-----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, HCgHgrIpzFHRXFr9uGl5Z8u6OhiPs6Yo0HTTfRRrj7EBGzS1ODRKGaK3NUP4HRcK WY05atHEjXTAEQh4IEosXg== 0000931731-02-000435.txt : 20021223 0000931731-02-000435.hdr.sgml : 20021223 20021220204623 ACCESSION NUMBER: 0000931731-02-000435 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021031 FILED AS OF DATE: 20021223 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: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24801 FILM NUMBER: 02865996 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 10QSB/A 1 aqvb-10qsba.txt AQVB 10-QSB/A 10312002 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10 QSB/A ------------- (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission File Number 0-24801 Delaware 82-0506425 - ---------------------------- ------------------- (State or other Jurisdiction (IRS Employer of incorporation) Identification No.) AQUA VIE BEVERAGE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) P.O. Box 6759 333 South Main Street Ketchum, Idaho 83340 -------------------------------------------------------- (Address of principal executive offices) 208/622-7792 ------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at November 30, 2002 - ------------------------------ ------------------------------- Common Stock, Par value $0.001 7,732,223 1 Item 1. Financial Statements:
AQUA VIE BEVERAGE CORPORATION Balance Sheet As of October 31, 2002 October 31, July 31, 2002 2002 (Unaudited) ---------------- -------------- ASSETS Current Assets Cash $ 1,642 $ 2,179 Accounts Receivable 15,707 6,471 Inventory 106,425 120,006 Prepaid & Other Assets 6,737 6,737 ---------------- -------------- Total Current Assets 130,511 135,393 ---------------- -------------- Property & Equipment Equipment 201,608 201,608 Less Accumulated Depreciation (170,432) (150,222) ---------------- -------------- Total Property and Equipment 31,176 51,386 ---------------- -------------- Other Assets Intangibles 281,164 281,164 Less Accumulated Amortization (125,583) (105,433) Total Other Assets 155,581 175,731 ---------------- -------------- Total Assets $ 317,268 $ 362,510 ================ ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts Payable $ 378,854 $ 374,322 Bank Overdraft 36,203 16,388 Settlements Payable 36,000 36,000 Notes Payable - Current 417,824 218,422 Accrued Expenses 60,277 87,367 Accrued Compensation, related party 240,000 180,000 Loan from related party 97,451 156,325 ---------------- -------------- Total Current Liabilities 1,266,609 1,068,824 ---------------- -------------- LONG-TERM DEBT Notes payable - net of current portion 10,047 10,928 ---------------- -------------- COMMITMENTS AND CONTINGENCIES -- -- ---------------- -------------- STOCKHOLDER'S DEFICIT Preferred stock, Series A, B, C, D, E and F, $0.001 par value, 5,000,000 shares authorized, 12886 and 12941 shares issued and outstanding, respectively 13 13 Common stock, $0.001 par value, 5,000,000,000 shares authorized, 7,112,065 and 5,337,461 shares issued and outstanding, respectively 7,112 5,337 Additional paid-in capital 7,172,407 7,008,584 Subscriptions receivable -- -- Accumulated deficit (8,138,920) (7,731,176) ---------------- -------------- Total Stockholders' Deficit (959,388) (717,24@) ---------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 317,268 $ 362,510 ================ ==============
See notes to interim financial statements. 2
AQUA VIE BEVERAGE CORPORATION Statement of Operations Three Months Ended October 31, ------------------------------------------ 2002 2001 -------------------- -------------------- NET REVENUES $ 26,420 $ 46,858 COST OF GOODS SOLD 26,080 81,700 -------------------- -------------------- GROSS PROFIT (LOSS) 340 (34,842) -------------------- -------------------- GENERAL AND ADMINISTRATIVE EXPENSES Depreciation and amortization 40,359 18,590 Officer's compensation 60,000 60,000 Promotion and advertising 125,168 68,156 Legal and accounting 39,545 46,597 Other general and administrative expenses 75,208 167,423 -------------------- -------------------- Total General and Administrative Expenses 340,280 360,766 -------------------- -------------------- LOSS FROM OPERATIONS (339,940) (395,608) OTHER EXPENSES Interest expense (67,804) (10,656) -------------------- -------------------- LOSS BEFORE TAXES (407,744) (406,264) INCOME TAXES -- -- -------------------- -------------------- NET LOSS $ (407,744) $ (406,264) ==================== ==================== NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.07) $ (0.13) ==================== ==================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED 5,916,831 3,184,989 ==================== ====================
See notes to interim financial statements. 3
AQUA VIE BEVERAGE CORPORATION STATEMENT OF STOCKHOLDERS' DEFICIT Preferred Series A - H Common Stock Additional ---------------------- ----------------------- Number Number Paid-in Subscriptions Accumulated of Shares Amount of Shares Amount Capital Receivable Deficit Total --------- ----------- ------------ ---------- ------------- ------------- ------------ --------- Balance, July 31, 2001 15,074 $ 15 2,912,749 $ 2,912 $ 5,617,502 $ (176,977) $ (5,901,501) $ (458,049) Issuance of common stock for cash at $0.81 per share - - 312,500 312 253,583 - - 253,895 Issuance of common stock for services at an average of $0.68 per share - - 769,667 770 521,613 - - 522,383 Issuance of common stock for debt at $1.04 per share - - 265,000 265 275,762 - - 276,027 Issuance of common stock for settlement at $0.10 per share - - 12,000 12 1,188 - - 1,200 Conversion of preferred Series A to common stock (376) - 80,080 80 (80) - - - Conversion of preferred Series B to common stock (45) - 9,562 10 (10) - - - Conversion of preferred Series D to common stock (11,112) (11) 925,993 926 (915) - - - Conversion of preferred Series E to common stock (600) (1) 50,000 50 (49) - - - Forgiveness of payroll by officer - - - - 60,000 - - 60,000 Issuance of preferred Series G for waiver from officer 10,000 10 - - 279,990 - - 280,000 Payment of stock subscriptions receivable - - - - - 176,977 - 176,977 Net loss for the year ended July 31, 2002 - - - - - - (1,829,675) (1,829,675) --------- ----------- ------------ ---------- ------------- ----------- ------------ ------------ Balance, July 31, 2002 12,941 13 5,337,551 5,337 7,008,584 - (7,731,176) (717,242) Conversion of preferred Series D to common stock (180) - 15,000 15 (15) - - - Issuance of common stock at $0.05 per share for debt conversion - - 1,699,500 1,700 83,275 - - 84,975 Issuance of common stock at $0.30 per share for settlement - - 4,000 4 1,196 - - 1,200 Issuance of common stock for for fractional shares - - 14 - - - - - Issuance of common stock for services at $0.30 per share - - 6,000 6 1,794 1,800 - - Issuance of Series H preferred stock at $480.00 per share for loan settleme 125 - - - 60,000 - - 60,000 Issuance of common stock at $0.35 per share for debt conversion - - 50,000 50 17,573 - - 17,623 Net loss for the three months ended October 31, 2002 (unaudited) - - - - - - (407,744) (407,744) --------- ----------- ------------ ---------- ------------- ----------- ------------ ------------ Balance, October 31, 2002 (unaudited) 12,886 $ 13 7,112,065 $ 7,112 $ 7,172,407 $ - $ (8,138,920) $ (959,388) ========= =========== ============ ========== ============= =========== ============ ============
