UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934 For the quarterly period ended September 27, 2003

    TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
    EXCHANGE ACT OF 1934



                         BEVSYSTEMS INTERNATIONAL, INC.
        (Exact name of small business issuer as specified in its charter)

          Florida                                       84-1352529
(State or other jurisdiction                   (IRS Employer Identification No.)
 of incorporation or organization)

                              1315 Cleveland Street
                            Clearwater, Florida 33755
                    (Address of principal executive offices)

                                 (786) 425-0811
                           (Issuer's telephone number)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if changed since last report)


       Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 Yes [X] No [ ]

       State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of October 13, 2003 there
were 56,500,934 shares of common stock, par value $0.0001 per share, of the
issuer outstanding.

    Transitional Small Business Disclosure Format (Check One): Yes [ ]    No [X]

<PAGE>
                                TABLE OF CONTENTS

                                                                         Page
<TABLE>
<CAPTION>
PART I--FINANCIAL INFORMATION
<S>    <C>                                                              <C>
Item 1. Financial Statements.                                            F-1

Item 2. Management's Discussion and Analysis or Plan of Operation.       1

Item 3. Controls and Procedures.                                         6

PART II--OTHER INFORMATION

Item 1. Legal Proceedings.                                               6

Item 2. Changes in Securities.                                           7

Item 3. Defaults Upon Senior Securities.                                 9

Item 4. Submission of Matters to a Vote of Security Holders.             9

Item 5. Other Information.                                               9

Item 6. Exhibits and Reports on Form 8-K.                                9

SIGNATURES                                                               10
</TABLE>

<PAGE>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                                      INDEX
                               SEPTEMBER 27, 2003


                                                                     Page Number

CONSOLIDATED FINANCIAL STATEMENTS

         Consolidated Balance Sheets at September 27,
         2003 (unaudited) and March 29, 2003                         F-2 to F-3


         Consolidated Statement of Operations and
         Comprehensive Loss for the three and six
         months ended September 27, 2003
         (unaudited) and September 28, 2002 (unaudited)                  F-4

         Consolidated Statement of Changes in Shareholders'
         Deficiency for the six months ended September 27,
         2003 (unaudited)                                                F-5

         Consolidated Statement of Cash Flows for the
         six months ended September 27, 2003 (unaudited)
         and September 28, 2002 (unaudited)                          F-6 to F-7

         Notes to Consolidated Financial Statements                  F-8 to F-34

<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 27, 2003



                                     ASSETS


<TABLE>
<CAPTION>
                                                                    September 27, 2003
                                                                       (unaudited)           March 29, 2003
Current assets:
<S>                                                                   <C>                    <C>
     Cash and cash equivalents                                        $      332             $       136
     Accounts receivable, net                                              9,541                       -
     Marketable Securities                                                 7,000                   5,500
                                                                      -----------             -----------

          Total current assets                                            16,873                   5,636
                                                                      -----------             -----------

Property and equipment, net                                              951,534               1,003,363
                                                                      -----------             -----------

         Total assets                                                 $  968,407             $ 1,008,999
                                                                      ===========            ============
</TABLE>

   See accompanying notes to the consolidated financial statements (unaudited)

                                       F-2
<PAGE>
                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 27, 2003



                    LIABILITIES AND SHAREHOLDERS' DEFICIENCY


<TABLE>
                                                                             September 27, 2003
                                                                                (unaudited)          March 29, 2003
Current liabilities:
<S>                                                                            <C>                  <C>
     Accounts payable                                                          $   1,577,278         $  1,665,132
     Accrued expenses                                                              2,850,264            2,320,371
     Convertible notes payable                                                       655,000              785,000
     Notes payable secured by assets                                                 750,635              778,873
     Deferred revenue                                                                 72,170               94,170
                                                                               --------------        -------------

          Total current liabilities                                                5,905,347            5,643,546
                                                                               --------------        -------------


Commitments and contingencies

Shareholders' deficiency:
     Preferred stock; no par value, 5,000,000 shares authorized; 100 shares
       issued and outstanding nonvoting and convertible
       into 874 shares of common stock                                                74,601               74,601
     Common stock; $.0001 par value, 650,000,000 shares
       authorized; 41,071,462 and, 11,311,272 issued and outstanding                   4,107                1,132
     Additional paid-in capital                                                   32,772,324           30,064,193
     Unearned services                                                              (746,213)            (629,067)
     Deferred interest                                                               (26,412)                   -
     Accumulated comprehensive income                                                  1,500                    -
     Accumulated deficit                                                         (37,016,847)         (34,145,406)
                                                                               --------------        -------------


          Total shareholders' deficiency                                          (4,936,940)          (4,634,547)
                                                                               --------------        -------------

Total liabilities and shareholders' deficiency                                 $     968,407         $  1,008,999
                                                                               ==============        =============
</TABLE>

   See accompanying notes to the consolidated financial statements (unaudited)

                                       F-3
<PAGE>
                 BEVSYSTEMS INTERNATIONAL INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
              FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 27, 2003
                             AND SEPTEMBER 28, 2002
<TABLE>
<CAPTION>

                                                       Three months ended                   Six months ended
                                                       ------------------                   ----------------

                                                        2003             2002                  2003        2002
                                                    -------------    -------------       -------------   -------------
<S>                                                <C>              <C>                 <C>             <C>

Net revenues                                        $     18,680     $    230,298        $     34,647    $    443,620

Cost of revenues                                          15,119          133,066              15,434         298,766
                                                    -------------    -------------       -------------   -------------
Gross (loss) profit                                        3,561           97,232              19,213         144,854
                                                    -------------    -------------       -------------   -------------

Operating expenses:

    Selling and marketing                                  7,507          596,082               7,507       1,193,588

    General and administrative                         1,113,625        1,690,418           2,470,925       3,875,961
                                                    -------------    -------------       -------------   -------------

    Total operating expenses                           1,121,132        2,286,500           2,478,432       5,069,549
                                                    -------------    -------------       -------------   -------------


Loss before other income (expense)                    (1,117,571)      (2,189,268)         (2,459,219)     (4,924,695)
                                                    -------------    -------------       -------------   -------------

Other income (expense):

     Asset impairment charges                             (6,040)     (11,946,032)             (6,040)    (11,946,032)
     Interest and financing expense                     (392,930)        (225,838)           (434,105)       (409,254)

     Other income                                              -                -              27,923               -
                                                    -------------    -------------       -------------   -------------

     Total other income (expense)                       (398,970)     (12,171,870)           (412,222)    (12,355,286)
                                                    -------------    -------------       -------------   -------------


Net loss                                              (1,516,541)     (14,361,138)         (2,871,441)    (17,279,981)

Other comprehensive income (loss):

      Net unrealized (loss) gain on securities            (7,500)               -               1,500               -
                                                    -------------    -------------       -------------   -------------
Comprehensive loss                                  $ (1,524,041)    $(14,361,138)       $ (2,869,941)   $(17,279,981)
                                                    =============    =============       =============   =============


Basic loss per common share                          $     (0.04)    $     (56.42)       $      (0.11)   $     (73.78)
                                                    =============    =============       =============   =============



Weighted average common shares outstanding            35,477,663          254,532          26,920,906         234,194
                                                    =============    =============       =============   =============
</TABLE>



   See accompanying notes to the consolidated financial statements (unaudited)


                                       F-4
<PAGE>
                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
<TABLE>
<CAPTION>

                    Common Stock, $.0001
                        par value
                                               Additional                                       Accumulated
                     Number of                  Paid-in     Preferred    Unearned    Deferred  Comprehensive Accumulated
                     Shares       Amount        Capital      Stock       Services    Interest     Income      Deficit      Total
                     ----------- ----------- ------------ ----------- ------------ ----------- ----------- ------------ ------------
<C>                  <C>         <C>         <C>          <C>         <C>                <C>       <C>           <C>       <C>
Balance at March 29,
2003                 11,311,272  $    1,132  $30,064,193  $   74,601  $  (629,067)          -            - (34,145,406)  (4,634,547)

Common stock issued
for services and
financing            17,228,834       1,718    1,573,552           -     (583,375)          -            -           -      991,895

Common stock issued
for settlement of
payables              2,644,884         269      240,873           -      (33,000)          -            -           -      208,142

Common stock issued
for conversion
of convertible notes
payable               1,602,995         160      146,355           -            -           -            -           -      146,515

Cashless exercise of
warrants              2,033,477         203         (203)          -            -           -            -           -            -

Exercise of  stock
options               6,250,000         625       61,875           -            -           -            -           -       62,500

Common stock owed
for consulting
services                      -           -            -           -     (369,643)          -            -           -     (369,643)

Grant of warrants
for financing                 -           -      198,181           -            -     (52,825)           -           -      145,356

Grant of employee
stock options                 -           -      487,498           -            -           -            -           -      487,498

Amortization of
unearned services             -           -            -           -      868,872           -            -           -      868,872

Amortization of
deferred interest             -           -            -           -            -      26,413            -           -       26,413

Change in unrealized
gain on
marketable securities         -           -            -           -            -           -        1,500           -        1,500


Net loss for the six
months ended
September 27, 2003            -           -            -           -            -           -           -   (2,871,441)  (2,871,441)
                     ----------- ----------- ------------ ----------- ------------ ----------- ----------- ------------ ------------
Balance at September
27, 2003             41,071,462  $    4,107  $32,772,324  $   74,601  $  (746,213) $  (26,412) $    1,500  (37,016,847)  (4,936,940)

</TABLE>
  See accompanying notes to the consolidated financial statements (unaudited).


                                       F-5
<PAGE>
                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
       FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
<TABLE>
<CAPTION>

                                                                                      2003                2002
                                                                                  ------------        ------------
Cash flows from operating activities:
<S>                                                                               <C>                 <C>
  Net loss $                                                                       (2,871,441)        (17,279,981)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                                    11,088             449,175
      Asset impairment charges                                                          6,040          11,946,032
      Amortization of unearned services                                               868,872                   -
      Amortization of debt discount                                                         -                   -
      Issuance of common stock for services and financing                             742,779           2,416,025
      Issuance of warrants in connection with financing                               171,769             140,153
      Grant of employee stock options                                                 487,498                   -
      Changes in operating assets and liabilities, net of acquisitions:
      Increase in accounts receivable                                                  (9,541)            (51,771)
      Increase in inventory                                                                 -             (48,369)
      Decrease (increase) in prepaid expenses and other current assets                      -             (90,586)
      Increase in accounts payable and accrued expenses                               615,632             720,091
      Decrease in deferred revenue                                                    (22,000)                  -
                                                                                  ------------        ------------

        Net cash provided by (used in) operating activities                               196          (1,799,231)
                                                                                  ------------        ------------

Cash flows from investing activities:
      Purchase of property and equipment                                                    -             (36,937)
                                                                                  ------------        ------------
           Net cash used in investing activities                                            -             (36,937)
                                                                                  ------------        ------------

Cash flows from financing activities:
      Proceeds from notes payable and shareholder advances                                  -             416,387
      Repayments of notes payable                                                           -            (330,524)
      Proceeds from issuance of convertible notes payable                                   -             728,000
      Proceeds from issuance of common stock                                                -              50,000
      Proceeds from exercise of stock options                                               -               5,500
      Net proceeds from exercise of warrants                                                -             959,356
                                                                                  ------------        ------------

        Net cash provided by financing activities                                           -           1,828,719
                                                                                  ------------        ------------

Net increase in cash and cash equivalents                                                 196              (7,449)

Cash and cash equivalents, beginning of period                                            136               8,296
                                                                                  ------------        ------------

Cash and cash equivalents, end of period                                                  332                 847
                                                                                  ============        ============

</TABLE>

   See accompanying notes to the consolidated financial statements (unaudited)

                                       F-6
<PAGE>
                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002 (cont'd)

<TABLE>
<CAPTION>


Supplemental disclosure of non-cash information:                                      2003                2002
                                                                                  ------------        ------------
<S>                                                                              <C>                 <C>

     Cash paid during the year for:
           Interest                                                               $         -         $    45,625
                                                                                  ============        ============
           Income taxes                                                           $         -         $         -
                                                                                  ============        ============

Schedule of non-cash investing and financing activities:

     Issuance of common stock for services                                        $   616,375         $         -
                                                                                  ============        ============

     Stock issued in connection with the settlement of trade payables             $   241,142         $ 1,613,010
                                                                                  ============        ============

     Stock issued in connection with conversion of notes payable                  $         -         $    68,912
                                                                                  ============        ============

     Stock issued in connection with prepaid expenses                             $         -         $   173,188
                                                                                  ============        ============

     Stock issued in connection with conversion of convertible
       notes payable                                                              $   130,000         $    50,000
                                                                                  ============        ============

     Stock issued in connection with settlement of accrued expenses               $   232,631         $         -
                                                                                  ============        ============

     Cashless exercise of warrants in lieu of accounts payable                    $         -         $    49,702
                                                                                  ============        ============

     Cashless exercise of stock options in lieu of accounts payable               $    62,500         $     9,000
                                                                                  ============        ============

     Issuance of warrants in connection with convertible debentures               $         -         $   477,177
                                                                                  ============        ============

     Issuance of warrants in connection with financing                            $    26,413         $   974,441
                                                                                  ============        ============


</TABLE>
   See accompanying notes to the consolidated financial statements (unaudited)

                                      F-7
<PAGE>
                 BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 1   -     ORGANIZATION, HISTORY AND NATURE OF BUSINESS

               BEVsystems International, Inc. and Subsidiaries (collectively the
               "Company")  is  a  provider  of  oxygenated  water.  The  Company
               distributes  its  products  primarily  through  an  international
               distribution  network.  The  Company's  fiscal  year  ends on the
               Saturday nearest to March 31.

               On July 12,  2001,  the  Company  acquired  the net assets of the
               beverage division of Life International, a provider of oxygenated
               water. The net assets included  oxygenation  equipment,  bottles,
               proprietary  seals,   marketing   materials,   office  equipment,
               trademarks,  patent rights and other intangible  assets (see Note
               4). On February 25, 2002,  the Company  consummated a merger with
               Aqua Clara Bottling and  Distribution,  Inc. and Subsidiary  (see
               Note 4).

NOTE  2  -     BASIS OF PRESENTATION

               The  accompanying   unaudited  financial   statements  have  been
               prepared  in  accordance  with  generally   accepted   accounting
               principles in the United States of America for interim  financial
               information,  the  instructions  to Form 10-QSB and Items 303 and
               310(B) of  Regulation  S-B.  In the  opinion of  management,  the
               unaudited  financial  statements  have been  prepared on the same
               basis  as  the  annual  financial   statements  and  reflect  all
               adjustments,  which  include only normal  recurring  adjustments,
               necessary to present  fairly the financial  position at September
               27, 2003 and the results of the operations and cash flows for the
               six months ended  September 27, 2003 and September 28, 2002.  The
               results  for the six  months  ended  September  27,  2003 are not
               necessarily  indicative  of the  results to be  expected  for any
               subsequent  quarter or the entire  fiscal year  ending  March 29,
               2004.  The balance  sheet at March 29, 2003 has been derived from
               the audited financial statements at that date.

               Certain information and footnote disclosures normally included in
               financial   statements  prepared  in  accordance  with  generally
               accepted  accounting  principles  in the United States of America
               have been  condensed or omitted  pursuant to the  Securities  and
               Exchange Commission's ("SEC") rules and regulations.

               These   unaudited   financial   statements   should  be  read  in
               conjunction with the Company's audited  financial  statements and
               notes  thereto  for the year ended  March 29, 2003 as included in
               the Company's report on Form 10-KSB filed on September 15, 2003.

