Assignablility of Adjustments in Conversion Rate based on Market Success Any holder of Series D Preferred Shares may assign or transfer any right to an increased conversion to Common Shares provided in Section 5(j), above, without affecting the voting rights of Series D Preferred Shares provided in Section 4. In the event that a Series D Preferred Shareholder shall elect to assign or transfer all or a portion of such rights, voting rights of the Series D Preferred Shares held by such a transferor shall continue to be calculated to reflect all adjustments to the Conversion Ratio, including adjustments provided by Section 5(j), notwithstanding the assignment or transfer of the increased conversion to common Shares provided under Section 5(j) to another person. Dated this 15th day of November, 2000 by: /s/ Thomas Gillespie, President ------------------------------- Thomas Gillespie, President EX-99.2 4 ex99no2.txt ADDITIONAL EXHIBITS EX-99.2 > Amended Certificate of Designation of Rights of Series E Preferred Shares of Aqua Vie Beverage Corporation Pursuant to Section 151 (g) of Title 8 of the General Corporate Law of the State of Delaware and Article V of the Articles of Incorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualifications, limitations and restrictions of: "Series E Preferred Shares" And there is authorized to be issued 5,000 shares thereof with the following rights, terms and preferences: 1. Dividends. Right to Non-Cumulative Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series E Preferred Shares {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} shall be entitled to receive, if, when, and as declared by the Board, out of any funds legally available therefor, a non-cumulative preference of 10% on cash dividends up to $100.00 maximum total accumulated dividends per Series E Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series E Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series E Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series E Preferred Shares, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the number of outstanding Series E Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. The balance of any such dividends so declared shall be allocated as between Series E Preferred Shares and Common Shares as if said Series E Preferred Shares had been converted to Common Shares based on the Conversion Ratio (as adjusted) provided herein, and as to any other classes or series of Preferred Shares in accordance with the rights and preferences thereof. 2. Liquidation Rights of Series E Preferred Shares. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a 1 conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series E Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $100.00 per Series E Preferred Share held thereby plus an amount equal to all declared and unpaid dividends thereon, less accumulated total dividends paid thereto (but not less than zero). If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the Holders of the Series E Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amount aforesaid, then all of the assets of the Company to be distributed shall be distributed ratably to the Holders of the Series E Preferred Shares, subject to any rights or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series E Preferred Shares so held. (b) Payments to Common Stock. After the preferred payment of $100.00 per Series E Preferred Share is made to Holders of the Series E Preferred Shares the Holders of the Series E Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series E Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted or as otherwise provided in the rights and designations thereof as may from time to time be made by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjustments of Shares. In the event that the number of outstanding Series E Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 3. Merger, Consolidation. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any merger or share exchange of the Company, or a sale or other disposition of all or substantially all of the assets of the Company {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series E Preferred Shares then outstanding shall be entitled to receive, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, for each share of such Series E Preferred Stock so held, in cash or in securities (including, without limitation, debt securities) received from the acquiring corporation, at the closing of any such transaction, an amount equal to $100.00 per Series E Preferred Share, plus an amount equal to all declared and unpaid dividends thereon, less total accumulated dividends paid thereto (but not less than zero). In the event that the number of outstanding Series E Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 2 (b) Remaining Proceeds. Subject to the rights and preferences of other classes or series of Preferred Shares after the payment or distribution to the Holders of the Series E Preferred Shares of the full preferential amount, the Holders of the Series E Preferred Shares, Holders of other Series or Classes of Preferred Shares according to the Rights and Designations thereof and Holders of Common Stock then outstanding shall be entitled to receive ratably, with all Series E Preferred Shares treated as if it had been converted into Common Stock pursuant to Section 5 hereof, all remaining proceeds of the Company to be distributed. (c) Valuation of securities received pursuant to a merger, share exchange, sale of substantially all the assets or similar transaction. In the event that