See notes to interim financial statements. 4
AQUA VIE BEVERAGE CORPORATION Statement of Cash Flows Three Months Ended October 31, ------------------------------------------ 2002 2001 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (407,744) $ (406,264) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 40,359 32,277 Stock issued for services 1,800 64,610 Stock issued for settlement 1,200 -- Stock issued for loan incentive 60,000 -- Stock issued for debt conversion 70,598 -- Stock issued for interest on debt 32,000 -- Services charged to additional paid-in capital -- 60,000 Changes in assets and liabilities: Accounts receivable (9,236) 26,944 Inventory 13,581 65,738 Prepaid expenses -- 1,648 Accounts payable 4,532 (65,178) Accrued expenses 5,610 20,300 Accrued compensation 60,000 -- -------------------- -------------------- Net cash used by operating activities (127,300) (199,925) -------------------- -------------------- CASH USED BY INVESTING ACTIVITIES: Increase in intangible assets for slotting -- (8,296) -------------------- -------------------- Net cash used by investing activities -- (8,296) -------------------- -------------------- CASH PROVIDED BY FINANCING ACTIVITIES Stock conversion subscriptions -- 253,895 Bank overdraft 19,815 (2,555) Payments on debt (864) -- Advances from affiliate -- 223,961 Payments to affiliate -- (265,923) Proceeds from notes payable 169,378 -- Advances from stockholders (61,566) -- -------------------- -------------------- Net cash provided by financing activities 126,763 209,378 -------------------- -------------------- INCREASE (DECREASE) IN CASH (537) 1,157 BEGINNING BALANCE 2,179 3,608 -------------------- -------------------- ENDING BALANCE $ 1,642 $ 4,765 ==================== ==================== SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid $ -- $ -- Interest paid $ -- $ -- NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for services $ 1,800 $ 64,610 Forgiveness of payroll by officer and majority stockholder $ -- $ 60,000 Issuance of common stock for debt and interest $ 102,598 $ -- Issuance of common stock for settlement $ 1,200 $ -- Issuance of preferred stock for loan incentive $ 60,000 $ --
See notes to interim financial statements. 5 AQUA VIE BEVERAGE CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS October 31, 2002 NOTE 1 - BASIS OF PRESENTATION The foregoing unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended July 31, 2002. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company's financial position and results of operations. Operating results for the three months ended October 31, 2002 are not necessarily indicative of the results that may be expected for the year ending July 31, 2003. NOTE 2 - COMMON STOCK Reverse Stock Split On September 3, 2002, the Company's board of directors authorized a 1:20 reverse stock split of its $0.001 par value common stock. All references in the accompanying financial statements to the number of common shares outstanding and per share amounts have been restated to reflect the reverse stock split. Common Stock Issuances A disputed liability was settled in September 2002 by the Company's issuance of 4,000 shares of common stock to a vendor. The stock was valued at $1,200 which represented the fair market value of the stock on the dates of issuance. During the three months ended October 31, 2002, the Company converted debt and accrued interest to 1,749,500 shares of common stock valued at $102,598. The stock was valued at its fair market value on the dates of issuance. 6 AQUA VIE BEVERAGE CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS October 31, 2002 NOTE 2 - COMMON STOCK Common Stock Issuances During the quarter ended October 31, 2002, the Company issued 6,000 shares of common stock for services valued at $1,800, or $0.30 per share, and 15,000 shares of common stock for the conversion of 180 shares of the Company's preferred Series D stock. NOTE 3 - PREFERRED STOCK During the three months ended October 31, 2002, the Company converted 180 shares of its Series D preferred stock into 15,000 shares of common stock. In addition, the Company issued 125 shares of preferred Series H stock. The Series H preferred stock was issued for loan incentive value at $60,000. Other information regarding preferred Series H stock follows: The Company is authorized to issue a total of 5,000,000 shares of preferred stock, par value at $0.001. At October 31, 2002, the Company had seven classes of preferred stock outstanding with an aggregate of 465,000 shares authorized. The Company has been authorized to issue 200,000 shares of $0.001 par value Series A preferred stock, 200,000 shares of $0.001 par value Series B preferred stock, 10,000 shares of $0.001 par value Series C preferred stock, 20,000 shares of $0.001 par value Series D preferred stock, 5,000 shares of $0.001 par value Series E preferred stock, 5,000 shares of $0.001 par value Series F preferred stock, 25,000 shares of $0.001 par value Series G preferred stock and 1,000 shares of $0.001 par value Series H 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, F and G and amounts were as follows: July 31, 2002 ----------------------------------------- Number of Shares Amount ------------------------ ------------ Series A 813 $ 1 Series B - - Series C - - Series D 888 1 Series E - - Series F 1,240 1 Series G 10,000 10 ------------------------ ------------ Total 12,941 $ 13 ======================== ============ 7 AQUA VIE BEVERAGE CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS October 31, 2002 NOTE 3 - PREFERRED STOCK (Continued) October 31, 2002 ---------------------------------------- Number of Shares Amount -------------------------- ------------ Series A 813 $ 1 Series B - - Series C - - Series D 708 1 Series E - - Series F 1,240 1 