               Loss  per  common   share  is  computed   pursuant  to  Financial
               Accounting  Standards  Board,  Statement of Financial  Accounting
               Standards ("SFAS") No. 128,  "Earnings Per Share" ("EPS").  Basic
               income  (loss)  per  share  is  computed  as  net  income  (loss)
               available to common shareholders  divided by the weighted average
               number of common shares  outstanding for the period.  Diluted EPS
               reflects  the  potential  dilution  that could  occur from common
               stock issuable through stock based  compensation  including stock
               options, restrictive stock awards, warrants and other convertible
               securities.  Diluted EPS is not presented  since the effect would
               be anti-dilutive.

                                      F-8
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 3   -    GOING CONCERN

              The  accompanying  consolidated  financial  statements  have been
              prepared  assuming  that the  Company  will  continue  as a going
              concern. The Company has incurred operating losses, negative cash
              flows from operating activities, negative working capital and has
              a  shareholder's  deficit.  At  September  27, 2003 and March 29,
              2003,  the  Company's  accumulated  deficit was  $37,016,847  and
              $34,145,406, respectively, and its working capital deficiency was
              $5,888,474  and  $5,637,910,  respectively.  For the years  ended
              March 29,  2003 and March 30,  2002,  the  Company had a net loss
              from operations of $29,560,198 and $4,585,208,  respectively.  In
              addition,  the  Company is in default of its debt  agreement  for
              nonpayment  and certain  debtors have filed  actions  against the
              Company,  including foreclosing property.  These conditions raise
              substantial  doubt about the  Company's  ability to continue as a
              going concern.

              The Company has  initiated  several  actions to generate  working
              capital and improve operating performances,  including equity and
              debt  financing,  cost  reduction  measures,   renegotiating  and
              settling  certain  liabilities  and  redefining  its business and
              marketing  strategy.  However,  there can be no assurance that it
              will be able to increase revenues or to raise additional capital.
              The financial  statements do not include adjustments  relating to
              the  recoverability  and realization of assets and classification
              of  liabilities  that might be  necessary  should the  Company be
              unable to continue in operation.

NOTE 4   -    ACQUISITIONS

              LIFE INTERNATIONAL

              Effective  July 12, 2001,  the Company  consummated a merger with
              Life International,  an oxygenated beverage company.  Pursuant to
              the merger,  the Company  issued 57,894 shares of common stock to
              Life International and 16,664 warrants for additional shares. The
              warrants were exercised prior to March 30, 2002 and provided Life
              International  with a 49% ownership in the Company.  There was no
              cost to exercise the warrants  and they had no  expiration  date.
              The  stocks and  warrants  were  assigned a value of  $4,899,871,
              based on the sales  price of common  stock sold by the Company in
              two separate identically priced private placements which occurred
              before and after the acquisition.

              The  merger  was  accounted  for  using  the  purchase  method of
              accounting.  The  Company  determined  the  purchase  price to be
              $5,913,490,  which consisted of a cash payment of $1,020,000, the
              value of the  shares and  warrants  of  $4,899,871,  less the net
              assets of $6,381,  which  consisted  of $96,381 of fixed  assets,
              less liabilities assumed of $90,000. The purchase price in excess
              of net assets was allocated as follows:

                           DESCRIPTION                      AMOUNT
                           --------------               --------------
                           Process technology            $  3,887,000
                           Trademarks                         830,000
                           Goodwill                           796,490
                           Customer relations                 400,000
                                                        --------------

                                                         $  5,913,490
                                                        ==============

                                      F-9
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 4   -    ACQUISITIONS (cont'd)

              The Company  obtained an  independent  valuation of the assets of
              Life  International  in order to determine  the fair value of the
              assets  purchased at July 12, 2001.  Subsequent  to the purchase,
              the Company  obtained  additional  independent  valuations of the
              assets and determined that the above assets were impaired.  Based
              upon the  independent  valuations,  the  Company  has  recorded a
              one-time  non-cash charge of $5,913,490 to write off the carrying
              value of its intangible  assets at March 29, 2003. In calculating
              the impairment  charge for goodwill of $796,490  recorded  during
              the second  quarter of fiscal 2003,  the fair value was estimated
              using  quoted  market  prices.   The  amount  of  the  impairment
              primarily reflects the decline in the Company's stock price since
              the  acquisition of the goodwill.  In calculating  the impairment
              charge for the remaining intangible assets of $5,117,000 recorded
              during the  fourth  quarter  of fiscal  2003,  the fair value was
              estimated  using the discounted  cash flow method.  The amount of
              the impairment primarily reflects the Company's  insolvency,  the
              cessation  of  production,  and the fact that the  Company is not
              currently  producing  significant  revenues  to cover its cost of
              operations and continue as a going concern.

              AQUA CLARA BOTTLING & DISTRIBUTION, INC.

              Effective  February 25, 2002,  the Company  consummated  a merger
              with Aqua Clara  Bottling &  Distribution,  Inc.  and  Subsidiary
              (Aqua Clara),  an  oxygenated  beverage  company.  The merger was
              accounted  for as a reverse  merger using the purchase  method of
              accounting.  Accordingly,  the acquisition has been treated as an
              acquisition  of Aqua  Clara  by  BEVsystems  International,  Inc.
              ("BEVsystems")  and as a  recapitalization  of  BEVsystems.  As a
              result,  the assets and liabilities of BEVsystems are recorded at
              historical  values and the assets and  liabilities  of Aqua Clara
              are  recorded  at their  estimated  fair value at the date of the
              merger.  As a result,  the Company recorded an additional  39,996
              shares of common stock,  100 shares of preferred stock (valued as
              if  converted  to 874  shares of common  stock)  and  options  to
              purchase 25,884 shares of common stock.

              The Company  determined  the  purchase  price to be  $13,831,661,
              which  consisted of the value  assigned to the stocks and options
              of $14,685,806,  based on the closing price of the stock of $1.10
              per  share  on  February  25,  2002,  the  closing  date  of  the
              transaction, less the estimated proceeds from the exercise of the
              options  of  $2,573,561,  plus  the net  liabilities  assumed  of
              $1,719,416.  The net  liabilities  assumed  consisted  of cash of
              $6,559,  accounts  receivable  of $22,581,  inventory of $37,139,
              other assets of $5,891 less  liabilities  assumed of  $1,791,586.
              The purchase was allocated as follows:

                           DESCRIPTION                    AMOUNT
                           -----------                  -----------
                           Goodwill                     $11,149,542
                           Trademarks                       910,000
                           Building                         784,454
                           Equipment                        757,665
                           Customer relations               140,000
                           Land                              90,000
                                                     ---------------

                                                        $13,831,661
                                                     ===============

                                      F-10
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 4   -    ACQUISITIONS (cont'd)

              The Company  obtained an  independent  valuation of the assets of
              Aqua  Clara in order to  determine  the fair  value of the assets
              purchased at February 25, 2002.  Subsequent to the purchase,  the
              Company obtained additional  independent valuations of the assets
              and determined  that the above assets were  impaired.  Based upon
              the valuations,  the Company recorded a one-time  non-cash charge
              of  $12,199,542 to write off the carrying value of its intangible
              assets during the year ended March 29, 2003. In  calculating  the
              impairment charge for goodwill of $11,149,542 recorded during the
              second quarter of fiscal 2003, the fair value was estimated using
              quoted  market  prices.  The amount of the  impairment  primarily
              reflects  the  decline in the  Company's  stock  price  since the
              acquisition of the goodwill. In calculating the impairment charge
              for the remaining intangible assets of $1,050,000 recorded during
              the fourth  quarter of fiscal 2003,  the fair value was estimated
              using  the  discounted  cash  flow  method.  The  amount  of  the
              impairment  primarily  reflects  the  Company's  insolvency,  the
              cessation  of  production,  and the fact that the  Company is not
              currently  producing  significant  revenues  to cover its cost of
              operations and continue as a going concern.

NOTE 5   -    MARKETABLE SECURITIES

              Marketable securities,  which consist of equity securities,  have
              been  categorized  as  available  for sale and, as a result,  are
              stated at fair value based  generally  on quoted  market  prices.
              Marketable   securities  available  for  current  operations  are
              classified  as  current  assets.  Unrealized  holding  gains  and
              losses,  net of  applicable  deferred  taxes,  are  included as a
              component of shareholders' deficiency until realized. For the six
              months  ended   September  27,  2003,  the  unrealized   gain  on
              marketable  securities  was $1,500.  For purposes of  determining
              gross  realized   gains  and  losses,   the  cost  of  investment
              securities sold is based upon specific identification.

NOTE 6 -      ACCRUED EXPENSES

              Accrued expenses consisted of the following at September 27, 2003
              and March 29, 2003:

<TABLE>
<CAPTION>
                                                  September 27,          March 29,
                                                     2003                  2003
                                                  ---------------     ---------------
              <S>                                      <C>                <C>
               Payroll and related costs           $   1,046,131      $   767,554
               Settlements                               585,416          765,559
               Other                                     779,899          455,136
               Interest                                  201,491          137,990
               Professional fees                         207,327          154,132
               Directors fees                             30,000           40,000
                                                  ---------------    ----------------
                                                   $   2,850,264     $  2,320,371
                                                  ===============    ================
</TABLE>
NOTE 7    -   CONVERTIBLE NOTES PAYABLE

              On October 22, 2001,  the Company  entered into a series of three
              convertible  promissory  notes with  Financial  Partners  Network
              Corporation in the amount of $100,000,  $100,000 and $62,584. The
              notes were due April 22, 2002 and had an  interest  rate of 10.5%
              per  year.  The  notes  were  convertible,  at the  option of the
              holder,  into shares of the Company's  common stock at an initial
              conversion  price of $65.99 per share.  The conversion  price was
              subject to adjustment if the Company issued  additional shares of
              its common stock without consideration or for a consideration per
              share less than the conversion price in effect  immediately prior
              to the issuance

                                      F-11
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 7 -      CONVERTIBLE NOTES PAYABLE (cont'd)

              of such additional shares of common stock. On August 29, 2002, in
              consideration  for extending the maturity dates on the notes, the
              Company  granted   warrants  to  purchase  2,574  shares  of  the
              Company's  common  stock at an exercise  price of $0.01 per share
              expiring  May 15,  2005.  On January 21,  2003,  all three notes,
              inclusive of accrued  interest of $34,464,  were  converted  into
              1,710,753  shares  of the  Company's  common  stock  at a rate of
              $0.108 per share.  The Company also granted warrants to Financial
              Partners  Network  Corporation  to purchase  2,198  shares of the
              Company's  common stock at an exercise  price of $65.99 per share
              expiring  November 10, 2006. In lieu of exercising the warrant by
              paying the per share  warrant  price,  the  holder may  execute a
              cashless exercise in accordance with the formula set forth in the
              warrant agreement.  In September 2003, Financial Partners Network
              exercised  their right to purchase  2,574 shares of the Company's
              common stock via a cashless  exercise,  resulting in the issuance
              of 2,504 shares of the Company's common stock.

              On  November  5,  2001,  the  Company  entered  into  a  $100,000
              convertible  promissory  note  with  an  investor.  The  note  is
              currently  in  default  and was due  November  5, 2002 and has an
              interest rate of 10.5% per year. The note is convertible,  at the
              option of the holder,  into shares of the Company's  common stock
              at  an  initial   conversion  price  of  $65.99  per  share.  The
              conversion  price is subject to adjustment if the Company  issues
              additional  shares of its common stock without  consideration  or
              for a consideration  per share less than the conversion  price in
              effect  immediately  prior  to the  issuance  of such  additional
              shares of common stock.  Accrued  interest of $19,082 is included
              in accrued  expenses  in the  accompanying  consolidated  balance
              sheet.  The Company also granted  warrants to purchase 609 shares
              of the Company's  common stock at an exercise price of $65.99 per
              share  expiring  November 5, 2004. The warrants were exercised on
              January 24, 2003 for a total of $40,000.

              On  November  15,  2001,  the  Company  entered  into a  $200,000
              convertible  promissory  note  with the Chief  Executive  Officer
              ("CEO").  The note was due May 15, 2002 and had an interest  rate
              of 10.5% per year. The note was convertible, at the option of the
              holder,  into shares of the Company's  common stock at an initial
              conversion  price of $65.99 per share.  The conversion  price was
              subject to adjustment if the Company issued  additional shares of
              its common stock without consideration or for a consideration per
              share less than the conversion price in effect  immediately prior
              to the issuance of such  additional  shares of common  stock.  On
              August 29, 2002, in consideration for extending the maturity date
              on the note,  the Company  granted  warrants  to  purchase  1,961
              shares of the  Company's  common  stock to the CEO at an exercise
              price of $0.01 per share  expiring May 15,  2005.  On January 21,
              2003,  the note,  including  accrued  interest  of  $24,500,  was
              converted into 3,571,424  shares of the Company's common stock at
              a rate of $0.108 per share.  In September 2003, the CEO exercised
              his right to purchase 1,961 shares of the Company's  common stock
              via a  cashless  exercise,  resulting  in the  issuance  of 1,908
              shares of the Company's common stock.

              On  December  21,  2001,  the  Company  entered  into  a  $20,000
              convertible  promissory  note  with  an  investor.  The  note  is
              currently  in  default  and  was due  June  21,  2002  and has an
              interest rate of 10.5% per year. The note is convertible,  at the
              option of the holder,  into shares of the Company's  common stock
              at  an  initial   conversion  price  of  $65.99  per  share.  The
              conversion  price is subject to adjustment if the Company  issues
              additional  shares of its common stock without  consideration  or
              for a consideration  per share less than the conversion  price in
              effect  immediately  prior  to the  issuance  of such  additional
              shares of common stock. Accrued interest of $3,675 is included in

                                      F-12
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)



NOTE 7 -       CONVERTIBLE NOTES PAYABLE (cont'd)

               accrued expenses in the accompanying  consolidated balance sheet.
               The Company also granted warrants to the investor to purchase 122
               shares of the  Company's  common  stock at an  exercise  price of
               $65.99 per share expiring November 5, 2004.

               On  December  21,  2001,  the  Company  entered  into  a  $40,000
               convertible  promissory  note  with  an  investor.  The  note  is
               currently in default and was originally due June 21, 2002 and has
               an interest rate of 10.5% per year. The note is  convertible,  at
               the option of the  holder,  into shares of the  Company's  common
               stock at an initial  conversion  price of $65.99  per share.  The
               conversion  price is subject to adjustment if the Company  issues
               additional  shares of its common stock without  consideration  or
               for a consideration  per share less than the conversion  price in
               effect  immediately  prior  to the  issuance  of such  additional
               shares of common stock. Accrued interest of $7,350 is included in
               accrued expenses in the accompanying  consolidated balance sheet.
               The Company also  granted  warrants to purchase 243 shares of the
               Company's  common stock at an exercise  price of $65.99 per share
               expiring November 5, 2004. On July 30, 2002, in consideration for
               extending  the maturity  date on the note to June 21,  2003,  the
               Company  granted  warrants to the investor to purchase 100 shares
               of the Company's  common stock at an exercise price of $48.00 per
               share expiring May 15, 2005.