a transaction occurs pursuant to which non-cash assets are received and to which this Section applies, the assets received for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are listed on NASDAQ or an exchange, the value shall be deemed to be the 3 day high average closing price (or average between bid/ask if OTC) on such exchange or NASDAQ over the 30 day period prior to the closing of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value, then that value shall be used. (iii) If the assets are unlisted securities or other assets that do not have a readily ascertainable value, the Board of Directors in good faith will value said assets. (iv) The fact that assets exist which may require a valuation process as described herein shall not delay closing the transaction by which the assets are being received. (d) Notice. With respect to any transaction which involves a merger or exchange of shares, or a sale of substantially all the assets not in the ordinary course of business, the Series E shareholders shall receive not less than ten days notice of the transaction and the terms and conditions thereof. 4. Voting Rights. (a) Each Holder of Series E Preferred Shares shall be entitled to vote on all matters including election of the Board of Directors and, except as otherwise expressly provided herein, shall be entitled to a vote equal to 1,666.7 Common Shares or if the Conversion Rate provided herein is adjusted, to the maximum number of votes that equal the number of Common Shares to which said Series E Preferred Shares could be converted, but not less than the adjusted equivalent to 1,666.7 shares voting weight of Common Shares for each Share of Series E Preferred. 3 (b) Unless otherwise required by law, Series E Preferred shareholders and Common shareholders shall vote together on all matters upon which shareholders are permitted to vote and not as separate classes. In those cases where Series E Preferred Shareholders are required by law to vote as a separate class, the vote required by said class for approval of the proposed action shall be a simple majority of the class. (c) Voting rights shall be adjusted in the event of adjustments in the Conversion Ratio, except that increases or reductions that apply equally to Series E Preferred Shares and Common Shares shall not cause an adjustment to be made. 5. Conversion. The Company and the Holders of Series E Preferred Shares shall have the following conversion rights: (a) Right to Convert. Each share of Series E Preferred Shares shall be convertible, if there shall be sufficent Common Shares authorized and issuable therefor at the option of the Holder as follows: all Series E Preferred Shares held by the Holder may be converted at any time after June 30, 2002 into fully paid and non assessable shares of Common Stock at the Conversion Rate set forth in Section 5(c) hereunder (as adjusted). (b) Automatic Conversion at Election of Company. -------------------------------------------- (i) Each share of Series E Preferred Shares shall automatically at the election of the Company be converted into shares of Common Stock based on the then effective Conversion Rate set forth in Section 5(c) hereunder (as adjusted) if any one of the following shall occur: (A) The Holders of 51% of the Series E Preferred Shares outstanding have given notice of election to convert as provided herein in Section 6; (B) The Board of Directors of the Company shall have approved a plan of reorganization, exchange, merger or consolidation to which the Company is a party, or an acquisition of the Company; (C) Immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, with respect to the Common Stock of the Company (including shares registered by selling Series E Preferred shareholders) where the amount of such securities sold is $10,000,000. or more; (D) When the Company shall have a net worth of $10,000,000 or more; (E) After the Common Shares shall have been listed on NASDAQ for a period of not less than three months. (ii) Upon the occurrence of any of the events specified in paragraph 5(b)(i) and the election (if applicable) being so made by the Company, the outstanding shares of Series E Preferred Shares shall be converted automatically without any further action by the Holders of such Series E Preferred Shares and whether or not the certificates representing such Series E Preferred Shares are surrendered to the Company or its transfer agent; provided however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon the conversion unless the certificates evidencing such Series E Preferred Shares are either delivered to the Company or its transfer agent, or the Holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. The conversion shall be deemed to have occurred immediately prior to the business day on which the Series E certificates are to be surrendered, and the person entitled to receive the Common shares upon such a conversion shall be deemed a Common Shareholder of record as of that date. (c) Conversion Rate, adjustments. Except as provided elsewhere herein for adjustment of conversion based on recapitalization or other factors, the Conversion Rate is 1666.7 Common Shares for One Series E Preferred Share. The Conversion Rate shall be subject to adjustment from time to time as provided below; no adjustment shall apply after a Series E Preferred Share has been converted. (d) Mechanics of Conversion. Each Holder of Series E Preferred Shares who desires to convert the same into shares of Common Stock shall surrender the certificate, duly endorsed, at the office of the Company or of any transfer agent