Series G 10,000 10 Series H 125 - -------------------------- ------------ Total 12,886 $ 13 ========================== ============ General Terms All Series A, B, C, D, E, F, G and H preferred stock shares contain standard terms relative to adjustment for stock splits and combinations, reorganizations, mergers, and consolidations or sales of assets, registration of stock issued upon conversion, and registration rights. For dividend, liquidation, mergers and consolidations, the respective rights of each series are different. Series A preferred stock is limited to $300 per share in non-cumulative preferential dividends before common stock. Each Series A preferred share has liquidation rights and merger or consolidation rights before common stock. Series B preferred stock is limited to $6 per share in non-cumulative preferential dividends before common stock. Each Series B preferred share has liquidation rights and merger or consolidation rights before common stock. Series C preferred stock is limited to $0.25 per share in non-cumulative preferential dividends before common stock. Each Series C preferred share has liquidation rights and merger or consolidation rights before common stock. Series D preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock. Each Series D preferred share has liquidation rights and merger or consolidation rights before common stock. Series E preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock. Each Series E preferred share has liquidation rights and merger or consolidation rights before common stock. Series F preferred stock is limited to $100 per share in non-cumulative preferential dividends before common stock. Each Series F preferred share has liquidation rights and merger or consolidation rights before common stock. Series G preferred stock is limited to $80 per share in non-cumulative preferential dividends before common stock. Each Series G preferred share has liquidation rights and merger or consolidation rights before common stock. Series H preferred stock is limited to $1.00 per share in non-cumulative preferential dividends before common stock Each Series H preferred share has liquidation rights and merger or consolidation rights before common stock. As of the date of these financial statements, no dividends have been declared due to the Company's accumulated deficit. 8 AQUA VIE BEVERAGE CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS October 31, 2002 NOTE 3 - PREFERRED STOCK (Continued) Voting Rights All Series A, B, C, E, F, G, and H preferred shares have the right to vote based on their conversion rights to common shares. Series D preferred shares have the right to vote based on five and a half times their conversion rights to common shares. Series G preferred shares have the right to vote based on four times their conversion rights to common shares. Conversion to Common Shares The Series A and B preferred provide that each share is entitled to an additional conversion share to common stock based on a formula that reflects increased market value of the common stock when the common shares have a market price in excess of $2 but not greater than $12 per share. Preferred Series A, B, and C stock have a basic conversion rate of 1,000 shares of common stock for every share of preferred stock. The conversion ratio to common for Series A and B preferred stock is adjusted upwards depending on any future issue of common shares at below $1.65 per share. The conversion rates for Series A and B preferred stock were 1:4,259 and 1:3,721 preferred to common as of July 31, 2002 and 2001, respectively. Preferred Series D and E have a basic conversion rate of 1,667 shares of common stock for every share of preferred stock. Preferred Series F have a basic conversion rate of 2,000 shares of common stock for every share of preferred stock. Preferred Series G have a basic conversion rate of 8,000 shares of common stock for every share of preferred stock. Preferred Series H have a basic conversion rate of 5,000 shares of common stock for every share of preferred stock. NOTE 4 - NOTES PAYABLE Current notes payable at October 31 and July 31, 2002 consisted of the following:
October 31, July 31, Creditor and Conditions 2002 2002 - ----------------------- ---------------- ---------------- Note payable to GMAC, interest at 13.99%, secured by 2000 Plymouth Voyager, payable in monthly installments of $452.07 through April 28, 2006. $ 13,486 $ 14,350 Bruce Butcher, unsecured, interest at 8%, convertible to one share of common stock per $0.80 of debt, due on demand. 73,377 75,000 ------------- -------------- Subtotal, carried forward $ 88,683 $ 89,350
9 AQUA VIE BEVERAGE CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS October 31, 2002 NOTE 4 - NOTES PAYABLE (Continued)
October 31, July 31, Creditor and Conditions 2002 2002 - ----------------------- ---------------- ---------------- Subtotal, brought forward $ 88,683 $ 89,350 Joe Wozniak, unsecured, interest at 8%, convertible to one share of common stock per $0.80 of debt, due on demand. 11,025 80,000 Keely Smith, secured by product inventory of subsidiary, interest at 24%, due on September 25, 1998. Delinquent. 60,000 60,000 Joe Wozniak, secured by product inventory and accounts receivable, interest at 8%, due on June 30, 2003. 169,983 -- Edwin Hamlin, Sr., secured by product inventory, interest at 12%, due on February 24, 2003 100,000 -- ------------ ------------- Total notes payable 427,871 229,350 Less current portion 417,824 218,422 ------------ ------------- Net long-term debt $ 10,047 $ 10,928 ============ ==============
NOTE 5 - RELCLASSIFICATION Certain amounts from prior periods have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company's accumulated deficit or net losses presented. A portion of notes payable, $5,220, was reclassified as an affiliate loan. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During its first four years of existence (from inception to July 31, 2002), the Company accumulated a deficit of $7,731,177. In the subsequent three months ended October 31, 2002, the Company's accumulated deficit grew to $8,138,920 as the Company's marketing and executive expenses increased, creating a quarterly operating loss of $407,744. At October 31, 2002, the Company's total assets of $317,268 were lower than the $362,510 reported at its July 31, 2002 year-end. The decrease was due primarily to a small reduction in inventory and the effects of depreciation and amortization. The Company's current liabilities increased from $1,068,824 at July 31, 2002 to $1,266,609 at October 31, 2002. FORWARD-LOOKING STATEMENTS 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. INTRODUCTION The financial situation of the Company at quarter-end was substantially the same as reported in our recently filed 10-KSB. In fiscal year 2002, ended July 31, 2002, the Company initiated a targeted supermarket sales program with the Albertsons divisions of Northern and Southern California, Arizona, and Nevada. These arrangements required substantial slotting fees (one time fees to stores), to be paid in order to secure shelf space and provided for the Company's products being featured in approximately 1,200 Albertsons stores in California and adjacent states. The Company also negotiated supermarket sales in the Raleys, Knob Hill, Savemart and other chains in the same general regions. At 11 that time the Company focused on mass markets and chain grocery sales in the limited geography of greater California, intending to utilize such sales to penetrate additional regions, such as Texas, where Albertsons also had a strong presence. As the Company's available capital was limited and the public capital markets continued their steep decline, the Company attempted to secure additional financing for working capital and increased inventory production, and focused on the development of two additional products lines, and a new zero-calorie, carbohydrate-free line extension to the existing Hydrator(TM) product line for test-marketing in January 2003, with anticipated introduction into the all-natural market in early 2003, following the test markets. In March, 2002, the Company secured a financing arrangement with its co-packer, Lyons Magnus of Fresno CA., whereby the cost of bottling production could be secured by the finished inventory. This financing was to be additionally secured by a personal guarantee of one of the Company's larger shareholders (not affiliated with management), who also had a personal relationship with the management of Lyons. The Company's sales and marketing plan depended on this financing arrangement. This financing arrangement funded only a limited amount of production and product development, as Lyons and the guaranteeing party were unable, after several months, to come to a long-term agreement over the form of the guarantee. In the second quarter of 2002, the Company began the execution of a marketing initiative that provided for its products to be available exclusively in "all-natural" markets, and initiated a transition of its sales from the general beverage/ bottled water retail grocery market into the "all-natural" divisions of grocery, general retail, and the "health food" marketplace. This marketing initiative included the planned introduction of a zero-calorie, carbohydrate-free Hydrator product line in early 2003 with follow-up participation in "all natural" retail advertising, marketing events, and trade shows throughout the year. During the second half of 2002, and continuing into the first quarter of fiscal 2003, the Company accelerated the development of a zero calorie, carbohydrate-free Hydrator product line for introduction into the all-natural market, and continued to expand opening distribution of its present Hydrators line to the all-natural market domestically, including approximately 500 grocery chain stores with "all-natural stores within stores" in 17 states and the two largest all-natural distributors in the U.S.. Additionally, the Company's products began to enter the "all-natural" health food retail markets (health food stores). The Company continued the development of two new lines of water beverages: a line of flavored water beverages for children called PurePlay(TM), and a line of non-alcoholic wines made from spring water called Eau Vin(TM). Both are expected to be available at retail in late calendar 2003. Further, the Company accelerated the development of a new calorie-free carbohydrate-free product line extension to its existing Hydrator product line, anticipating retail introduction in early 2003. 12 The Company projects that higher margins are available with its new products and line extensions, and within all-natural markets compared to the generally lower priced retail grocery venues and their associated costs and fees. However, the Company also anticipates a substantially increased demand for its new Hydrators line extension, which is believed may be the only all-natural, calorie-free carbohydrate-free flavored spring water beverage of its type. It is also anticipated that during the fiscal year the capital markets may improve, which could further enhance the Company's ability to secure funding for its all-natural preservative-free, spring water beverage product line. With proven sales in the natural foods sections of large stores, new products, continuous product availability and additional distribution, management believes that the caution exercised in promoting general retail sales during late 2001 through fiscal 2002 into the current fiscal year 2003, was necessary as the Company transitioned into a less competitive and more receptive natural food outlet marketplace, and completed a key development phase of the production of a line of calorie-free, carbohydrate-free spring water beverages. The Company recorded gross revenues of $151,924 in fiscal 2000, $912,000 in fiscal 2001, and $162,809 in fiscal 2002. Gross profit on sales was respectively $(80,434), $107,936, and $(19,204). Management believes that the experience gained in fiscal 2001 and 2002, which led to the market strategy of focusing on the "all natural" niche market will enable the Company to attain higher gross profit margins in fiscal 2003. The Company's success in improving profit margins will be realized through improved cost control and improved unit margins through all natural sales Management believes that the mechanisms are in place for improved margins as the new products and sales strategy develops. While maintaining general sales and developing the introduction of the Hydrator products into the all-natural market, the Company received a series of small production and working capital financings from a shareholder not affiliated with management. The Company continues its effort to obtain additional capital in the form of either secured debt, factoring, and/or equity funding. The Company seeks to secure $2.2 million for inventory growth, working capital and marketing. Management believes that initially the relative costs for such capital may be high; however with consistent growth and the development of a proven track record of sales, it is anticipated the costs of such financing will become more economical. While parties have shown interest in various financing arrangements, the Company presently does not have a firm commitment for the $2.2 million that management believes will be required during early 2003. PLAN OF OPERATION: During the first fiscal quarter of 2003 Aqua Vie continued establishing a market presence for its line of Hydrators, the lightly flavored spring water beverages by concentrating retail sales exclusively on the all-natural retailers and major grocery retailers who maintain separate all-natural departments within their stores. 