               In April  2002,  the Company  entered  into  several  convertible
               promissory  notes with  several  investors  for a total  value of
               $200,000.  The notes were due April 30, 2003 and have an interest
               rate of 12%.  The notes  are  convertible,  at the  option of the
               holders,  into shares of the Company's common stock at an initial
               conversion price per share equal to the lesser of (i) the average
               of the lowest  three-day  trading  prices during the five trading
               days immediately  prior to the conversion date discounted by 25%,
               or (ii) the average of the lowest three-day trading prices during
               the five  trading  days  immediately  prior to the  funding.  The
               conversion  price is subject to adjustment if the Company  issues
               additional  shares of its common stock without  consideration  or
               for a consideration  per share less than the conversion  price in
               effect  immediately  prior  to the  issuance  of such  additional
               shares of common stock. During the year ended March 29, 2003, one
               investor  converted  his  $50,000  note into 1,755  shares of the
               Company's   common  stock.  In  August  2003,   another  investor
               converted his $50,000 note, including accrued interest of $8,000,
               into 773,333 shares of the Company's  common stock.  On September
               22, 2003, another investor converted his $50,000 note,  including
               accrued interest of $8,515,  into 329,662 shares of the Company's
               common  stock.  The balance of the notes was $50,000 at September
               27,  2003.  Accrued  interest  of $8,567 is  included  in accrued
               expenses in the accompanying  consolidated balance sheet relating
               to  the  outstanding   notes.  The  Company  also  granted  these
               noteholders  warrants to purchase a total of 3,000  shares of the
               Company's  common stock at an exercise  price equal to the lesser
               of (i) the average of the lowest three day trading  prices during
               the five trading days  immediately  prior to the conversion  date
               discounted  by 25%, or (ii) the  average of the lowest  three day
               trading prices during the five trading days immediately  prior to
               the funding  date.  The warrants are callable by the Company when
               the  five-day  average  closing  stock price  exceeds 120% of the
               five-day  average  closing price prior to the funding  date.  The
               warrants  expire on April 30, 2005.  On September  22, 2003,  one
               noteholder  exercised  his warrants and  purchased 750 shares of
               the Company's  common stock for $133.  The proceeds are currently
               due  from  the  noteholder.  Subsequent  to the  quarter  ended
               September  27,  2003,  on  September  30,  2003,  a  noteholder
               converted his $50,000 note, including accrued interest of $8,433,
               into 417,378 shares of the Company's common stock.

                                      F-13
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 7    -   CONVERTIBLE NOTES PAYABLE (cont'd)

               On May 15, 2002, the Company entered into an $80,000  convertible
               promissory note with a director. The note was due August 15, 2002
               and  had an  interest  rate of  12.0%  per  year.  The  note  was
               convertible,  at the  option of the  holder,  into  shares of the
               Company's  common stock at an initial  conversion price per share
               equal  to the  lesser  of (i) the  average  of the  lowest  3 day
               trading prices during the 5 trading days immediately prior to the
               conversion  date  discounted  by 25%,  or (ii) the average of the
               lowest 3 day trading prices during the 5 trading days immediately
               prior to the funding date.  The  conversion  price was subject to
               adjustment.  On August 29, 2002, in  consideration  for extending
               the maturity date on the note,  the Company  granted  warrants to
               purchase 784 shares of the Company's  common stock at an exercise
               price of $0.01 per share  expiring May 15,  2005.  On January 21,
               2003,  this  note,  as well as a $363,000  secured  note with the
               director, including accrued interest was converted into 4,440,044
               shares of the Company's common stock. The Company also granted to
               the director  warrants to purchase  1,200 shares of the Company's
               common stock at an exercise  price equal to the lesser of (i) the
               average of the lowest  three day trading  prices  during the five
               trading days immediately  prior to the conversion date discounted
               by 25%,  or (ii) the  average  of the  lowest  three day  trading
               prices  during  the five  trading  day  immediately  prior to the
               funding  date.  The  warrants  to  purchase  1,200  shares of the
               Company's  common  stock were  exercised  on August 7,  2002.  On
               August 29, 2002, in consideration for extending the maturity date
               of the aforementioned secured note with this director the Company
               granted warrants to purchase 3,845 shares of the Company's common
               stock at an exercise  price of $0.01 per share  expiring  May 15,
               2005. On September 22, 2003, the director  exercised his right to
               purchase  4,629  shares  of  the  Company's  common  stock  via a
               cashless  exercise,  resulting in the issuance of 4,504 shares of
               the Company's common stock.

               On June 4, 2002, the Company entered into a $100,000  convertible
               promissory  note with an investor.  The note was due June 4, 2003
               and has an interest rate of 12%. The note is convertible,  at the
               option of the holder,  into shares of the Company's  common stock
               at an initial  conversion  price per share equal to the lesser of
               (i) the average of the lowest three-day trading prices during the
               five  trading  days  immediately  prior  to the  conversion  date
               discounted  by 25%, or (ii) the  average of the lowest  three-day
               trading prices during the five trading days immediately  prior to
               the funding. The conversion price is subject to adjustment if the
               Company  issues  additional  shares of its common  stock  without
               consideration  or for a  consideration  per  share  less than the
               conversion price in effect  immediately  prior to the issuance of
               such  additional  shares of common  stock.  Accrued  interest  of
               $15,867 is  included  in  accrued  expenses  in the  accompanying
               consolidated  balance sheet. The Company also granted warrants to
               this investor to purchase  1,500 shares of the  Company's  common
               stock at an exercise price equal to the lesser of (i) the average
               of the lowest  three day trading  prices  during the five trading
               days immediately  prior to the conversion date discounted by 25%,
               or (ii) the average of the lowest three day trading prices during
               the five trading day  immediately  prior to the funding date. The
               warrant is  callable  by the Company  when the  five-day  average
               closing stock price exceeds 120% of the five-day  average closing
               price prior to the funding date. The warrant expires on April 30,
               2005.  Subsequent  to the quarter  ended  September  27, 2003, on
               September 30, 2003,  the investor  converted his note,  including
               accrued  interest  of  $15,879,  into  2,000,000  shares  of  the
               Company's common stock.

               On June 27, 2002, the Company entered into a $50,000  convertible
               promissory note with an investor. The note was due April 30, 2003
               and has an interest rate of 12%. The note is convertible,  at the
               option of the holder,  into shares of the Company's  common stock
               at an initial

                                      F-14
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 7    -    CONVERTIBLE NOTES PAYABLE (cont'd)

               conversion price per share equal to the lesser of (i) the average
               of the lowest  three-day  trading  prices during the five trading
               days immediately  prior to the conversion date discounted by 25%,
               or (ii) the average of the lowest three-day trading prices during
               the five  trading  days  immediately  prior to the  funding.  The
               conversion  price is subject to adjustment if the Company  issues
               additional  shares of its common stock without  consideration  or
               for a consideration  per share less than the conversion  price in
               effect  immediately  prior  to the  issuance  of such  additional
               shares of common stock. Accrued interest of $7,550 is included in
               accrued expenses in the accompanying  consolidated balance sheet.
               The Company  also granted  warrants to this  investor to purchase
               750 shares of the  Company's  common  stock at an exercise  price
               equal to the lesser of (i) the  average  of the lowest  three day
               trading prices during the five trading days immediately  prior to
               the conversion date discounted by 25%, or (ii) the average of the
               lowest  three day  trading  prices  during the five  trading  day
               immediately prior to the funding date. The warrant is callable by
               the Company when the five-day average closing stock price exceeds
               120% of the five-day  average  closing price prior to the funding
               date. The warrant expires on April 30, 2005.

               On July 5, 2002, the Company entered into a $250,000  convertible
               promissory  note with an investor.  The note was due July 5, 2003
               and does not bear  interest,  except in the case of default.  The
               note is convertible,  at the option of the holder, into shares of
               the  Company's  common stock at an initial  conversion  price per
               share equal to the lesser of (i) the average of the 5-day closing
               bid prices  during the 5 trading  days  immediately  prior to the
               conversion  date  discounted by 25%, or (ii) $60. The  conversion
               price is subject to adjustment if the Company  issues  additional
               shares  of  its  common  stock  without  consideration  or  for a
               consideration  per share less than the conversion price in effect
               immediately  prior to the issuance of such  additional  shares of
               common stock.  The conversion price is also subject to adjustment
               so that the  number of shares  into  which the note is  converted
               does not exceed the number of shares such that,  when  aggregated
               with all other shares of common stock then beneficially or deemed
               beneficially  owned by the  holder,  would  result in the  holder
               owning  more than  9.999% of all such  shares of common  stock as
               would be  outstanding  on the  conversion  date.  In August 2003,
               $30,000  of the note was  converted  into  500,000  shares of the
               Company's  common stock.  Accrued  interest due to the default of
               the Company of  $128,404  is included in accrued  expenses in the
               accompanying consolidated balance sheet. The Company also granted
               warrants  to  the  investor  to  purchase  1,667  shares  of  the
               Company's  common stock at an exercise price of $72.00 per share.
               The warrant is callable at the  Company's  option,  provided that
               the closing bid prices for the five days  preceding  the date the
               Company  exercises  such  option  exceeds  140%  of  the  warrant
               exercise price and that an effective registration statement is in
               place.  Subsequent  to the quarter  ended  September 27, 2003, on
               September 30, 2003, the remaining balance of the note,  including
               the default  interest of $128,404,  was converted into 2,500,000
               shares of the Company's common stock.

               On August 4, 2002, the Company entered into a $75,000 convertible
               promissory  note with an  investor  bearing  interest  at 10% per
               annum with principal and all accrued  interest payable in full on
               March 4,  2003.  The note is  secured  by  50,000  shares  of the
               Company's  common stock.  The holder of the note is entitled,  at
               its option,  to convert at any time, the principal  amount of the
               note and  accrued  interest  at a  conversion  price equal to the
               latest five-day average of the closing bid price of the Company's
               common stock into such shares of the Company's  common stock. The
               shares to be issued pursuant to this note shall contain unlimited
               piggyback  registration  rights. Any overdue payment of principal
               on the note shall bear  interest at 15% per annum until paid.  On
               February 5, 2003,  the Company issued 50,000 shares of its common
               stock, valued at

                                      F-15
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 7 -       CONVERTIBLE NOTES PAYABLE (cont'd)

               $85,000,  in consideration for extending the maturity date of the
               note.  Accrued interest of $7,500 is included in accrued expenses
               in the accompanying  consolidated  balance sheet. In June 2003, a
               related  party-shareholder  purchased the note from the investor.
               In  consideration  for extending the maturity date of the note to
               November  16,  2003 the  related  party-shareholder  was  granted
               warrants to purchase 250,000 shares of the Company's common stock
               at an  exercise  price of $0.01 per share.  The fair value of the
               warrants using the Black-Scholes Option Pricing Model was $52,825
               and is being amortized to interest and financing expense over the
               term  of  the  note.   On  September   22,   2003,   the  related
               party-shareholder exercised his warrants via a cashless exercise,
               resulting  in the  issuance  of 249,306  shares of the  Company's
               common stock.

               The proceeds from the issuance of each of the  convertible  notes
               payable with the warrants were allocated between the warrants and
               the notes  payable,  based on their  relative  fair values at the
               time of issuance.  The fair value of the warrants issued prior to
               March 29, 2003 of $459,792 was calculated using the Black-Scholes
               Option Pricing Model and was accounted for as additional  paid-in
               capital and interest and financing  expense during the year ended
               March 29, 2003.

NOTE 8 -       NOTES PAYABLE  - SECURED BY ASSETS

               On July 31,  2002,  the Company  refinanced  their  manufacturing
               plant located in Clearwater,  Florida. The amount of the mortgage
               note  totaled  $420,000.  The  mortgage  note is  secured  by the
               underlying  building  and  land.  The  note  was  due in  monthly
               installments  of principal  and interest  through 2032 and has an
               initial  interest  rate of  12.99%.  The  interest  rate  will be
               adjusted  annually  to a rate equal to 6.00% above the prime rate
               and shall never be less than 12.00% per year.  At  September  27,
               2003, the interest rate was 12%. Due to the default, the mortgage
               is now  currently  due and has  been  reclassified  as a  current
               liability.  At September  27,  2003,  the  outstanding  principal
               balance was $419,806.  Accrued interest of $75,600 is included in
               accrued expenses in the accompanying consolidated balance sheet.

               In May 2002, the Company  entered into an agreement with Brickell
               Bay Capital  Fund,  LLC  ("Brickell  Bay") to extend the maturity
               date of its $300,000  convertible  promissory  note to October 4,
               2002. As part of the  agreement,  the Company was required to pay
               past due interest totaling $23,625 and issue warrants to purchase
               2,511 shares of the Company's  common stock at an exercise  price
               of $65.99 per share.  The fair value of the  warrants of $290,531
               was calculated using the  Black-Scholes  Option Pricing Model and
               was accounted for as additional  paid in capital and interest and
               financing  expense during the year ended March 29, 2003.  Accrued
               interest  of  $31,500 is  included  in  accrued  expenses  in the
               accompanying consolidated balance sheet at September 27, 2003. On
               May 30,  2002,  Brickell  Bay  exercised  warrants  relating to a
               previous  agreement  to purchase  2,511  shares of the  Company's
               common stock for a total consideration of $165,706.  In addition,
               on  April  4,  2002,  the  Company   entered  into  a  Collateral
               Assignment of Rents, Leases and Profits ("Collateral Assignment")
               with  Brickell Bay whereby the Company's  manufacturing  plant in
               Clearwater,  Florida and land was  assigned  to  Brickell  Bay as
               collateral  for the  $300,000  note.  In June 2003,  Brickell Bay
               filed a  foreclosure  action  against the Company for  nonpayment
               (See Note 14).

                                      F-16
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 8 -       NOTES PAYABLE  - SECURED BY ASSETS (cont'd)

               At September 27, 2003,  the Company has a note payable  currently
               in default.  Certain  vehicles  of the Company  secured the note.
               During the quarter ended  September 27, 2003, the noteholder sold
               three of the  vehicles  securing  the note  thereby  reducing the
               amount due to $30,829.  One  secured  vehicle  remains  under the
               note.  The  Company  recorded an  impairment  loss of $6,040 as a
               result of the write-down of the vehicles sold.

NOTE 9 -       SHAREHOLDERS' DEFICIENCY

               Reverse Stock Split

               On January 2, 2003,  the Board of  Directors  authorized  a 200:1
               reverse  stock  split.   All   references  in  the   accompanying
               consolidated  financial statements to the number of common shares
               and per share  amounts have been  restated to reflect the reverse
               stock split.

               Change in Domestication and Common Stock

               On October 21, 2002,  at a special  meeting of the  shareholders,
               the holders of a majority of the shares  entitled to vote adopted
               the Board of Directors'  recommendation  that the Company  change
               its domicile from Colorado to Florida.  The Company  subsequently
               filed a Certificate of  Domestication  with the state of Florida,
               and a withdrawal of its  authority in Colorado,  resulting in the
               Company  becoming  a  Florida  corporation.  As a  result  of the
               shareholder's  adoption  of the  recommendation  of the  Board of
               Directors  at  the  October  21,  2002  meeting,  the  number  of
               authorized  common  shares were  increased  from  100,000,000  to
               650,000,000, with a par value of $.0001 per share.

               In connection with the  acquisition of Aqua Clara,  all shares of
               common  stock  outstanding  prior to the  acquisition  date  were
               exchanged at the ratio of 1.6738 per share.  All shares of common
               stock  and  prices  have  been   restated  in  the   accompanying
               consolidated financial statements and notes.

               Issuance of Warrants

               In May 2002,  the Company  granted  warrants  to  purchase  1,500
               shares of the Company's  common stock at an exercise  price equal
               to the average of the lowest  closing 3 day trading prices during
               the 5  trading  days  immediately  prior  to the  exercise  date,
               discounted  by 25%.  The warrant is callable by the Company  when
               the  five-day  average  closing  stock price  exceeds 120% of the
               5-day average  closing price prior to the warrant issue date. The
               warrants  have a term of three years.  The Company has valued the
               warrants at $147 using the Black-Scholes pricing model. The value
               of the warrants was  recorded as interest and  financing  expense
               during the year ended March 29, 2003.