for the Series E Preferred Shares or Common Stock, and shall give written notice to the Company at such office that such Holder elects to convert the same and shall state therein the number of shares of Series E Preferred Shares being converted. Thereupon the Company shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such Holder is entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the Series E Preferred Shares to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding Common Stock, the Conversion Rate then in effect immediately before that subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to time combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Rate then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this subsection (e) shall become effective at the close of business on the date the subdivision or combination becomes effective. Subdivisions or combinations of Series E Preferred Shares shall be similarly considered to compute the final adjustment to the Conversion Rate to reflect stock splits and combinations. 4 (f) Adjustments for Reclassification, Exchange and Substitution. In the event that at any time or from time to time, the Common Stock issuable upon the conversion of the Series E Preferred Shares is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, exchange of shares, or sale of assets, provided for elsewhere in this Section), then and in any such event each Holder of Series E Preferred Shares shall have the right thereafter to convert such stock into the kind and the maximum amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by Holders of shares of Common Stock into which such shares of Series E Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. (g) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or exchange of shares of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holders of the Series E Preferred Shares shall have the right thereafter to convert such stock into the number of shares of stock or other securities or property to which a Holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the right of the Holders of the Series E Preferred Shares after the reorganization, merger, consolidation or sale to the end that the provisions of this Section (including adjustment of the Conversion Rate then in effect and the number of shares receivable upon conversion of the Series E Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable. (h) Fractional Shares. Series E Preferred Shares may be issued in fractional amounts. (i) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series E Shares, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series E Preferred Shares that shall be convertible at that time; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series E Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Should this action require the affirmative vote of the Holders of Series E Preferred Shares, whether as a Class or voted with Common Shares, said Holders of Series E Preferred Shares shall be deemed 5 solely for this purpose to have consented thereto, and shall be deemed to irrevocably constituted management of the Company as their proxy and attorney in fact solely for this purpose to execute such documents as may be required to effect this consent. 6. Effect of Issuance of other Series of Preferred Shares (a) Nothing contained in this designation of rights shall limit the ability of the Company to authorize and issue other Series of Preferred Shares or other classes of Preferred Shares with rights or preferences that are senior to these Series E Preferred Shares or that limit or reduce the rights or preferences of these Series E Preferred Shares. In the event that other Series or Classes of Preferred Shares are authorized and issued, unless otherwise provided in the designation of rights of said other Series or Classes, these Series E Preferred Shares shall vote on all matters based on the conversion rates adjusted into common shares provided herein, and said such other preferred shares shall have such voting rights as is provided in the designation thereof; in all votes for the Board of Directors, or any other matters in which shareholders may vote, all Common Shareholders, and all Preferred Shareholders shall vote together, and Preferred Shares will have the weight based on their conversion into common. There shall be no class votes of these Series E Preferred Shares unless said vote is non-waivable and is required by law. (b) Unless otherwise provided in the designation of rights and preferences of other preferred shares, any preferences of these Series E Preferred Shares shall be ratable with other series or classes of Preferred Shares that may have been or be hereafter designated. Dated this 15th day of November, 2000 by: /s/ Thomas Gillespie ------------------------------- Thomas Gillespie, President EX-99.3 5 ex99no3.txt ADDITIONAL EXHIBITS EX-99.3 Amended Certificate of Designation of Rights of Series F Preferred Shares of Aqua Vie Beverage Corporation Pursuant to Section 151 (g) of Title 8 of the General Corporate Law of the State of Delaware and Article V of the Articles of Incorporation, the Directors hereby designate The voting powers, designations, preferences, rights and qualifications, limitations and restrictions of: "Series F Preferred Shares" And there is authorized to be issued 5,000 shares thereof with the following rights, terms and preferences: 1. Dividends. Right to Non-Cumulative Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series F Preferred Shares {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a),hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} shall