13 The solution to increasing revenue and profitability in this new market place depends upon the Company obtaining adequate financing to increase initial production of its existing and new product lines, to meet the increased product demand for its products, and building brand awareness through consumer marketing programs within the all natural market. It is believed that such increased demand for the Company's new and existing products is presently available within the Company's newly acquired account base. Aqua Vie also expects that margins will improve through economies of scale, and the introduction of new products will support higher gross margins. The first new product line expected to be introduced in calendar 2003, is a line extension of zero calorie, carbohydrate-free Hydrators. Subsequently a line of calorie-free Hydrators designed specifically for children called PurePlay(TM), and a multi-flavor line of non-alcoholic wine made from spring water called Eau Vin(TM), will be introduced. Aqua Vie's product line contains no directly patented or patentable features or components. Copyrighting, trademark registration, 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 beverage subscription service on its Internet site (www.aquavie.com). Aqua Vie's revenue from Internet sales is a small portion of its gross revenue. Management intends to expand and develop the marketing of Aqua Vie beverages through the Internet. The means and ability to obtain meaningful sales volume is in place. The past quality assurance issue, which was an ongoing situation during fiscal year 2001 and into fiscal year 2002, led to a new agreement with the co-packer. In fiscal year 2002, the Company engaged a quality assurance specialist and a comprehensive production line inspection system and audit program and 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 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 and the development of new and improved products in the expectation that sales would in part offset other working capital requirements and would thus result in less dependence on additional capital resources. 14 The Company is currently engaged in seeking new sources of inventory and general working capital financing in the approximate amount of $2.2 million to support the sales and new products, and product improvements that it believes it can be introduced at retail in 2003, in the outlets in which has had product presence. The general financial market for developing companies has been difficult in the past two years, but management is cautiously optimistic about additional financing possibilities. In the quarter ended October 31, 2002, the Company's principal sources of incoming cash were loans from two shareholders. Revenues of approximately $26,000 and loans serviced the operating loss, with the deficit in funding being represented by the increase in liabilities In fiscal 2002 the Company realized net cash of $418,891 in financing activities compared with $1,368,473 in fiscal 2001. This reflected the extremely difficult capital markets through fiscal 2002, which as previously discussed, was a major contributing factor to the timeliness of management's decision to quickly transition from a retail chain sales strategy to an "all-natural" and "new product strategy, through utilizing a non-growth market presence requiring minimum capital expenditure during 2002. Please see the statement of Cash Flows for additional information. RESULTS OF OPERATIONS: Aqua Vie commenced operations in 1998 and has a limited history of operations, which to date have not been profitable. Its operations are subject to the risks and competition inherent in the establishment of a relatively new business enterprise. Aqua Vie is currently operating at a loss. The Company's three month total income of $26,420 was less than three-month total income of $46,858 in the same quarter of the prior fiscal year, reflecting primarily the short-term fiscal effect of making the complete transition from a chain retail sales strategy to an exclusively "all-natural" long-term sales strategy. Sales to date have not been sufficient to cover the costs of operations; profitability is believed achievable assuming inventory levels are adequate to meet the demand within the Company's new customer base. For the three months ended October 31, 2002, the Company's total income before expenses of $26,420 was less than the total income before expenses of $46,858 for the comparable three months of the prior fiscal year. Operating expenses were $340,280 for the three months ended October 31, 2002 and were $360,766 for the comparable period of the prior year. The quarter to quarter change principally reflects the short-term effects associated with Management's execution of a transition from the general grocery retail market into a niche market and the higher cost of capital in tight markets. It also reflects a proportional decrease in administrative expenses. 15 While Aqua Vie continued to operate at a loss during the most recent quarter, given increased inventories to support its new marketing efforts, the Company's ability to generate higher revenue and realize a net profit from operations remains primarily dependent upon the effectiveness of its marketing efforts in generating sales of its line of existing, and new flavored water products. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no substantial legal proceedings against the Company, and the Company is unaware of any such meaningful proceedings contemplated against it. The Company has had, and anticipates in the future that it will have, conflicts as regards certain Accounts Payable for services invoiced but not adequately performed. ITEM 2. CHANGE IN SECURITIES (a),(b) The issuance of certain additional Preferred Shares was proposed in the Company's recent 10-KSB/A, please see item 5 for discussion of Series H Preferred Shares issued for a financial accommodation by E. Hamlin. These shares would not directly affect the rights of any class of registered securities. Please see ITEM 5 for more information. (c) 4,000 common shares were issued in a settlement with a long-term creditor in reliance on regulation D. 1,699,500 shares were issued in exchange for a debenture in default issued in March 2000; pricing was at $.05 share (market was at $.07, see Certain Transactions in the recent 10-KSB/A), in reliance with Regulation D to an accredited investor. 