                                      F-17
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               Issuance of Warrants for Settlement of Debt

               The  Company  was  indebted to a  consulting  firm for  financial
               consulting  and advisory  services in the amount of $50,000.  The
               Company  entered  into an agreement to settle the amount owed for
               these  services  and on October  28,  2002,  the  Company  issued
               warrants to the consulting  firm to purchase 12,500 shares of the
               Company's  common stock at an exercise price of $8 per share. The
               warrants  have a term of five  years.  The Company has valued the
               warrants at $89,691 using the  Black-Scholes  pricing model.  The
               value of the warrants was recorded as consulting  expense  during
               the year ended March 29, 2003.

               Issuance of Warrants for Financing

               On July  28,  2003,  the  Company  issued  warrants  to  purchase
               1,823,796  shares of the  Company's  common  stock at an exercise
               price of $0.01 per share.  The warrants  were issued to the Chief
               Executive  Officer (for 390,305  shares) a director  (for 921,305
               shares)  and  to  Financial  Partners  Network  Corporation  (for
               512,295  shares).  The  warrants  expire  on May  15,  2006.  The
               warrants were issued in consideration  for previous and continued
               funding  via the  payment  of  expenses  and  liabilities  of the
               Company by the  parties.  The Company has valued the  warrants at
               $145,356 using the Black-Scholes  Pricing Model. The value of the
               warrants  was  recorded  as a  financing  expense  during the six
               months ended  September  27, 2003.  On  September  22, 2003,  the
               above-mentioned  parties  exercised their warrants via a cashless
               exercise,  resulting in the  issuance of 1,774,504  shares of the
               Company's common stock.

               Issuance of Common Stock for Settlement of Debt

               In April 2002,  the Company issued 125 shares of its common stock
               in settlement of debt.

               In January 2003,  the Company  entered into an agreement with the
               Chief Executive  Officer and his spouse, a director and Financial
               Partners Network  Corporation  whereby the Company issued a total
               of  9,722,221  shares  of its  restricted  common  stock  to such
               shareholders  in  satisfaction  of all debt,  convertible  notes,
               security  interest and other equity owed to the  shareholders  by
               the Company, which aggregated approximately $1,050,000.

               In August 2003,  the Company  issued  50,000 shares of its common
               stock,  valued at $5,000,  in  partial  settlement  of debt.  The
               Company  also agreed to pay the Creditor at the rate of $2.00 for
               every case of the  Company's  bottled  water product sold through
               the direct efforts of the Creditor which will be applied  towards
               the remaining  debt due to the  Creditor.  The Creditor will also
               receive  in  cash  a  sales  commission  for  every  case  of the
               Company's  bottled water product sold through the direct  efforts
               of the  Creditor.  No limit  has been  placed  on the  amount  of
               commissions earned or cases sold.

               In August 2003,  the Company  issued 275,000 shares of its common
               stock,   valued  at  $50,325,   in  settlement  of  debt  with  a
               consultant.

               In  September  2003,  the Company  issued  100,000  shares of its
               common stock,  valued at $18,300,  in partial  settlement of debt
               with a  consultant.  An  additional  150,000  shares,  valued  at
               $27,450,  is  due to  this  consultant  in  accordance  with  the
               agreement.

                                      F-18
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               Issuance of Common Stock and Warrants for Consulting Services

               In January  2002,  the Company  issued 110 shares of common stock
               for services  rendered.  The Company  recorded  $7,200 of expense
               during the year ended March 29, 2002.

               In March  2002,  the Company  entered  into an  agreement  with a
               consultant  for  services to be provided.  The Company  agreed to
               issue the  consultant  500 shares of its common stock each month.
               In  addition,  the  Company  agreed to pay the  consultant  up to
               $600,000 of its common stock over the term of the agreement.  The
               consultant was also entitled to receive  additional  compensation
               for other services  provided,  as defined in the  agreement.  The
               agreement was amended on June 6, 2002, whereby the Company agreed
               to grant the consultant the right to purchase 3,000 shares of the
               Company's  common  stock at a 40%  discount to the average of the
               three highest closing bid prices of the Company's common stock as
               of the date of notice.  In April 2002, the  consultant  exercised
               her right to purchase 500 shares of the  Company's  common stock.
               The  remaining  warrants  expired  unexercised.  The  Company has
               valued  the  warrants  at $214  using the  Black-Scholes  Pricing
               Model. The value of the warrants was expensed during fiscal 2003.
               In September 2003, the Company and the consultant mutually agreed
               to  terminate   the  agreement   and   acknowledged   no  further
               obligations due between the parties.

               In March  2002,  the Company  entered  into an  agreement  with a
               consulting  firm for services to be provided.  The  agreement was
               amended on June 6, 2002,  whereby the Company agreed to grant the
               firm the right to purchase  3,000 shares of the Company's  common
               stock at a 40%  discount  to the  average  of the  three  highest
               closing bid prices of the  Company's  common stock as of the date
               of notice.  On January 15, 2003, the Company entered into another
               agreement  with the  same  consulting  firm  for a period  of six
               months.  The Company  agreed to pay the firm  common  stock in an
               amount   not  less  than   7.00%  of  the  fully   diluted   post
               recapitalization  shares  of the  Company.  The firm  was  issued
               718,553 common shares valued at $1,221,540  under this agreement,
               which was  expensed  over the term of the  agreement.  During the
               year ended March 29, 2003,  the  consulting  firm  exercised  its
               right to purchase 1,125 shares of the Company's common stock. The
               remaining  warrants expired  unexercised.  The Company has valued
               the warrants at $160 using the  Black-Scholes  Pricing Model. The
               value of the warrants  was  expensed  during the year ended March
               29, 2003. On June 30, 2003, the Company and the  consulting  firm
               mutually  agreed to  terminate  the  agreement.  The Company also
               agreed to issue the consulting  firm 150,000 shares of its common
               stock valued at $10,500,  in full  settlement of the amounts due.
               The  Company  accrued  and  expensed  $10,500  relating  to  this
               settlement.

               In March 2002,  the Company  entered into a six-month  consulting
               agreement  with  another  consulting  firm  for  services  to  be
               provided. The agreement automatically renewed on a month-to-month
               basis. In connection with the agreement, the Company issued 8,440
               shares of its common stock,  valued at $354,456,  during the year
               ended  March 29,  2003.  In  addition,  on August 29,  2002,  the
               Company  granted   warrants  to  purchase  9,564  shares  of  the
               Company's  common  stock at an  exercise  price of $200 per share
               expiring  August 29, 2007. The Company has valued the warrants at
               $322,708 using the Black-Scholes  Pricing Model. The value of the
               warrants  was expensed  during the year ended March 29, 2003.  On
               June 30,  2003,  the Company  and the  consulting  firm  mutually
               agreed to terminate the agreement. Terms of the agreement are

                                      F-19
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               the Company  agreeing to issue the consulting  firm 50,000 shares
               of its common  stock valued at $3,500 in full  settlement  of the
               amounts due. The Company  accrued and expensed $3,500 relating to
               this settlement.

               In April 2002,  the Company issued 148 shares of its common stock
               to a consultant for services to be provided, valued at $23,680.

               In April 2002,  the Company issued 109 shares of its common stock
               to a consultant for services to be provided, valued at $17,440.

               In April 2002,  the Company issued 150 shares of its common stock
               to a consultant  for services to be provided,  valued at $21,600.
               In addition,  on April 10,  2002,  the Company also agreed to pay
               the consultant  $6,000 per month,  beginning  April 1, 2002, as a
               consulting fee on an annual basis,  which will be applied against
               media expenditures. Should no media be placed, the $6,000 monthly
               consulting fee will be paid to the consultant. On April 29, 2002,
               the Company also agreed to set up a  production  account with the
               consultant to cover various media-related expenses to be incurred
               on behalf of the Company.  The Company  will issue  approximately
               $100,000  worth of restricted  common stock to the  consultant to
               fund this  account.  The  consultant is to liquidate the stock as
               needed to pay for various media  purchases  made on behalf of the
               Company.  The consultants  handling of the production  account is
               currently being reviewed by the Company.

               In June 2002, the Company  entered into a three month  consulting
               agreement  with a consultant  for  services to be  provided.  The
               Company  agreed  to  pay  the  consultant  4,500  shares  of  its
               unrestricted  common stock,  which vest pro-rata over the life of
               the agreement. On August 30, 2002, the agreement was amended such
               that the Company agreed to issue the  consultant  7,500 shares of
               unrestricted  common stock,  which vest pro-rata over the life of
               the agreement.  The agreement was further  modified to extend the
               term to eight  months.  In  September  2003,  the Company and the
               consultant   mutually  agreed  to  terminate  the  agreement  and
               acknowledged no further obligations due between the parties.

               In July 2002,  the  Company  entered  into an amended  consulting
               agreement  with a  consultant  for  services to be  provided.  In
               consideration for these services,  the Company issued warrants to
               purchase up to $300,000 of the  Company's  common  stock at a 40%
               discount to the average of the three  highest  closing bid prices
               of the  Company's  common  stock  as of the date of  notice.  The
               warrants  expire one year from the date of the agreement.  During
               the year ended March 29, 2003, the consultant exercised his right
               to purchase 1,470,000 shares of the Company's common stock valued
               at $195,300.

               In August 2002,  the Company  entered into a six-month  agreement
               with a  consultant  whereby  the  consultant  would  provide  the
               Company services in connection with marketing,  public relations,
               strategic  planning and business  opportunities  for the Company.
               The Company issued the  consultant  2,500 shares of the Company's
               common stock, valued at $60,000,  and a warrant to purchase 1,250
               shares of the Company's  stock at a purchase  price equal to 120%
               of the closing market price of the Company's  common stock on the
               date of the  agreement.  The Company  has valued the  warrants at
               $18,657 using the  Black-Scholes  Pricing Model. The value of the
               warrants was expensed  during the year ended March 29, 2003.  The
               warrants expired unexercised.

                                      F-20
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS'  DEFICIENCY (cont'd)

               In August 2002, the Company  issued  warrants to a consultant for
               services  to  be  provided  to  purchase  25,000  shares  of  the
               Company's common stock at an exercise price of $20 per share. The
               warrants  had a term of one year.  The  warrants  were  exercised
               during the year ended  March 29,  2003.  In  November  2002,  the
               Company  issued  additional  warrants to the same  consultant for
               services  to  be  provided  to  purchase  25,000  shares  of  the
               Company's  common  stock at an  exercise  price  equal to a forty
               percent  discount  to the closing bid price on the day of notice.
               The  warrants  had a term of six  months.  During  the year ended
               March 29, 2003,  3,792  warrants  were  exercised.  The remaining
               warrants expired unexercised.

               In September  2002,  the Company  entered  into a new  consulting
               agreement with a current shareholder of the Company,  whereby the
               consultant  agreed to  continue to serve as a member of the Board
               of Directors of the Company and assist the Company in  increasing
               shareholders'  equity.  The consultant is to provide  services to
               the  Company  for as long as he is a duly  elected  member of the
               Board of Directors.  Compensation is $5,000 per month in the form
               of cash or free-trading S-8 shares of the Company's common stock.
               If common stock is to be issued,  they are to have a 25% discount
               to the closing price on the date of issue.

               In September  2002, the Company  issued  warrants to a consultant
               for  services to be provided  to  purchase  30,000  shares of the
               Company's  common stock at an exercise price of a 40% discount to
               the  closing  bid  price of the  Company  on the day of notice of
               execution.  The  warrants  expire  six  months  from  the date of
               issuance.  At the same time,  the  Company  entered  into a Stock
               Option  Purchase  Agreement  with  this  consultant  whereby  the
               consultant  has the option to purchase up to 30,000 shares of the
               Company's common stock at a 40% discount to the closing bid price
               of the  Company  on the day of notice of  execution.  The  option
               expires  six months from the date of the  agreement.  In November
               2002,  the Company issued  additional  warrants to the consultant
               for  services to be provided  to  purchase  62,500  shares of the
               Company's  common stock at an exercise price of a 40% discount to
               the  closing  bid  price of the  Company  on the day of notice of
               execution.  The  warrants  expire  six  months  from  the date of
               issuance. The consultant has exercised a total of 81,500 warrants
               during the year ended  March 29,  2003.  The  remaining  warrants
               expired  unexercised.  The  Company  valued the  warrants at $802
               using the  Black-Scholes  Pricing  Model and expensed them during
               the year ended March 29, 2003. In April 2003, the Company entered
               into a new consulting agreement with this consultant for services
               to be provided.  The initial term of the  engagement  was for six
               months and would automatically  renew on a month-to-month  basis.
               In consideration for services to be provided,  the consultant was
               to receive 1,500,000 shares of the Company's  unrestricted common
               stock.  No shares  relating to this  agreement were issued to the
               consultant.  Subsequent to the quarter ended  September 27, 2003,
               on September 30, 2003,  the Company and the  consultant  mutually
               agreed to terminate  the agreement  and  acknowledged  no further
               obligations due between the parties.

               In September 2002, the Company entered into consulting agreements
               with several consultants for services to be provided. Under these
               agreements,  the  Company  issued  a total of 591  shares  of its
               common stock valued at $4,851.

               In March 2003, the Company entered into a three-month  consulting
               agreement  with a  consulting  firm for  services  to be provided
               commencing  March 15,  2003.  The  Company  irrevocably  paid the
               consultant 50,000 shares of its restricted common stock valued at
               $22,000.  The Company has three  options to extend the  agreement
               for three months each. For each additional  three-month

                                      F-21
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               period,  the Company shall pay the consultant  $1,500 and $15,000
               worth of the  Company's  common  stock.  The shares issued to the
               consultant will have a one-year hold  commencing  March 15, 2003.
               In the event  that the  consultant  is unable to sell the  shares
               after the one-year hold, resulting from the Company's neglect, as
               defined  in the  agreement,  the  Company  is  required  to issue
               "penalty  shares" as defined in the agreement.  On June 17, 2003,
               the Company  entered  into an  extension  agreement  whereby both
               parties  agreed to extend the contract to September 17, 2003. For
               this  extension,  the Company issued the consulting  firm 150,000
               shares of its common stock  valued at $15,000.  The shares have a
               one-year  hold from the date of  issuance.  All  other  terms and
               conditions from the prior contract remain unchanged.

               In April  2003,  the Company  entered  into an  agreement  with a
               lawyer for services  rendered  and  services to be  rendered.  In
               exchange  for  providing  legal  services  to the  Company and as
               payment for services already provided  amounting to $45,000,  the
               lawyer received  750,000 shares of the Company's S-8 common stock
               valued at $120,000. The lawyer is required to sell the shares and
               the net  proceeds  to be applied as a credit  against the balance
               due. In the event there is an excess of  proceeds,  the lawyer is
               required  to credit the Company for future  legal  services.  The
               Company has expensed $120,000 related to this agreement.

               In April 2003,  the Company  entered into a consulting  agreement
               with a consulting  firm for services to be provided.  The initial
               term of the  engagement is for six months and will  automatically
               renew on a month-to-month basis. In consideration for services to
               be provided, the consulting firm received 1,500,000 shares of the
               Company's  unrestricted  common  stock  valued at  $105,000.  The
               Company  has  expensed   $105,000   related  to  this  agreement.
               Subsequent to the quarter ended  September 27, 2003, on September
               30, 2003, the Company and the consulting  firm mutually agreed to
               terminate the agreement and  acknowledged no further  obligations
               due between the parties.

               In April 2003,  the Company  issued  300,000 shares of its common
               stock  valued at  $36,000  to a  consultant  for  legal  services
               provided  and  to be  provided.  Following  the  issuance  of the
               shares,  the consultant  will sell the shares on the open market.
               The net  proceeds  shall  be  applied  as a  credit  against  any
               outstanding  legal fees and the excess,  if any, shall be applied
               as a credit  against  future legal fees. The Company has expensed
               $36,000 related to this agreement.