be entitled to receive, if, when, and as declared by the Board, out of any funds legally available therefore, a non-cumulative preference of 10% on cash dividends up to $100.00 maximum total accumulated dividends per Series F Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series F Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series F Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series F Preferred Shares, whether or not the earnings of the Company in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the number of outstanding Series F Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. The balance of any such dividends so declared shall be allocated as between Series F Preferred Shares and Common Shares as if said Series F Preferred Shares had been converted to Common Shares based on the Conversion Ratio (as adjusted) provided herein, and as to any other classes or series of Preferred Shares in accordance with the rights and preferences thereof. 2. Liquidation Rights of Series F Preferred Shares. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of 1 the Series F Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $100.00 per Series F Preferred Share held thereby plus an amount equal to all declared and unpaid dividends thereon, less accumulated total dividends paid thereto (but not less than zero). If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the Holders of the Series F Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amount aforesaid, then all of the assets of the Company to be distributed shall be distributed ratably to the Holders of the Series F Preferred Shares, subject to any rights or preferences of any other classes or series of Preferred Shares, on the basis of the number of shares of Series F Preferred Shares so held. (b) Payments to Common Stock. After the preferred payment of $100.00 per Series F Preferred Share is made to Holders of the Series F Preferred Shares the Holders of the Series F Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series F Shares to Common Shares as if converted, and as to other Classes or Series of Preferred Shares based on the conversion ratio of said Shares to Common as if converted or as otherwise provided in the rights and designations thereof as may from time to time be made by the Board of Directors, all remaining assets of the Company to be distributed. (c) Effect of Adjustments of Shares. In the event that the number of outstanding Series F Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 3. Merger, Consolidation. (a) Preference. Subject to the rights and preferences of other classes or series of Preferred Shares in the event of any merger or share exchange of the Company, or a sale or other disposition of all or substantially all of the assets of the Company {except when there shall have been either a notification of election for conversion by the Holders under Section 5(a), hereunder, or the conditions shall have been fulfilled for a conversion by the Company as provided in Section 5(b) hereunder, whether or not notification thereof has been made by the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series F Preferred Shares then outstanding shall be entitled to receive, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, for each share of such Series F Preferred Stock so held, in cash or in securities (including, without limitation, debt securities) received from the acquiring corporation, at the closing of any such transaction, an amount equal to $100.00 per Series F Preferred Share, plus an amount equal to all declared and unpaid dividends thereon, less total accumulated dividends paid thereto (but not less than zero). In the event that the number of outstanding Series F Preferred Shares are adjusted by stock split, reverse split, or other corporate action, the preference stated herein shall be adjusted accordingly. 2 (b) Remaining Proceeds. Subject to the rights and preferences of other classes or series of Preferred Shares after the payment or distribution to the Holders of the Series F Preferred Shares of the full preferential amount, the Holders of the Series F Preferred Shares, Holders of other Series or Classes of Preferred Shares according to the Rights and Designations thereof and Holders of Common Stock then outstanding shall be entitled to receive ratably, with all Series F Preferred Shares treated as if it had been converted into Common Stock pursuant to Section 5 hereof, all remaining proceeds of the Company to be distributed. (c) Valuation of securities received pursuant to a merger, share exchange, sale of substantially all the assets or similar transaction. In the event that a transaction occurs pursuant to which non-cash assets are received and to which this Section applies, the assets received for the purposes of this Section shall be valued as follows: (i) If the assets received are securities that are listed on NASDAQ or an exchange, the value shall be deemed to be the 3 day high average closing price (or average between bid/ask if OTC) on such exchange or NASDAQ over the 30 day period prior to the closing of the transaction by which the securities are received. (ii) If the assets received are of readily ascertainable market value, then that value shall be used. (iii) If the assets are unlisted securities or other assets that do not have a readily ascertainable value, the Board of Directors in good faith will value said assets. (iv) The fact that assets exist which may require a valuation process as described herein shall not delay closing the transaction by which the assets are being received. (d) Notice. With respect to any transaction which involves a merger or exchange of shares, or a sale of substantially all the assets not in the ordinary course of business, the Series F shareholders shall receive not less than ten days notice of the transaction and the terms and conditions thereof. 