50,000 shares were issued at market in settlement of a debt in default issued in March 2000, at approximately $17,000 to an accredited investor; 15,000 common shares were issued in exchange for Series D Preferred; said series was issued in reliance on Regulation D; 125 shares of Series H was issued in consideration for a production loan accommodation to E. Hamlin, an accredited investor at minimal cash consideration. (d) NA ITEM 3 DEFAULTS ON SENIOR SECURITIES NA ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None ITEM 5 OTHER INFORMATION 16 In the previously filed10-KSB/A, within the Item "Certain Transactions" additional information respecting loan transactions with E. Hamlin, deceased, was not available, although information was included with respect thereto in footnote 3, Item 11(a), and in the discussion respecting issuances of unregistered securities, Item 5(b). E. Hamlin was a long-time shareholder of the Company and its predecessors, and had maintained a long-term relationship with the management of the Company's contract packer, Lyons Magnus of Fresno, California. E. Hamlin was not affiliated with any member of management. E. Hamlin previously received Series H shares in exchange for a loan accommodation of $100,000 for six months, see footnote 3 to Item 11(a) of the recent 10-KSB/A. In 2002 he received 2,650,000 shares (all shares are pre-combination of 20-1) of common stock in exchange for a debt of $118,000 plus interest. In 2001 he converted previously acquired Series C Preferred Shares into 200,000 shares of common stock (pre-combination); said preferred stock was received in exchange for an investment of $100,000 in fiscal 2000. E. Hamlin received Series H shares which would entitle him at no additional cost to convert to 625,000 restricted shares (post combination). Said shares have piggyback registration rights and may be eligible for S-8 registration. Said registrations have not been requested. Said shares had a preference of $85/share and also had an anti-dilution clause for sales under $.10/(post split). Based on a request made after Dr. Hamlin's death, the Company considers the shares converted, but has not as yet issued the common shares, estimated at 625,000 common shares. After the end of the period, and immediately prior to or coincident with the filing of this Report, the Company effected the filing of a new Series I Preferred Stock, which was mentioned as proposed in the recently filed 10-KSB/A. The new Series I was offered in exchange for all Series A and F Shares at a rate of 1.5 Series I shares for Each Series A Share, and 1.5 Series I Shares for each 10 Series F Shares. The Series I Shares eliminate the anti-dilution provisions of Series A Shares ( Series A shares have had the conversion rate increased from 1000/1 to 10,000/1 from inception in 1998 pre-combination conversion rate), and further reduce the preference to $80/Share from $300/Share for Series A, and $100/Share in Series F. The conversion rate is set at 10,000 to one to common; however a conversion cap of 4.95% is established until December 2003 or in the event of a sale or similar corporate event (extendable by agreement), total holdings including beneficial holdings at any one time; and the voting rights of the new Series is only to the extent they may be converted at any time. A provision for a conversion adjustment is provided in the event that the market for the Company's common stock drops below $.30/share for a period immediately prior to a conversion request, with the adjustment eliminated if a later request is received after the $.30 thresh hold is reached. The upward share adjustment is made proportionally to the decrease below $.30/share. Series G Preferred (issued in May, 2002) has varying conversion rates depending upon market performance and other factors, and voting rights vary accordingly. In addition, in the event that the Company issues either common stock or instruments convertible into common stock in a transaction valued at over $200,000 where the effective price of common stock for the consideration given is less than $.40/share, the conversion rate of Series G preferred is adjusted 17 upward accordingly ($.40/share post-combination was the approximate market price of common underlying the Series G when issued). The recent Series I share issuance will trigger this adjustment; however, a valuation has not been placed on said transaction for this purposes as yet by the Board of Directors. No Series G shares have been converted, and there have been no shareholder actions since the consent actions in June, 2002 (Please see the two Information Statements sent to shareholders and filed with the SEC in June 2002 for more information). ITEM 6: Exhibits 4.1 Series I Preferred Designation of Rights (attached) Incorporated by reference: 10-ksb/a filed 12/03/02 99. Title 18 Certification CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this discussion which are not historical facts may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The words "believe", "expect", "anticipate", "estimate", and similar expressions identify forward-looking statements. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ, perhaps materially, from the events or results described in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company has undertaken no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Risks associated with the Company's forward-looking statements include, but are not limited to, risks associated with the Company's history of losses and uncertain profitability, need for market acceptance of the HYDRATOR(TM) product line, the Company's reliance at this time on a single product line, reliance on the market distribution and retail system and risks associated with the Company's international operations, currency fluctuations, the risks of new and different legal and regulatory requirements, governmental approvals, tariffs and trade barriers, risks associated with competition and technological and product innovation by competitors, dependence on proprietary formulas, general economic conditions and conditions in the beverage industry, reliance on key management, limited manufacturing production history with respect to the aseptic bottling system, maintenance of quality control by the contract bottler, dependence on key suppliers, future capital needs and uncertainty of additional financing, availability of loan funds or other sources of capital, potential recalls and product liability, dilution, effects of outstanding convertible debentures and preferred stock, limited public market, liquidity, possible volatility of stock price, recently adopted new listing standards for NASDAQ securities and environmental matters. 