               In April 2003,  the Company  entered into a consulting  agreement
               with a consultant  for services  provided and to be provided.  In
               exchange for providing  consulting services to the Company and as
               payment for services already provided  amounting to $27,000,  the
               consultant  received  500,000  shares of the Company's S-8 common
               stock valued at $60,000. 200,000 shares are to be issued directly
               to the consultant.  An additional  300,000 shares shall be issued
               and held by the Company  until the  consultant  complies with the
               provisions of the agreement and it is determined that the balance
               owed is not satisfied. If the balance owed is not deficient,  the
               Company  shall  return the 300,000  shares to its  treasury.  The
               consultant  is required to sell the shares on the open market and
               apply the net  proceeds as a credit  against the balance  due. In
               the event that the  balance  due is not paid in full from the net
               proceeds,  then the Company will  undertake  to issue  additional
               shares of its common stock,  and to register such shares pursuant
               to an S-8 registration, so that additional installments of shares
               can be issued to the consultant to satisfy the remaining balance.
               In the event there is an excess of proceeds,  the  consultant  is
               required to credit the Company for future consulting services.

                                      F-22
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               In May 2003,  the Company issued  1,250,000  shares of its common
               stock  valued at  $125,000  to a  consultant  for  services to be
               provided  over one year.  Effective  June 23,  2003,  the Company
               amended its agreement with the consultant, whereby the consultant
               agreed to provide additional  services to the Company in exchange
               for  3,000,000  shares of the  Company's  common  stock valued at
               $240,000.  These  shares  were issued  during the  quarter  ended
               September 27, 2003. The Company has expensed  $118,875 related to
               these  agreements.  In July 2003, the Company  entered into a new
               consulting  agreement  with this  consultant  for  services to be
               provided.  The agreement  expires July 18, 2005. As consideration
               for the  services  to be  provided,  upon  filing  of  Form  SB-2
               registration   statement   with  the   Securities   and  Exchange
               Commission,  the  Company  will issue the  consultant  sufficient
               shares of the  Company's  common  stock such that the  consultant
               will  receive 15% of the total shares  outstanding,  exclusive of
               options or warrants.  At September 27, 2003,  in accordance  with
               the  agreement  there are  6,160,719  shares due the  consultant,
               which have been valued at  $369,643.  The Company has accrued the
               value of this  obligation  and expensed  $30,804  related to this
               agreement.

               In May 2003,  the Company issued  1,000,000  shares of its common
               stock  valued at  $100,000  to a  consultant  for  services to be
               provided  over one year.  Effective  June 23,  2003,  the Company
               amended its consulting agreement with the consultant, whereby the
               consultant was to be issued an additional 1,000,000 shares of the
               Company's common stock,  valued at $80,000 for services  provided
               through the quarter  ended  September  27, 2003.  The shares were
               issued during the quarter ended  September 27, 2003.  The Company
               has expensed $117,500 related to these agreements.

               In May 2003,  the  Company  issued  500,000  shares of its common
               stock  valued at  $50,000  to a  consultant  for  services  to be
               provided.  Following the issuance of the shares,  the  consultant
               will sell the shares on the open market.  The net proceeds  shall
               be applied as a credit  against the fees  incurred  for  services
               rendered. In the event that the balance has not been paid in full
               from the net sale proceeds of the shares,  the Company will issue
               additional  shares of its common stock to the consultant.  In the
               event that  there is excess,  it shall be applied as a credit for
               future  consulting  services.  The Company has  expensed  $50,000
               related to this agreement.

               In May 2003, the Company entered into a six-month Attorney/Client
               Agreement  with an  attorney  for  certain  legal  services to be
               provided.  The Company issued 250,000 shares of unrestricted  S-8
               common stock valued at $27,500.  The Company has expensed $20,625
               related to this agreement.

               In May 2003, the Company entered into a consulting agreement with
               a consultant for services to be provided over a one-year term. In
               July 2003, the Company  issued the  consultant  250,000 shares of
               its common stock valued at $35,000 related to this agreement.  An
               additional 150,000 shares valued at $21,000, has been accrued and
               are due to the consultant at September 27, 2003. In addition, the
               Company is required to issue the consultant 500,000 shares of its
               common  stock  when  the  Company  signs  an  Exclusive   License
               Agreement  with a  certain  company.  The term of the  consulting
               agreement  is twelve  months.  The Company has  expensed  $21,000
               relating to this agreement.

                                      F-23
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)

NOTE 9 -       STOCKHOLDERS' DEFICIENCY (cont'd)

               In May 2003, the Company entered into a consulting agreement with
               a former director for services to be provided. The Company issued
               the  consultant  250,000  shares of its  common  stock  valued at
               $25,000.  The  Company  has  expensed  $25,000  related  to  this
               agreement.

               In June 2003,  the Company  issued  325,000  shares of its common
               stock  valued at  $26,000  to a  consultant  for  services  to be
               provided over one year.  The Company has expensed  $6,500 related
               to this agreement.

               In August 2003,  the Company  issued 100,000 shares of its common
               stock  valued  at  $9,500  to a  consultant  for  services  to be
               provided  over  thirty  days.  The Company  has  expensed  $9,500
               related to this agreement.

               Marketing Agreement:

               On  January  20,  2003,  the  Company  entered  into a  six-month
               Strategic  Marketing Agreement with ChampionLyte  Holdings,  Inc.
               ("ChampionLyte") whereby the Company agreed to issue shares equal
               to $125,000  per month of its common stock to  ChampionLyte.  The
               shares  were to be  fully  paid  and  non-assessable  and bear no
               restrictive legend.  ChampionLyte was to issue the Company 50,000
               shares of its  restricted  stock per month  under the  agreement.
               These  shares  were  to  carry  piggyback   registration  rights.
               ChampionLyte was also to pay the Company up to $100,000 per month
               for services to be rendered by the Company relating to the use of
               their  beverage  knowledge  and  distributing  the  other  firm's
               beverage product, as well as for any and all expenses incurred on
               its  behalf.  In  connection  with  the  agreement,  the  Company
               received  50,000 shares of ChampionLyte  common stock,  valued at
               $7,000  and  $5,500 at  September  27,  2003 and March 29,  2003,
               respectively.  The stock is  classified as available for sale and
               is  included  in  marketable   securities  in  the   accompanying
               consolidated balance sheet. During the six months ended September
               27, 2003, the Company issued 1,715,000 shares of its common stock
               valued at $157,900 to ChampionLyte.  On May 20, 2003, the Company
               and ChampionLyte mutually agreed to terminate this agreement.

NOTE 10 -      INCOME TAXES

               Total income tax benefit consists of the following:

                Current:
                    Federal                                    $               -
                    State and local                                            -
                                                               -----------------
                                                               $               -
                                                               -----------------
                Deferred:
                    Federal                                                    -
                    State and local                                            -
                                                               -----------------
                                                                               -
                                                               -----------------
                       Total income tax benefit                 $              -
                                                               =================

               A  reconciliation  of income tax benefit  resulting from applying
               U.S.  federal  statutory  rates to pretax  loss and the  reported
               amount of income tax benefit at March 29, 2003 is as follows:

                                      F-24
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 10 -      INCOME TAXES (cont'd)

                Tax benefit at federal statutory rate
                       applied to pretax loss                   $     4,242,750
                State and income taxes, net of
                       federal income tax benefit, applied
                       to pretax loss                                 1,442,500
                Permanent differences                                (4,832,800)
                Valuation allowance                                    (852,450)
                                                            --------------------
                       Total income tax benefit                 $             -
                                                            ====================

               Income  taxes are  provided  for the tax effects of  transactions
               reported  in  the  financial  statements  and  consist  of  taxes
               currently  due plus  deferred  taxes  related  to the  difference
               between the  financial  statement  and income tax bases of assets
               and liabilities for financial  statement and income tax reporting
               purposes.  Deferred  tax assets  and  liabilities  represent  the
               future tax return  consequences of these  temporary  differences,
               which will either be taxable or  deductible  in the year when the
               assets or  liabilities  are  recovered  or settled.  Accordingly,
               measurement   of  the   deferred   tax  assets  and   liabilities
               attributable to the book-tax bases differential are computed at a
               rate of 15% federal and 6% state and local  pursuant to Statement
               of Financial  Accounting  Standards ("SFAS") No. 109,  Accounting
               for Income Taxes.

               The tax effect of significant  items comprising the Company's net
               non-current  deferred tax assets and  liabilities are as follows:
               March 29, 2003

                       Net operating loss carryfowards         $     2,100,000
                       Stock compensation                            1,030,600
                         Asset impairment                            3,801,500
                         Valuation allowance                        (6,932,100)
                                                               ----------------
                       Deferred non-current tax asset                        -
                                                               ----------------

                       Depreciable assets                                    -
                                                               ----------------
                       Deferred non-current tax liability                    -
                                                               ----------------
                       Net non-current deferred tax asset      $             -
                                                               ================

               Based on management's present assessment, the Company has not yet
               determined  it to be more  likely  than not that a  deferred  tax
               asset attributable to the future utilization of the net operating
               loss carry  forwards will be realized.  Accordingly,  the Company
               has provided a 100% valuation  allowance against the deferred tax
               asset in the consolidated balance sheet at March 29, 2003.

               The  Company  files  separate  tax  returns for federal and state
               purposes.  As such,  income tax is based on the separate  taxable
               income  or loss of each  entity.  The  Company  has not filed its
               income tax  returns  for the years  ended March 29, 2003 or March
               30,  2002.  Since the  Company  has not filed its tax returns for
               several  years,   management  has  estimated  the  Company's  net
               operating loss carry forwards  available to offset future taxable
               income to be approximately  $9,000,000, of which some of the loss
               will be subject to Internal Revenue Code Section 382 limitations.

                                      F-25
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 11 -      RELATED PARTY TRANSACTIONS

               Employment Agreements:

               On  March  30,  2001,  the  Company  entered  into an  employment
               agreement with its Chief Executive Officer ("CEO") for an initial
               term of five years beginning  February 1, 2001 and  automatically
               renewing  for  additional  one-year  periods  unless  notified by
               either  the CEO or the  Company's  Board of  Directors  that such
               renewal  will not take place.  The Company is required to pay the
               CEO an annual base salary of $125,000  and the CEO is eligible to
               receive annual bonuses established by the Board of Directors.

               On  July  15,  2003,  the  Company  entered  into  an  employment
               agreement  with its Senior Vice  President of Sales and Marketing
               ("SVP").  The SVP's base  compensation  is $75,000  per year.  In
               addition,  the SVP is entitled to receive 1,000,000 shares of the
               Company's  common stock over a one-year term. As of September 27,
               2003,  the SVP has been issued  750,000 shares valued at $52,500.
               The  remaining  250,000  shares will be issued on the SVP's first
               employment anniversary. The Company has expensed $35,000 relating
               to this agreement.  Subsequent to the quarter ended September 27,
               2003, on September 30, 2003, the Company issued 100,000 shares of
               its common stock to the SVP valued at $24,000 for accrued  salary
               and advances against out-of-pocket expenses.

               Transactions

               At  September  27,  2003,  the Company  had  accrued  expenses of
               $89,332  for  disbursements  paid by a director  on behalf of the
               Company for  operating  expenses  and payroll.  In  addition,  at
               September 27, 2003,  the Company  accrued  $15,000 for directors'
               fees due the  director.  During the quarter  ended  September 27,
               2003,  the Company  issued the director  1,256,783  shares of its
               common stock,  valued at $100,543,  for  directors  fees owed and
               disbursements paid by the director on behalf of the Company.

               At September 27, 2003, the Company accrued $15,000 for directors'
               fees due another director. During the quarter ended September 27,
               2003,  the  Company  issued the  director  750,000  shares of its
               common stock, valued at $60,000, for directors' fees owed.

               At  September  27,  2003,  the  Company  owed the CEO $28,641 for
               disbursements  paid  by the  CEO on  behalf  of the  Company  for
               operational  expenses.  During the quarter  ended  September  27,
               2003, the Company  issued the CEO 1,382,467  shares of its common
               stock,  valued at $110,597,  in settlement of accrued  salary and
               disbursements paid by the CEO on behalf of the Company.

               As of September  27,  2003,  the Company owed the daughter of the
               CEO $28,682 for services rendered.

               At  September  27,  2003,  the Company  had  accrued  expenses of
               $294,137 for disbursements  paid by a consultant on behlaf of the
               Company for operating  expenses.  Subsequent to the quarter ended
               September 27, 2003,  these accrued expenses were converted into a
               convertible promissory note (see Note 15).

NOTE 12 -      STOCK OPTION PLANS

               In April 2001,  the Company  adopted a Stock Option Plan intended
               to provide officers,  directors, key employees and consultants of
               the Company an opportunity to acquire stock in the Company. As of
               March 30, 2002, 1,732,383 options to purchase shares at $0.33 per
               share had been issued

                                      F-26
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               and  900,000  options to  purchase  shares at $0.01 per share had
               been issued.  During the year ended March 29,  2003,  the 900,000
               options were  exercised and the  1,732,383  options were canceled
               due to  terminations.  The fair value of the options on the grant
               date was calculated using the Black-Scholes Option Pricing Model.
               There were no options granted or exercised  during the six-months
               ending September 27, 2003.

               2003 Equity Incentive Plan:

               The  shareholders  approved the 2003 Equity Incentive Plan (the "
               Incentive  Plan") in April 2003.  The Incentive Plan is effective
               April  1,  2003.   Officers,   directors,   key   employees   and
               consultants,   who  in  the   judgment  of  the  Company   render
               significant service to the Company, are eligible to participate.

               The  Incentive  Plan  provides  for  the  awards  of  stock-based
               compensation alternatives such as non-statutory stock options and
               incentive   stock  options.   The  Incentive  Plan  provides  for
               10,000,000  shares  of common  stock to be  offered  form  either
               authorized and unissued shares or issued shares,  which have been
               reacquired  by the Company.  Options  granted under the Incentive
               Plan vest at a rate of 20% per year  with the first 20%  becoming
               exercisable on the first anniversary of the date the options were
               granted.

               In April  2003,  the  Company  granted  employees  and  directors
               options to purchase 3,250,000 and 6,000,000 shares, respectively,
               of the  Company's  common  stock under the plan.  The options are
               fully  vested as of the grant date and have an exercise  price of
               $0.01.  Accordingly,  under APB No. 25,  compensation  expense of
               $487,500  has  been  recognized   during  the  six  months  ended
               September  27, 2003 in  connection  with  employee  stock  option
               grants. On August 7, 2003, 6,250,000 options were exercised.

                                      F-27
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               2003 Stock Incentive Plan:

               In April 2003, the Company's Board of Directors approved the 2003
               Stock Incentive Plan ("2003 Plan").  The purpose of the 2003 Plan
               is to provide  long-term  incentives  and  rewards to  employees,
               directors,  independent contractors or agents; assist the Company
               in  attracting  and  retaining  such  persons;  and associate the
               interests   of  such   persons   with  those  of  the   Company's
               stockholders. The 2003 Plan is to be administered by the Board of
               Directors  and the maximum  number of shares  issuable  under the
               2003 Plan may not exceed 3,500,000 shares of the Company's common
               stock.  No shares have been issued  underahe  the 2003 plan as of
               June 28, 2003.

               In July 2003,  the Board of Directors  approved a resolution  for
               the creation of the Company's 2003 Stock  Incentive Plan #1 which
               includes  the  issuance  of a total of  2,710,750  shares  of the
               Company's  common stock pursuant thereto and the filing of an S-8
               Registration  Statement to register the Plan. No shares have been
               issued under the 2003 plan as of September 27, 2003.