4. Voting Rights. (a) Each Holder of Series F Preferred Shares shall be entitled to vote on all matters including election of the Board of Directors and, except as otherwise expressly provided herein, shall be entitled to a vote equal to 2,000 Common Shares or if the Conversion Rate provided herein is adjusted, to the maximum number of votes that equal the number of Common Shares to which said Series F Preferred Shares could be converted, but not less than the adjusted equivalent to 2,000 shares voting weight of Common Shares for each Share of Series E Preferred. 3 (b) Unless otherwise required by law, Series F Preferred shareholders and Common shareholders shall vote together on all matters upon which shareholders are permitted to vote and not as separate classes. In those cases where Series F Preferred Shareholders are required by law to vote as a separate class, the vote required by said class for approval of the proposed action shall be a simple majority of the class. (c) Voting rights shall be adjusted in the event of adjustments in the Conversion Ratio, except that increases or reductions that apply equally to Series F Preferred Shares and Common Shares shall not cause an adjustment to be made. 5. Conversion. The Company and the Holders of Series F Preferred Shares shall have the following conversion rights: (a) Right to Convert. Each share of Series F Preferred Shares shall be convertible, if there shall be sufficient Common Shares authorized and issuable therefore at the option of the Holder as follows: all Series F Preferred Shares held by the Holder may be converted at any time after July 31, 2002 into fully paid and non assessable shares of Common Stock at the Conversion Rate set forth in Section 5(c) hereunder (as adjusted). (b) Automatic Conversion at Election of Company. -------------------------------------------- (i) Each share of Series F Preferred Shares shall automatically at the election of the Company be converted into shares of Common Stock based on the then effective Conversion Rate set forth in Section 5(c) hereunder (as adjusted) if any one of the following shall occur: (A) The Holders of 51% of the Series F Preferred Shares outstanding have given notice of election to convert as provided herein in Section 6; (B) The Board of Directors of the Company shall have approved a plan of reorganization, exchange, merger or consolidation to which the Company is a party, or an acquisition of the Company; (C) Immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, with respect to the Common Stock of the Company (including shares registered by selling Series F Preferred shareholders) where the amount of such securities sold is $10,000,000. or more; (D) When the Company shall have a net worth of $10,000,000 or more; (E) After the Common Shares shall have been listed on NASDAQ for a period of not less than three months. 4 (ii) Upon the occurrence of any of the events specified in paragraph 5(b)(i) and the election (if applicable) being so made by the Company, the outstanding shares of Series F Preferred Shares shall be converted automatically without any further action by the Holders of such Series F Preferred Shares and whether or not the certificates representing such Series F Preferred Shares are surrendered to the Company or its transfer agent; provided however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon the conversion unless the certificates evidencing such Series F Preferred Shares are either delivered to the Company or its transfer agent, or the Holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. The conversion shall be deemed to have occurred immediately prior to the business day on which the Series F certificates are to be surrendered, and the person entitled to receive the Common shares upon such a conversion shall be deemed a Common Shareholder of record as of that date. (c) Conversion Rate, adjustments. Except as provided elsewhere herein for adjustment of conversion based on re-capitalization or other factors, the Conversion Rate is 2,000 Common Shares for One Series F Preferred Share. The Conversion Rate shall be subject to adjustment from time to time as provided below; no adjustment shall apply after a Series F Preferred Share has been converted. (d) Mechanics of Conversion. Each Holder of Series F Preferred Shares who desires to convert the same into shares of Common Stock shall surrender the certificate, duly endorsed, at the office of the Company or of any transfer agent for the Series F Preferred Shares or Common Stock, and shall give written notice to the Company at such office that such Holder elects to convert the same and shall state therein the number of shares of Series F Preferred Shares being converted. Thereupon the Company shall promptly issue and deliver to such Holder a certificate or certificates for the number of shares of Common Stock to which such Holder is entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the Series F Preferred Shares to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time effects a subdivision of the outstanding Common Stock, the Conversion Rate then in effect immediately before that subdivision shall be proportionately increased, and conversely, if the Company at any time or from time to time combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Rate then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this subsection (e) shall become effective at the close of business on the date the subdivision or combination becomes effective. Subdivisions or combinations of Series F Preferred Shares shall be similarly considered to compute the final adjustment to the Conversion Rate to reflect stock splits and combinations. 