18 SIGNATURES ---------- AQUA VIE BEVERAGE CORPORATION (Registrant) By: /s/ Thomas Gillespie --------------------------------------- Thomas Gillespie Chief Executive Officer & President Date: December 20, 2002 19 CERTIFICATION I, Thomas Gillespie certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Aqua Vie Beverage Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Signature /s/ Thomas Gillespie Title Date - --------------------- ------------------------ ------------------ Thomas Gillespie CEO, President, Director December 20, 2002 20 EX-4.1 3 pfd-i.txt SERIES I PFD Certificate of Designation of Rights of Series I 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 I Preferred Shares" And there is authorized to be issued 5,000 shares thereof with the following rights, terms and preferences: 1. Dividends. Right to Preferential Dividends. Subject to the rights and preferences of other classes or series of Preferred Shares, the Holders of the then outstanding Series I 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 $80.00 maximum total accumulated dividends per Series I Preferred Share held thereby. These dividends shall be payable, when and as declared by the Board. Dividends on the Series I Preferred Shares shall be non-cumulative, there shall be no minimum dividends, and no rights shall accrue to the Holders of the Series I Preferred Shares in the event that the Company shall fail to declare or pay dividends on the Series I 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 I 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 I Preferred Shares and Common Shares as if said Series I 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 I Preferred Shares. 1 (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 the Series I 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 $80.00 per Series I 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 I 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 I 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 I Preferred Shares so held. (b) Payments to Common Stock. After the preferred payment of $80.00 per Series I Preferred Share is made to Holders of the Series I Preferred Shares the Holders of the Series I Preferred Shares shall be entitled to share with Common Shares, based on the adjusted conversion ratio of Preferred Series I 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 I 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 2 the Company, (unless the Company shall expressly give notice it elects not to require such conversion)} the Holders of the Series I 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 I 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 $80.00 per Series I 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 I Preferred Shares is 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 I Preferred Shares of the full preferential amount, the Holders of the Series I 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 I 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 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 I shareholders shall receive not less than ten days notice of the transaction and the terms and conditions thereof. 3 4. Voting Rights. (a) Each Holder of Series I 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 the number of votes that equal the number of Common Shares to which said Series I. Preferred Shares could be converted at any given time. (b) Unless otherwise required by law, Series I 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 I 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 I Preferred Shares and Common Shares shall not cause an adjustment to be made. 5. Conversion. The Company and the Holders of Series I Preferred Shares shall have the following conversion rights: (a) Right to Convert. Each share of Series I Preferred Shares shall be convertible, if there shall be sufficient Common Shares authorized and issuable therefore at the option of the Holder thereof, into fully paid and non assessable shares of Common Stock at the Conversion Rate set forth In Section 5(c) hereunder (as adjusted). In the event that Series I Preferred Shares subject thereto shall have been transferred, the time period for conversion shall be measured from the date of issuance to the initial Holder thereof. This right to convert shall be subject to the following terms and conditions: (i) The registered Holder (or his or her successors by transfer, action of law or otherwise) (collectively, the "Holder") shall be immediately eligible to exchange his or her preferred shares, in whole or part, immediately or successively in common shares of the Company subject to any limitations contained in this subsection (a); 4 (ii) Until December 31, 2003, the Holder may convert only to such Common Shares, when added to any other Common Shares directly or beneficially held by said person, such that said person would, in the aggregate directly or beneficially hold at any point of time not more than 4.95% of the Common stock of the Company, and is thus subject to a "Conversion Cap". "Beneficial Ownership" for the purpose of this subsection shall be interpreted to be those Common Shares that may be acquired in any manner by a Holder because of rights under these Series I Preferred Shares or any other rights or shares held thereby from time to time at any particular time, in exchange therefore with 60 days by the terms of any right therefore, and as more particularly defined by Regulation 240.13d-3, issued under the Securities Exchange Act of 1934, it being the intention hereof that this limitation hereof on conversion until December 31, 2003 (and as further qualified by subsection (iii) hereunder) shall be interpreted as a "Conversion Cap" consistent with the case, Levy v. Southbrook International Investments, Ltd. 263 F. 3d. 10 (2001, USCA, 2d Cir); it being the express intention hereof, that the Holder may make successive conversions hereunder of all or part of his or her Series I Preferred Shares to Common Shares so long as at any point of time this Conversion Cap of 4.95% is