               The  Company  accounts  for  stock-based  compensation  using the
               intrinsic value method in accordance  with Accounting  Principles
               Board Opinion No. 25, "Accounting for Stock Issued to

NOTE 12 -      STOCK OPTION PLANS (cont'd)

               Employees,"  and related  Interpretations  ("APB No. 25") and has
               adopted the  disclosure  provisions  of  Statement  of  Financial
               Accounting   Standards  No.  148,   "Accounting  for  Stock-Based
               Compensation  - Transition and  Disclosure,  an amendment of FASB
               Statement  No.  123"  ("SFAS  No.   148").   Under  APB  No.  25,
               compensation  expense is only recognized when the market value of
               the  underlying  stock at the date of grant exceeds the amount an
               employee must pay to acquire the stock.

               The following  table  illustrates the effect on net loss and loss
               per share had the  Company  applied  the fair  value  recognition
               provisions  of Statement of Financial  Accounting  Standards  No.
               123,  "Accounting for Stock-Based  Compensation,"  to stock-based
               employee compensation.

<TABLE>
<CAPTION>
                                                  Three Months Ended                   Six Months Ended

                                              September 27,      September 28,     September 27,     September 28,
                                                 2003                2002                2003            2002
                                            -----------------   ----------------- ----------------- ---------------
               <S>                              <C>                  <C>               <C>             <C>
               Net loss, as reported           $  (1,516,541)       $(14,361,138)     $ (2,871,441)   $(17,279,981)
               Deduct:  Total stock-based
               employee  compensation
               expense determined under
               fair value based method for
               all awards, net of related
               tax effects                                 -            (404,095)                -        (621,370)
                                            -----------------   ----------------- ----------------- ---------------
               Pro forma net loss               $ (1,516,541)       $(14,765,233)       (2,871,441)   $(17,901,351)
                                            =================   ================= ================= ================
               Loss per share:
                     Basic - as reported        $      (0.04)       $     (56.42)     $      (0.11)   $     (73.78)
                     Basic - pro forma          $      (0.04)       $     (58.01)     $      (0.11)   $     (76.44)
</TABLE>
                                      F-28
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               Pro forma compensation expense may not be indicative of pro forma
               expense in future  periods.  For purposes of estimating  the fair
               value of each option on the date of grant,  the Company  utilized
               the Black-Scholes option pricing model.

               The Black-Scholes option valuation model was developed for use in
               estimating  the  fair  value of  traded  options,  which  have no
               vesting  restrictions  and are fully  transferable.  In addition,
               option  valuation  models require the input of highly  subjective
               assumptions   including  the  expected  stock  price  volatility.
               Because the Company's employee stock options have characteristics
               significantly  different from those of traded options and because
               changes in the subjective input assumptions can materially affect
               the fair value estimate,  in management's  opinion,  the existing
               models do not  necessarily  provide a reliable  single measure of
               the fair value of its employee stock options.

NOTE 12 -      STOCK OPTION PLANS (cont'd)

               The weighted-average  option fair values and the assumptions used
               to estimate  these values for grants  issued during 2003 and 2002
               are as follows:

                                               2003                 2002
                                            ---------------    ---------------

                Expected life (years)           N/A                 2-3 years
                Risk free interest rate         N/A go            4.50% - 5.71%
                Expected volatility             N/A            None - 110.33%
                Dividend yield                  N/A                      0.0%


NOTE 13 -      RECENT ACCOUNTING PRONOUNCEMENTS

               In April 2002, the Financial  Accounting Standards Board ("FASB")
               issued SFAS No. 145,  "Rescission  of FASB  Statements No. 4, 44,
               and 64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
               Corrections"  ("SFAS No. 145").  This  statement  eliminates  the
               requirement  to report gains and losses from  extinguishments  of
               debt as  extraordinary  unless  they  meet  the  criteria  of APB
               Opinion 30. SFAS No. 145 also requires sale-leaseback  accounting
               for certain lease  modifications  that have economic effects that
               are similar to sale-leaseback  transactions.  The changes related
               to lease  accounting  are  effective for  transactions  occurring
               after   May  15,   2002   and  the   changes   related   to  debt
               extinguishments  are effective for fiscal years  beginning  after
               May 15,  2002.  The  adoption  of  SFAS  No.  145 did not  have a
               material impact on the Company's financial position or results of
               operations.

               In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
               Associated  with Exit or Disposal  Activities"  ("SFAS No. 146").
               SFAS No. 146 nullifies  Emerging Issues Task Force Issue No. 94-3
               and requires that a liability for a cost  associated with an exit
               or  disposal   activity  be  recognized  when  the  liability  is
               incurred.  This statement also establishes that fair value is the
               objective for initial measurement of the liability.  SFAS No. 146
               did  not  have  a  material  impact  on the  Company's  financial
               position or results of operations.

               In December 2002, the FASB issued SFAS No. 148,  "Accounting  for
               Stock-Based   Compensation  -  Transition  and   Disclosure,   an
               amendment of FASB  Statement No. 123" ("SFAS No. 148").  SFAS No.
               148   amends   SFAS  No.   123,   "Accounting   for   Stock-Based
               Compensation," to provide  alternative  methods of transition for
               an entity that voluntarily changes to the fair value

                                      F-29
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)



               based method of accounting for stock-based employee compensation.
               It also amends the  disclosure  provisions  of that  Statement to
               require  prominent  disclosure  about the effects on reported net
               income of an entity's accounting policy decisions with respect to
               stock-based  employee  compensation.  The  Company  has chosen to
               continue  to  account  for  stock-based  compensation  using  the
               intrinsic  value  method  prescribed  in APB  Opinion  No. 25 and
               related  interpretations  as  provided  for under  SFAS No.  148.
               Accordingly,  compensation  expense is only  recognized  when the
               market value of the Company's  stock at the date of grant exceeds
               the  amount  an  employee  must pay to  acquire  the  stock.  The
               adoption  of SFAS No. 148 did not have a  material  impact on the
               Company's financial position or results of operations.

               In November  2002,  the FASB issued FASB  Interpretation  No. 45,
               "Guarantor's   Accounting   and   Disclosure   Requirements   for
               Guarantees,  Including  Indirect  Guarantees of  Indebtedness  of
               Others"  ("FIN  45").  FIN 45  requires  that upon  issuance of a
               guarantee,  a guarantor  must

NOTE 13 -      RECENT ACCOUNTING PRONOUNCEMENTS (cont'd)

               recognize a liability for the fair value of an obligation assumed
               under a guarantee. FIN 45 also requires additional disclosures by
               a guarantor in its interim and annual financial  statements about
               the   obligations   associated  with   guarantees   issued.   The
               recognition provisions of FIN 45 are effective for any guarantees
               issued or  modified  after  December  31,  2002.  The  disclosure
               requirements are effective for financial statements of interim or
               annual  periods  ending after  December 15, 2002. The adoption of
               the  disclosure  requirements  of FIN 45 did not have a  material
               impact  on  the  Company's   financial  position  or  results  of
               operations.  The Company is currently  evaluating  the effects of
               the  recognition  provision  of FIN 45,  but does not  expect the
               adoption  to have a material  impact on the  Company's  financial
               position or results of operations.

               In January  2003,  the FASB  issued  FASB  Interpretation  No. 46
               "Consolidation  of Variable  Interest  Entities"  ("FIN 46").  In
               general,   a   variable   interest   entity  is  a   corporation,
               partnership,  trust,  or  any  other  legal  structure  used  for
               business  purposes that either (a) does not have equity investors
               with  voting  rights  or (b)  has  equity  investors  that do not
               provide sufficient  financial resources for the entity to support
               its activities.  A variable interest entity often holds financial
               assets,  including  loans or  receivables,  real  estate or other
               property.  A variable interest entity may be essentially  passive
               or it may  engage in  activities  on behalf of  another  company.
               Until now, a company generally has included another entity in its
               consolidated  financial  statements  only  if it  controlled  the
               entity through voting interests. FIN 46 changes that by requiring
               a variable  interest  entity to be  consolidated  by a company if
               that  company is  subject to a majority  of the risk of loss from
               the variable interest entity's  activities or entitled to receive
               a majority of the  entity's  residual  returns or both.  FIN 46's
               consolidation requirements apply immediately to variable interest
               entities   created  or  acquired  after  January  31,  2003.  The
               consolidation  requirements  apply to older entities in the first
               fiscal  year or interim  period  beginning  after June 15,  2003.
               Certain of the  disclosure  requirements  apply in all  financial
               statements issued after January 31, 2003,  regardless of when the
               variable interest entity was established. The Company adopted FIN
               46 effective  January 31,  2003.  The adoption of FIN 46 will not
               have a material  impact on the Company's  consolidated  financial
               condition or results of operations taken as a whole.


                                      F-30
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for
               Certain  Financial   Instruments  with  Characteristics  of  both
               Liabilities  and  Equity"  ("SFAS  No.  150").  SFAS  No.  150 is
               effective  for  financial  instruments  entered  into or modified
               after May 31, 2003,  and  otherwise is effective at the beginning
               of the first interim period beginning after June 15, 2003, except
               for  mandatory  redeemable  financial  instruments  of  nonpublic
               entities.  The adoption of SFAS No. 150 is not expected to have a
               material impact on the Company's financial position or results of
               operations.

NOTE 14 -      COMMITMENTS AND CONTINGENCIES

               Litigation:

               A former  officer of Aqua Clara filed suit against Aqua Clara for
               approximately $227,000 of accrued wages, loans that took the form
               of a mortgage on the property, and other damages. This claim also
               sought  1,350,000  shares of the Company's common stock. At March
               30 2002 the Company had provided  approximately  $180,000 related
               to the accrued wages, loans and other damages in the accompanying
               financial  statements,  which was  accrued by Aqua Clara prior to
               the  acquisition.  However,  the  Company  asserts  that all or a
               majority of the number of common

NOTE 14 -      COMMITMENTS AND CONTINGENCIES (cont'd)

               shares due was a  frivolous  claim and did not include any amount
               related to these shares in the related financial  statements.  In
               September  2003 the Company  settled this suit for $450,000.  The
               terms  include  16 monthly  installment  payments  and  3,000,000
               shares of S-8  common  stock of the  Company  to be  escrowed  as
               collateral,  to be released upon  satisfaction  of the settlement
               amount.  The  $450,000  settlement  amount is included in accrued
               expenses.

               During the fiscal  year ended March 29,  2003 and  subsequent  to
               such,  various vendors,  consultants and professionals have filed
               actions  against the  Company,  including  some  having  received
               default judgments.  The unsettled claims aggregate  approximately
               $180,000.  The Company has included in accrued  expenses at March
               29, 2003  approximately  $154,000 of these  settlements  based on
               this assessment, certain of the balances were previously included
               as accounts payable.  During the fiscal year ended March 29, 2003
               and subsequent to such,  various former  employees of the Company
               and certain  related  Company's  have filed  actions  against the
               Company to recover  severance pay, back wages,  personal property
               and  interest.  One such group of claims has  obtained a judgment
               against  the  Company's  bottling  equipment  and  is  forcing  a
               disposition  of the equipment  through an auction.  The unsettled
               claims aggregate approximately $985,000. The Company has included
               in accrued expenses at March 29, 2003 approximately $792,000 as a
               contingency  related  to  these  unsettled  claims,  actions  and
               judgments  based  on the  Company's  and  counsel's  assessments.
               During the six months  ended  September  27,  2003,  the  Company
               issued   1,369,884   shares  of  its  common   stock   valued  at
               approximately $82,000 in settlement of claims.

               An action was filed on June 26, 2003.  The suit is a  foreclosure
               action  against  the  Company  by a secured  mortgage  holder for
               non-payment.  The  Plaintiff  seeks to recover  possession of the
               collateral,  consisting  of  real  property  and  machinery.  The
               principal  amount  of the  note  is  approximately  $300,000.  In
               addition to this amount, back interest, attorneys' fees and costs
               are being  sought in the  amount of  approximately  $50,000.  The
               complaint in this action has been  received by the  Company,  the
               Company's  answer  has been  filed and the  Company  is  awaiting
               discovery.

                                      F-31
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               Subsequent to the year ended March 29, 2003, the Company  entered
               into   settlement   agreements   with   certain    professionals,
               consultants,  vendors and former  employees.  In connection  with
               certain of these settlement  agreements,  the Company is required
               to issue  1,375,000  shares of its common stock.  As of September
               27,  2003,  the Company has issued  1,225,000  shares  related to
               these  settlements,  valued at $97,950.  At  September  27, 2003,
               approximately  $330,000  is due under these  settlements  and are
               included in accrued  expenses.  An additional  150,000  shares of
               common stock remain to be issued under these agreements.  Certain
               plaintiffs  are required to sell these shares and,  once sold, if
               there is any  remaining  balance,  the Company is required to pay
               the  plaintiffs  an  aggregate  of $15,000  per month,  beginning
               November 1, 2003, until the obligation is satisfied.

               The  Company  is  a  defendant  in  an  action  commenced  by  an
               individual and a related company,  which action was filed on June
               6,  2003.   The  Plaintiff  in  this  action  served  a  13-count
               complaint, which includes claims of breach of contract, ejectment
               and foreclosure of a security agreement.

               Further, the Plaintiff is claiming that he is entitled to receive
               shares of Preferred  Stock of the Company,  which are convertible
               into 15% of the issued and outstanding shares of the Company.

NOTE 14 -      COMMITMENTS AND CONTINGENCIES (cont'd)

               The  Plaintiff  has not  specified  an  amount  of  damages.  The
               satisfaction  of the conditions  upon which the Company agreed to
               issue such shares and the  consideration for the issuance of such
               shares are in  dispute.  Accordingly,  the Company  believes  the
               individual  is no longer  entitled to receive  such  shares.  The
               Company and counsel  handling the action believe that the Company
               will  prevail  in the  defense of these  transactions  due to the
               Plaintiff's  failure to satisfy  its  consideration  obligations.
               Although the Company  believes that such action is without merit,
               and it is  vigorously  defending  such  action,  there  can be no
               assurance that such action will not be successful.

               In July 2003, the Company and one of its directors entered into a
               Mutual  Release  Agreement,  whereby the Company and the director
               mutually  agreed to  terminate  and release each other from their
               current relationship for a consideration of $5,000.

               The  Company  is party to  various  legal  proceedings  generally
               incidental to its business as is the case with other companies in
               the same industry.

               Operating Leases

               The Company has an operating lease for office space. The lease is
               subject to escalation  for the Company's  proportionate  share of
               increases  in real  estate  taxes  and  certain  other  operating
               expenses.

               The approximate  future minimum rentals under the operating lease
               in effect on March 29, 2003 is as follows:

                      2004                        $             69,142
                      2005                                      69,132
                      2006                                      69,132
                                                  ---------------------
                                                  $            207,406
                                                  =====================

                                      F-32
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


               License and Trademark Agreement:

               On May 7, 2003, the Company entered into a new exclusive  license
               and  trademark   agreement   with   StonePoint   Group,   Limited
               ("StonePoint")   whereby  the  Company  granted   StonePoint  the
               exclusive,  unlimited  royalty-free  right and license to all the
               intellectual  property,  know-how and  technology  for use in the
               production, licensing, marketing,  distribution, use, sublicense,
               subcontract, sale and transfer of the products (as defined in the
               agreement)  within  the  established  territory.   The  territory
               includes the countries of Japan, Taiwan, the Philippines,  China,
               North Korea, South Korea, Singapore, Vietnam, Thailand, Malaysia,
               Indonesia,  Cambodia  and Laos.  No royalties or fees of any kind
               shall ever be due to the Company and the term of the agreement is
               perpetual.