5 (f) Adjustments for Reclassification, Exchange and Substitution. In the event that at any time or from time to time, the Common Stock issuable upon the conversion of the Series F Preferred Shares is changed into the same or a different number of shares of any class or classes of stock, whether by re-capitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, exchange of shares, or sale of assets, provided for elsewhere in this Section), then and in any such event each Holder of Series F Preferred Shares shall have the right thereafter to convert such stock into the kind and the maximum amount of stock and other securities and property receivable upon such re-capitalization, reclassification or other change, by Holders of shares of Common Stock into which such shares of Series F Preferred Shares could have been converted immediately prior to such re-capitalization, reclassification or change, all subject to further adjustment as provided herein. (g) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a re-capitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section) or a merger or exchange of shares of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holders of the Series F Preferred Shares shall have the right thereafter to convert such stock into the number of shares of stock or other securities or property to which a Holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section with respect to the right of the Holders of the Series F Preferred Shares after the reorganization, merger, consolidation or sale to the end that the provisions of this Section (including adjustment of the Conversion Rate then in effect and the number of shares receivable upon conversion of the Series F Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable. (h Fractional Shares. Series F Preferred Shares may be issued in fractional amounts. (i) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but un-issued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series F Shares, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series F Preferred Shares that shall be convertible at that time; and if at any time the number of authorized but un-issued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series F Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but un-issued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Should this action require the affirmative vote of the Holders of Series F Preferred Shares, whether as a Class or voted with Common Shares, said Holders of Series F Preferred Shares shall be deemed solely for this purpose to have consented thereto, and shall be deemed to irrevocably constituted management of the Company as their proxy and attorney in fact solely for this purpose to execute such documents as may be required to effect this consent. 6 6. Effect of Issuance of other Series of Preferred Shares (a) Nothing contained in this designation of rights shall limit the ability of the Company to authorize and issue other Series of Preferred Shares or other classes of Preferred Shares with rights or preferences that are senior to these Series F Preferred Shares or that limit or reduce the rights or preferences of these Series F Preferred Shares. In the event that other Series or Classes of Preferred Shares are authorized and issued, unless otherwise provided in the designation of rights of said other Series or Classes, these Series F Preferred Shares shall vote on all matters based on the conversion rates adjusted into common shares provided herein, and said such other preferred shares shall have such voting rights as is provided in the designation thereof; in all votes for the Board of Directors, or any other matters in which shareholders may vote, all Common Shareholders, and all Preferred Shareholders shall vote together, and Preferred Shares will have the weight based on their conversion into common. There shall be no class votes of these Series F Preferred Shares unless said vote is non-waivable and is required by law. Unless otherwise provided in the designation of rights and preferences of other preferred shares, any preferences of these Series F Preferred Shares shall be ratable with other series or classes of Preferred Shares that may have been or be hereafter designated. Dated this 27th day of July, 2001 by: /s/ Thomas Gillespie ---------------------- Thomas Gillespie, President EX-99.4 6 ltr.txt ADDITIONAL EXHIBITS W. ALAN JORGENSEN, CPA 720 THIRD AVENUE, SUITE 1910 SEATTLE, WA 98104 April 10, 2001 Office of the Chief Accountant Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 RE: Aqua Vie Beverage Corporation File 000 24801 Dear Sir/Madam: I have read the relevant information referring to my firm in Item 4 of Form 8-K/A dated April, 2001, for Aqua Vie Beverage Corporation to be filed with the securities and Exchange Commission and I am in agreement with the statements contained therein, except, I have no direct information to confirm the engagement of Webster & Williams as new accounts and related information found in paragraph (a)(2)(i). Sincerely, /s/ W. Alan Jorgensen, CPA --------------------------- W. Alan Jorgensen, CPA -----END PRIVACY-ENHANCED MESSAGE-----