followed. (iii) The limitation contained in subsection (ii) above shall not apply in such cases as may arise prior to December 31, 2003, where there would be an exchange of securities or similar corporate event such as a sale, merger or consolidation, or an offer to purchase in conjunction with such a transaction or a similar event; after December 31, 2003, in any event the Conversion Cap shall not be applicable unless at least 61 days prior thereto the Holder shall be a writing directed to the Company agree to an extension of said Conversion Cap, in which case the date the conversion Cap shall extend to shall be such agreed date, subject to the exception to the Conversion Cap provided in this subsection. (iv) The right to convert to common shares shall be subject to the conversion rate set forth in subsection (c) hereunder, and any other adjustment provision that may be contained in this Section 5. (b) Automatic Conversion at Election of Company. (i) Each share of Series I 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 60% of the Series I Preferred Shares outstanding at a given time (it being the intention not to include successive conversions that may in the aggregate amount to more than 60% of said shares) 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) 5 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 I 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 I Preferred Shares shall be converted automatically without any further action by the Holders of such Series I Preferred Shares and whether or not the certificates representing such Series I Preferred Shares are surrendered to the Company of 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 I 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 I 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 10,000 Common Shares for One Series I Preferred Share. The Conversion Rate shall be subject to adjustment from time to time as provided below; no adjustment shall apply after a Series I Preferred Share has been converted. (d) Mechanics of Conversion. Each Holder of Series I 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 I 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 I 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 I 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. 6 (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 I Preferred Shares shall be similarly considered to compute the final adjustment to the Conversion Rate to reflect stock splits and combinations. (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 I 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 I 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 I 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 I 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 I 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 I Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable. 7 (h) Adjustment for market performance. The conversion rate provided in subsection (c) shall be adjusted upward in the event that the market price for Common Stock shall, at the time of a particular conversion request by the Holder (or by action of the Company) be less than $.30/share. "Market Price" shall for the purpose of this section be the average closing transaction price on the OTCBB (or such exchanges as the company stock may be listed upon, the highest price at closing being used if there are multiple exchanges) for the five trading days prior to a particular conversion. In each case where this adjustment is applicable, the "Market Price" as defined herein shall be computed as provided hereunder to effect any such adjustment. The adjustment shall be such that if said "Market Price" adjustment is applicable at the time of a conversion request, the conversion rate provided by subsection (c) (and as otherwise provided herein) shall be adjusted upward for the particular conversion requested for enough additional shares that the Holder shall receive the same number of common shares for the conversion in value as would equal that which have been received if the Market Price were $.30 per share. For example only, if 10,000 shares would have been receive at the conversion rate without this adjustment and the Market Price were $.15/share, an additional 10,000 shares would be added by this adjustment provision so that the adjusted total was equal in value to $3,000-the amount which would be the value at $.30/share for 10,000 Common Shares. In the event of a combination of common shares, the "Market Price" shall be adjusted upward to reflect such combination, and if forward split, then adjusted downward to effect such split. (i) Fractional Shares. Series I Preferred Shares may be issued in fractional amounts. (j) 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 I 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 I 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 I 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 I Preferred Shares, whether as a Class or voted with Common Shares, said Holders of Series I 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. 8 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 I Preferred Shares or that limit or reduce the rights or preferences of these Series I 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 I 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; thus, if there were 100 Series I Preferred Shares Issued, they would have the voting rights of 1,000,000 shares of Common Stock (unless adjusted as provided in Section 5), and if 1000 other preferred shares had voting rights of 100,000,000 shares of Common Stock, and there were 300,000,000 shares of Common Stock issued and outstanding, then 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 would have the weight based on their conversion into common. There shall be no class votes of these Series I 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 I Preferred Shares shall be ratable with other series or classes of Preferred Shares that may have been or be hereafter designated. Dated this day of December 2002, by: /s/ Thomas Gillespie ------------------------------- Thomas Gillespie, President 9 EX-99 4 ex99.txt CERT - T. GILLESPIE EXHIBIT 99 CERTIFICATION OF CHIEF FINANCIAL OFFICER and CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Report of Aqua Vie Beverage Corporation (the "Company") on Form 10-QSB for the quarter ended October 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Periodic Report"), I, Thomas Gillespie>, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 20, 2002 -----END PRIVACY-ENHANCED MESSAGE-----