               The Company was paid $1,742,000 in the following form:

                    Cash of $400,000  pursuant to a prior  license and trademark
                    agreement dated January 8, 2002;

NOTE 14 -      COMMITMENTS AND CONTINGENCIES (cont'd)

                    Cash of $342,000  spent by StonePoint  during 2002 for costs
                    incurred  by  StonePoint  for  remedial   actions  taken  by
                    StonePoint  to regain and  recapture  StonePoint's  business
                    relationship   with  its  Distributor  and  to  protect  and
                    preserve the Distributor and StonePoint  Supply and Purchase
                    Agreement as a result of contaminated  product  purchased by
                    the Company; and

                    The   assumption  by   StonePoint  of  the  Company's   debt
                    obligation  to  Distributor  in the  amount of $1 million in
                    future product rebates, in settlement of the $3 million loss
                    suffered by  Distributor as a result of the recall caused by
                    the contaminated product purchased by the Company.

               As a result of the above,  the Company  recognized  $1,342,000 in
               settlement expense, of which $1,092,000 was recognized during the
               year ended March 29, 2003 and $250,000 was recognized  during the
               year ended March 30, 2002. The Company  recognized  $1,342,000 in
               exclusive   license  agreement   revenue,   related  to  the  new
               agreement.  Such  amounts are  included in  settlements  in other
               income and expense in the accompanying consolidated statements of
               operations.

               The Company also recognized under the prior agreement $371,999 in
               net  revenues  during the year ended March 29, 2003 and  $39,001,
               was recognized during the year ended March 30, 2002.

               Lack of Insurance:

               The  Company,  at  September  27,  2003,  did  not  maintain  any
               liability  insurance or any other form of general insurance.  The
               Company is also  lacking  insurance  coverage for  Directors  and
               Officers  Liability,  workman's  compensation,   disability,  and
               business discontinuance. Although the Company is not aware of any
               claims  resulting from  non-coverage,  there is no assurance that
               none  exist.  Management  plans  to  obtain  coverage  as soon as
               possible.

                                      F-33
<PAGE>
                BEVSYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE SIX MONTHS ENDED SEPTEMBER 27, 2003
                                   (UNAUDITED)


NOTE 15 -      SUBSEQUENT EVENT

               Marketing Agreement

               In August 2003,  the Company  entered into a marketing  agreement
               with Benchmark Career Fund ("BCF"), whereby BCF agreed to provide
               athletic  and other  professional  endorsement  services  for the
               Company's bottled water product through  initiating  contact with
               athletes and other selected professionals. BCF will receive $0.50
               for  every  case  of  the  Company's   product  sold  within  the
               continental  United  States,  Hawaii,  and  Alaska,  through  the
               expiration  of the  agreement.  In  addition,  BCF  will  receive
               10,000,000  shares of the  Company's  common  stock to be used to
               attract and manage athletes as an initial payment.  The agreement
               is for a  period  of  two  years,  commencing  on  the  date  the
               10,000,000  shares are issued to BCF. On September 30, 2003,  the
               Company issued BCF 10,000,000 shares, valued at $2,400,000.

               Conversion of Accrued Expenses

               On September 30, 2003 the Company issued two Series A Convertible
               Promissory  Notes,  to a Director of the Company and a consultant
               for the Company. The notes were issued as a conversion of accrued
               expenses  related  to  amounts  advanced  to the  Company  by the
               parties.  The notes aggregated  $338,199,  and bear interest at a
               rate of 8.0% per annum.  The notes  mature on October  30,  2003.
               Interest is due and payable at the end of each calendar  quarter.
               At the option of the Holders, the interest may be paid in cash or
               converted into common stock. The principal amount of the note may
               be  converted,  in  whole or in part,  into  common  stock at the
               option of the  Holder.  The  initial  conversion  price per share
               shall be equal to the  lesser  of (i) the  average  of the  5-day
               closing  prices  during  the 5  days  immediately  prior  to  the
               conversion date discounted by 25%, or (ii) $0.25.

                                      F-34
<PAGE>
ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Introduction

         The following discussion of our financial condition and results of our
operations should be read in conjunction with the Financial Statements and Notes
thereto. This document contains certain forward-looking statements including,
among others, anticipated trends in our financial condition and results of
operations and our business strategy. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. Important factors to consider in evaluating such forward-looking
statements include (i) changes in external factors or in the our internal
budgeting process which might impact trends in our results of operations; (ii)
unanticipated working capital or other cash requirements; (iii) changes in our
business strategy or an inability to execute its strategy due to unanticipated
changes in the industries in which it operates; and (iv) various competitive
market factors that may prevent us from competing successfully in the
marketplace.

Overview

BEVsystems International,  Inc. and Subsidiaries (collectively the "Company") is
a provider of oxygenated water. The Company  distributes its products  primarily
through an international distribution network. The Company's fiscal year ends on
the Saturday nearest to March 31.

On July 12, 2001, the Company acquired the assets of the beverage division of
Life International, a provider of oxygenated water. The assets included
oxygenation equipment, bottles, proprietary seals, marketing materials, office
equipment, trademarks, patent rights and other intangible assets. On February
25, 2002, the Company consummated a merger with Aqua Clara Bottling and
Distribution, Inc. and its subsidiary.

Results of Operations

Results of Operations - Three Months Ended September 27, 2003 Compared to the
Three Months Ended September 28, 2002.

Revenues

                                       4
<PAGE>
         Revenues generated during the three months ended September 27, 2003,
aggregated $18,680, as compared to $ 230,298 for the three months ended
September 28, 2002. The decrease in revenues of $211,618 from the prior period
is primarily due to the closing of the manufacturing plant in Clearwater,
Florida and the transitioning from a direct sales organization to an
organization that provides licensees of its products on a national and
international basis.

Costs of Revenues

         Cost of Revenues for the three months ended September 27, 2003,
aggregated $15,199 or 81% of revenue, as compared to $133,066 or 58% of revenue
for the three months ended September 28, 2002. The decrease for the three months
ended September 27, 2003 of $117,947, was primarily due to the closing of the
manufacturing plant in Clearwater, Florida and the transitioning from a direct
sales organization to an organization that provides licensees of its products on
a national and international basis.

Operating Expenses

         Operating Expenses incurred for the three months ended September 27,
2003, aggregated $1,121,132, as compared to $2,286,500 for the three months
ended September 28, 2002. The decrease of $1,165,368 is directly attributable to
the closing of the manufacturing plant in Clearwater, Florida and the
transitioning from a direct sales organization to an organization that provides
licensees of its products on a national and international basis..

Comprehensive Loss and Loss Per Share

         The comprehensive loss and the basic net loss per weighted average
share were $1,524,041 and $(.04), respectively, for the three months ended
September 27, 2003, as compared to $14,361,138 and $(56.42), respectively, for
the three months ended September 28, 2002. The loss from operations decreased
from the previous period primarily as a result of the transitioning from a
direct sales organization to an organization that provides licensees of its
products on a national and international basis.. The basic loss per share also
was affected by a 200:1 reverse stock split on January 2, 2003.

Results of Operations - Six Months Ended September 27, 2003 Compared to the Six
Months Ended September 28, 2002.

Revenues

         Revenues generated during the six months ended September 27, 2003,
aggregated $34,647 as compared to $443,620 for the six months ended September
28, 2002. The decrease in revenues of $408,973 from the prior period is
primarily due to the transitioning from a direct sales organization to an
organization that provides licensees of its products on a national and
international basis.

Costs of Revenues

         Cost of Revenues for the six months ended September 27, 2003,
aggregated $15,434 or 45% of revenue, as compared to $298,766 or 67% of revenue
for the six months ended September 28, 2002. The decrease for the six months
ended September 27, 2003 of $283,332, was primarily due to a decrease in sales
resulting from the transition from a direct sales organization to an
organization that provides licensees of its products on a national and
international basis.

Operating Expenses

                                       5
<PAGE>
         Operating Expenses incurred for the six months ended September 27,
2003, aggregated $2,478,432, as compared to $5,069,549 for the six months ended
September 28, 2002. The decrease of $2,591,117 for the six months ended
September 27, 2003, was primarily due to the continued implementation by
management of a plan to reduce various costs, including but not limited to the
closing of the manufacturing plant in Clearwater, Florida and the transitioning
from a direct sales organization to an organization that provides licensees of
its products on a national and international basis.

Comprehensive Loss and Loss Per Share

         The comprehensive loss and the basic loss per weighted average share
was $2,869,941 and $(.11), respectively, for the six months ended September 27,
2003, as compared to comprehensive loss of $17,279,981 and $(73.78),
respectively, for the six months ended September 28, 2002. The comprehensive
loss from operations decreased from the previous period primarily as a result of
the transitioning from a direct sales organization to an organization that
provides licensees of its products on a national and international basis. The
basic loss per share also was affected by a 200:1 reverse stock split on January
2, 2003.

Liquidity and Capital Resources

         At September 27, 2003, we had working capital deficit of $5,888,474 as
compared with $5,637,910 at March 29, 2003. The increase in the working capital
deficit is primarily the result of an increase in the Company's accrued
expenses.

Our primary source of liquidity has historically consisted of sales of equity
securities and debt instruments. The Company is currently engaged in discussions
with numerous parties with respect to raising additional capital, provided,
however, the Company cannot provide any assurance as to whether the Company will
be able to raise funding in connection with these negotiations. The Company has
no definitive plans or arrangements in place with respect to additional capital
sources at this time. The Company has no lines of credit available to it at this
time. There is no assurance that additional capital will be available to the
Company when or if required.

         On October 22, 2001, the Company entered into a series of three
convertible promissory notes with Financial Partners Network Corporation in the
amount of $100,000, $100,000 and $62,584. The notes were due April 22, 2002 and
had an interest rate of 10.5% per year. The notes were convertible, at the
option of the holder. On August 29, 2002, in consideration for extending the
maturity dates on the notes, the Company granted warrants to purchase 2,574
shares of the Company's common stock at an exercise price of $0.01 per share
expiring May 15, 2005. On January 21, 2003, all three notes, inclusive of
accrued interest of $34,464, were converted into 1,710,753 shares of the
Company's common stock at a rate of $0.108 per share. In lieu of exercising the
warrant by paying the per share warrant price, the holder may execute a cashless
exercise in accordance with the formula set forth in the warrant agreement. In
September 2003, Financial Partners Network exercised their right to purchase
2,574 shares of the Company's common stock via a cashless exercise, resulting in
the issuance of 2,504 shares of the Company's common stock.

         On November 15, 2001, the Company entered into a $200,000 convertible
promissory note with the Chief Executive Officer ("CEO") of the Company. The
note was due May 15, 2002 and had an interest rate of 10.5% per year. On August
29, 2002, in consideration for extending the maturity date on the note, the
Company granted warrants to purchase 1,961 shares of the Company's common stock
to the CEO at an exercise price of $0.01 per share expiring May 15, 2005. On
January 21, 2003, the note, including accrued interest of $24,500, was converted
into 3,571,424 shares of the Company's common stock at a rate of $0.108 per
share. In September 2003, the CEO

                                       6
<PAGE>
exercised his right to purchase 1,961 shares of the Company's common stock via a
cashless  exercise,  resulting in the issuance of 1,908 shares of the  Company's
common stock.

         In April 2002, the Company entered into several convertible promissory
notes with several investors for a total value of $200,000. The notes were due
April 30, 2003 and have an interest rate of 12%. The notes are convertible, at
the option of the holders, into shares of the Company's common stock at an
initial conversion price per share equal to the lesser of (i) the average of the
lowest three-day trading prices during the five trading days immediately prior
to the conversion date discounted by 25%, or (ii) the average of the lowest
three-day trading prices during the five trading days immediately prior to the
funding. The conversion price is subject to adjustment if the Company issues
additional shares of its common stock without consideration or for a
consideration per share less than the conversion price in effect immediately
prior to the issuance of such additional shares of common stock.

         On May 15, 2002, the Company entered into an $80,000 convertible
promissory note with a director of the Company. The note was due August 15, 2002
and had an interest rate of 12.0% per year. The note was convertible, at the
option of the holder, into shares of the Company's common stock at an initial
conversion price per share equal to the lesser of (i) the average of the lowest
3 day trading prices during the 5 trading days immediately prior to the
conversion date discounted by 25%, or (ii) the average of the lowest 3 day
trading prices during the 5 trading days immediately prior to the funding date.
The conversion price was subject to adjustment. On August 29, 2002, in
consideration for extending the maturity date on the note, the Company granted
warrants to purchase 784 shares of the Company's common stock at an exercise
price of $0.01 per share expiring May 15, 2005. On January 21, 2003, this note,
as well as a $363,000 secured note with the director, including accrued
interest, was converted into 4,440,044 shares of the Company's common stock. The
Company also granted to the director warrants to purchase 1,200 shares of the
Company's common stock at an exercise price equal to the lesser of (i) the
average of the lowest three day trading prices during the five trading days
immediately prior to the conversion date discounted by 25%, or (ii) the average
of the lowest three day trading prices during the five trading day immediately
prior to the funding date. The warrants to purchase 1,200 shares of the
Company's common stock were exercised on August 7, 2002. On August 29, 2002, in
consideration for extending the maturity date of the aforementioned secured note
with this director, the Company granted warrants to purchase 3,845 shares of the
Company's common stock at an exercise price of $0.01 per share expiring May 15,
2005. On September 22, 2003, the director exercised his right to purchase 4,629
shares of the Company's common stock via a cashless exercise, resulting in the
issuance of 4,504 shares of the Company's common stock.

         On June 4, 2002, the Company entered into a $100,000 convertible
promissory note with an investor. The note was due June 4, 2003 and has an
interest rate of 12%. The note is convertible, at the option of the holder, into
shares of the Company's common stock at an initial conversion price per share
equal to the lesser of (i) the average of the lowest three-day trading prices
during the five trading days immediately prior to the conversion date discounted
by 25%, or (ii) the average of the lowest three-day trading prices during the
five trading days immediately prior to the funding. The conversion price is
subject to adjustment if the Company issues additional shares of its common
stock without consideration or for a consideration per share less than the
conversion price in effect immediately prior to the issuance of such additional
shares of common stock. Accrued interest of $15,867 is included in accrued
expenses in the accompanying consolidated balance sheet. The Company also
granted warrants to this investor to purchase 1,500 shares of the Company's
common stock at an exercise price equal to the lesser of (i) the average of the
lowest three day trading prices during the five trading days immediately prior
to the conversion date discounted by 25%, or (ii) the average of the lowest
three day trading prices during the five trading day immediately prior to the
funding date. The warrant is callable by the Company when the five-day average
closing stock price exceeds 120% of the five-day average closing price prior to
the funding date. The warrant expires on April 30, 2005. Subsequent to the
quarter ended September 27, 2003, on September 30, 2003, the investor converted
his note, including accrued interest of $15,879, into 2,000,000 shares of the
Company's common stock.

                                       7
<PAGE>
         On July 5, 2002, the Company entered into a $250,000 convertible
promissory note with an investor. The note was due July 5, 2003 and does not
bear interest, except in the case of default. The note is convertible, at the
option of the holder, into shares of the Company's common stock at an initial
conversion price per share equal to the lesser of (i) the average of the 5-day
closing bid prices during the 5 trading days immediately prior to the conversion
date discounted by 25%, or (ii) $60. The conversion price is subject to
adjustment if the Company issues additional shares of its common stock without
consideration or for a consideration per share less than the conversion price in
effect immediately prior to the issuance of such additional shares of common
stock. The conversion price is also subject to adjustment so that the number of
shares into which the note is converted does not exceed the number of shares
such that, when aggregated with all other shares of common stock then
beneficially or deemed beneficially owned by the holder, would result in the
holder owning more than 9.999% of all such shares of common stock as would be
outstanding on the conversion date. In August 2003, $30,000 of the note was
converted into 500,000 shares of the Company's common stock. Accrued interest
due to the default of the Company of $128,404 is included in accrued expenses in
the accompanying consolidated balance sheet. The Company also granted warrants
to the investor to purchase 1,667 shares of the Company's common stock at an
exercise price of $72.00 per share. The warrant is callable at the Company's
option, provided that the closing bid prices for the five days preceding the
date the Company exercises such option exceeds 140% of the warrant exercise
price and that an effective registration statement is in place. Subsequent to
the quarter ended September 27, 2003, on September 30, 2003, the remaining
balance of the note, including the default interest of $128,404, were converted
into 2,500,000 shares of the Company's common stock.

         On August 4, 2002, the Company entered into a $75,000 convertible
promissory note with an investor bearing interest at 10% per annum with
principal and all accrued interest payable in full on March 4, 2003. The note is
secured by 50,000 shares of the Company's common stock. The holder of the note
is entitled, at its option, to convert at any time, the principal amount of the
note and accrued interest at a conversion price equal to the latest five-day
average of the closing bid price of the Company's common stock into such shares
of the Company's common stock. The shares to be issued pursuant to this note
shall contain unlimited piggyback registration rights. Any overdue payment of
principal on the note shall bear interest at 15% per annum until paid. On
February 5, 2003, the Company issued 50,000 shares of its common stock, valued
at $85,000, in consideration for extending the maturity date of the note.
Accrued interest of $7,500 is included in accrued expenses in the accompanying
consolidated balance sheet. In June 2003, a related party-shareholder purchased
the note from the investor. In consideration for extending the maturity date of
the note to when, the related party-shareholder was granted warrants to purchase
250,000 shares of the Company's common stock at an exercise price of $0.01 per
share. The fair value of the warrants using the Black-Scholes Option Pricing
Model was $52,825 and is being amortized to interest and financing expense over
the term of the expense. On September 22, 2003, the related party-shareholder
exercised his warrants via a cashless exercise, resulting in the issuance of
249,306 shares of the Company's common stock.

         In August 2003, an investor converted his $50,000 note, including
accrued interest of $8,000, into 773,333 shares of the Company's common stock.
On September 22, 2003, an investor converted his $50,000 note, including accrued
interest of $8,515, into 329,662 shares of the Company's common stock. The
balance of these notes was $50,000 at September 27, 2003. Accrued interest of
$8,567 is included in accrued expenses in the accompanying consolidated balance
sheet relating to the outstanding notes. The Company also granted these note
holders warrants to purchase a total of 3,000 shares of the Company's common
stock at an exercise price equal to the lesser of (i) the average of the lowest
three day trading prices during the five trading days immediately prior to the
conversion date discounted by 25%, or (ii) the average of the lowest three day
trading prices during the five trading days immediately prior to the funding
date. The warrants are callable by the Company when the five-day average closing
stock price exceeds 120% of the five-day average closing price prior to the
funding date. The warrants expire on April 30, 2005. On September 22, 2003, one
note holder exercised his warrants and purchased 750 shares of the Company's
common stock for $133, the proceeds are currently due from the note holder.
Subsequent to the quarter ended September 27, 2003, on September 30, 2003, a
note holder converted his $50,000 note, including accrued interest of $8,433,
into 417,378 shares of the Company's common stock.

                                       8
<PAGE>
         If we need to obtain capital, no assurance can be given that we will be
able to obtain this capital on acceptable terms, if at all. In such an event,
this may have a materially adverse effect on our business, operating results and
financial condition. If the need arises, we may attempt to obtain funding
through the use of various types of short term funding, loans or working capital
financing arrangements from banks or financial institutions.

Settlement of Debt

         In January 2003, the Company entered into an agreement with the Chief
Executive Officer and his spouse, a director of the Company and Financial
Partners Network Corporation whereby the Company issued a total of 9,722,221
shares of its restricted common stock to such shareholders in satisfaction of
all debt, convertible notes, security interest and other securities owed to
these parties, which aggregated approximately $1,050,000.

         In August 2003, the Company issued 50,000 shares of its common stock,
valued at $5,000, in partial settlement of debt. The Company also agreed to pay
the creditor at the rate of $2.00 for every case of the Company's bottled water
product sold through the direct efforts of the creditor, which will be applied
towards the remaining debt due to the creditor. The creditor will also receive,
in cash. a sales commission for every case of the Company's bottled water
product sold through the direct efforts of the creditor. No limit has been
placed on the amount of commissions earned or cases sold.

         In August 2003, the Company issued 275,000 shares of its common stock,
valued at $50,325, in settlement of debt with a consultant.

         In September 2003, the Company issued 100,000 shares of its common
stock, valued at $18,300, in partial settlement of debt with a consultant. An
additional 150,000 shares, valued at $27,450, is due to this consultant in
accordance with the agreement.

         At September 27, 2003, the Company had accrued expenses of $89,332 for
disbursements paid by a director on behalf of the Company for operating expenses
and payroll. In addition, at September 27, 2003, the Company accrued $15,000 for
directors' fees due to the director. During the quarter ended September 27,
2003, the Company issued the director 1,256,783 shares of its common stock,
valued at $100,543, for directors fees owed and disbursements paid by the
director on behalf of the Company.

         At September 27, 2003, the Company owed the CEO $28,641 for
disbursements paid by the CEO on behalf of the Company for operational expenses.
During the quarter ended September 27, 2003, the Company issued the CEO
1,382,467 shares of its common stock, valued at $110,597, in settlement of
accrued salary and disbursements paid by the CEO on behalf of the Company.

         At September 27, 2003, the Company accrued $15,000 for directors' fees
due to a director. During the quarter ended September 27, 2003, the Company
issued the director 750,000 shares of its common stock, valued at $60,000, for
directors' fees owed.

         A former officer of Aqua Clara filed suit against Aqua Clara for
approximately $227,000 of accrued wages, loans and other damages. In connection
with this lawsuit, a lien was filed against the Company's assets. The former
officer also sought 1,350,000 shares of the Company's common stock. As of March
30, 2002, the Company accrued approximately $180,000 related to the accrued
wages, loans and other damages in the accompanying financial statements, which
was accrued by Aqua Clara prior to the acquisition. In September 2003, the
Company settled this suit for $450,000. The terms include 16 monthly installment
payments and 3,000,000 shares of common stock of the Company to be escrowed as
collateral, to be released upon satisfaction of the settlement amount. The
$450,000 settlement amount is included in accrued expenses.

                                       9
<PAGE>
Item 3.  Controls and Procedures

        (a)   Evaluation of Disclosure Controls and Procedures.

BEVsystems maintains disclosure controls and procedures (as defined in Rule
13a-14(c) and Rule 15d-14(c) of the Exchange Act) designed to ensure that
information required to be disclosed in the reports of BEVsystems filed under
the Exchange Act is recorded, processed, summarized, and reported within the
required time periods. BEVsystems' Chief Executive Officer and Chief Financial
Officer has concluded, based upon his evaluation of these disclosure controls
and procedures as of a date within 90 days of the filing date of this report,
that, as of the date of his evaluation, these disclosure controls and procedures
were effective at ensuring that the required information will be disclosed on a
timely basis in the reports of BEVsystems filed under the Exchange Act.

        (b)   Changes in Internal Controls.

BEVsystems maintains a system of internal controls that is designed to provide
reasonable assurance that the books and records of BEVsystems accurately reflect
BEVsystems' transactions and that the established policies and procedures of
BEVsystems are followed. There were no significant changes to the internal
controls of BEVsystesm or in other factors that could significantly affect such
internal controls subsequent to the date of the evaluation of such internal
controls by the Chief Executive Officer and Chief Financial Officer, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is party to legal proceedings as set forth below:

Thorp & Company v. BEVsystems Int'l, Inc., et al., Case No. 02-27983-CA-13. This
action was filed in the Eleventh Judicial Circuit for Miami-Dade County on
November 8, 2002. The Plaintiff is asserting a claim to recover $35,000 of
accounts payable. The Plaintiff in this case has obtained a motion for default
judgment in the amount of approximately $42,000.

Freeman   Decorating  Co.  v.   BEVsystems   Int'l,   Inc.,  et  al.,  Case  No.
02-22432-CA(09).  This action was filed in the Seventh Judicial Circuit for Dade
County on September  10,  2002.  The  Plaintiff in the action seeks  payment for
advertising  services  rendered.  The plaintiff  obtained a default judgment for
approximately $18,995.

Young  &  Rubicam,   L.P.  v.   BEVsystems   Int'l,   Inc.,  et  al.,  Case  No.
02-31444-CA-08.  This action was filed in the  Eleventh  Judicial  District  for
Miami-Dade  County.  The plaintiff obtained a default judgment for approximately
$58,000.

Zinno v. BEVsystems Int'l, Inc., et al., Case No. 03-4199-CO-41. This action was
filed in the Sixth  Judicial  Circuit for  Pinellas  County,  Florida on July 7,
2003. The Plaintiff,  a former employee of the Company,  filed suit against both
the Company and Wasser  Merger,  Inc.  for  approximately  $6,475 of back wages,
personal  property,  expenses and interest.  The Company has filed a cross-claim
against Wasser Merger,  Inc.,  pursuant to an  indemnification  agreement Wasser
executed  with the Company to assume all payroll as of February  2003.  Defenses
have been filed.  The Company has a reasonable  likelihood  of prevailing on the
merits of the case.

Brickell Bay Capital Fund, LLC v. BEVsystems Int'l, Inc., et al., Case No.
03-4936-CI-015. This action was filed in the Sixth Judicial Circuit for Pinellas
County, Florida on June 26, 2003. The suit is a foreclosure action against the
Company by a secured mortgage holder for non-payment. The Plaintiff seeks to
recover possession of the collateral, consisting of real property and machinery.
The principal amount of the note is approximately $300,000. The plaintiff is
also seeking payment for back interest, attorneys' fees and costs are being
sought in the amount of approximately $50,000. In addition, Brickell Bay Fund
purchased the first security position from Yale Mortgage, and, as a result,
Brickell Bay Fund currently holds a mortgage on the property in the amount of
approximately $740,000. The Company is currently in settlement discussions with
Brickell Bay Fund, which such discussions may result in Brickell Bay Fund
foreclosing on the property.

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<PAGE>
Burkhardt, et al. v. BEVsystems Int'l, Inc., et al., Case No. 03-13379-CA-08.
This action was filed in the Eleventh Judicial Circuit for Miami-Dade County,
Florida on June 6, 2003. The Plaintiff served a 13-count complaint which
includes claims of breach of contract, ejectment and foreclosure of a security
agreement. Further, the Plaintiff is claiming that he is entitled to receive
shares of Preferred Stock of the Company, which are convertible into 15% of the
issued and outstanding shares of the Company. The Plaintiff has not specified an
amount of damages. The satisfaction of the conditions upon which the Company
agreed to issue such shares and the consideration for the issuance of such
shares are in dispute. Accordingly, the Company believes the individual is no
longer entitled to receive such shares. The Company filed a motion to transfer
venue and the motion is pending. The Company and counsel handling the action
believe that the Company will prevail in the defense of these transactions due
to the Plaintiff's failure to satisfy its consideration obligations. Although
the Company believes that such action is without merit, and it is vigorously
defending such action, there can be no assurance that such action will not be
successful.

Bell Industries,  Inc. v. BEVsystems Int'l, Inc., et al., Case No.  03-362-CC-26
(04). This action was filed in the Sixth Judicial  Circuit for Pinellas  County,
Florida on January  16,  2003.  The  Plaintiff  commenced  the action to recover
approximately $17,683 for advertising services rendered.  The Plaintiff obtained
a default judgment on April 9, 2003.

GBS v. BEVsystems Int'l, Inc., Case No.  02-5341-A-21.  This action was filed in
Pinellas  County,  Florida.  The  Plaintiff  obtained a default  judgment in the
approximate amount of $30,000.

R.R. Donnelly, Inc. v. BEVsystems Int'l, Inc., Case No. 02-4360-CO-41. This
action was filed in Pinellas County, Florida. The Plaintiff obtained a default
judgment in the approximate amount of $13,000.

Bowne of NYC, LLC v. Aqua Clara. This action was filed in New York City, New
York. The Plaintiff seeks recovery of approximately $5,481 allegedly owed to it
for accounts payable by the Company. Management has not filed an answer to this
complaint. Since the initial complaint, no notice of any other adverse action
has been received by the Company.

Plunkett v. BEVsystems Int'l, Inc, et al. This action was filed in the Sixth
Judicial Circuit for Pinellas County on February 11, 2003. Former employees of
the Company filed the action to recover severance pay as a result of their
termination and/or for salary accruals. The Plaintiffs in this case obtained a
judgment in the amount of approximately $438,620, have attached the Company's
bottling equipment in Clearwater, Florida and forced a sheriff's auction to
dispose of the equipment. Approximately $25,000 was raised from the auction,
which proceeds are being held by the sheriff due to a dispute between Plunkett
and Brickell Bay Fund.

Item 2.  Changes in Securities

BEVsystems issued the following securities during the period covered by this
report without registering the securities under the Securities Act. All of the
bellow issuances, offerings and sales were either registered or were deemed to
be exempt under Rule 506 of Regulation D and/or Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act"). With respect to the issuances which
were deemed to be exempt, no advertising or general solicitation was employed in
offering the securities. The offerings and sales of exempt issuances were made
to a limited number of persons, all of whom were accredited investors, business
associates of the Company or executive officers of the Company, and transfer was
restricted by the Company in accordance with the requirements of the 1933 Act.
The below-referenced persons represented that they were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment.

Issuance of Securities

During the quarter ended September 27, 2003, the Company issued 2,639,250 shares
of common stock to two directors of the Company in connection with the
settlement of payable owed by the Company.

During the quarter ended September 27, 2003, the Company issued 1,602,995 shares
of common stock to three accredited investors in connection with their
conversion of their convertible notes.

During the quarter ended September 27, 2003, the Company issued 2,033,477 shares
of common stock to five parties in connection with their cashless exercise of
their warrants.

                                       11
<PAGE>
During the quarter ended September 27, 2003, the Company issued 6,250,000 shares
of common stock to three individuals in connection with the exercise of stock
options.

Item 3.  Defaults Upon Senior Securities

On July 31, 2002, the Company refinanced their manufacturing plant located in
Clearwater, Florida. The amount of the mortgage note totaled $420,000. The
mortgage note is secured by the underlying building and land. The note was due
in monthly installments of principal and interest through 2032 and has an
initial interest rate of 12.99%. The interest rate will be adjusted annually to
a rate equal to 6.00% above the prime rate and shall never be less than 12.00%
per year. At June 28, 2003, the interest rate was 12%. Due to the Company's
failure to make the required payments under the note, the mortgage is now in
default and is currently due and has been reclassified as a current liability.
At September 27, 2003, the outstanding principal balance was $419,806.

In May 2002, the Company entered into an agreement with Brickell Bay Capital
Fund, LLC ("Brickell Bay") to extend the maturity date of its $300,000
convertible promissory note to October 4, 2002. As part of the agreement, the
Company was required to pay past due interest totaling $23,625 and issue
warrants to purchase 2,511 shares of the Company's common stock at an exercise
price of $65.99 per share. On May 30, 2002, Brickell Bay exercised warrants
relating to a previous agreement to purchase 2,511 shares of the Company's
common stock for a total consideration of $165,706. In addition, on April 4,
2002, the Company entered into a Collateral Assignment of Rents, Leases and
Profits ("Collateral Assignment") with Brickell Bay whereby the Company's
manufacturing plant in Clearwater, Florida and land was assigned to Brickell Bay
as collateral for the $300,000 note. In June 2003, Brickell Bay filed a
foreclosure action against the Company for nonpayment.

The Company has a note payable in the amount of $30,829 that is secured by
several vehicles owned by the Company. The note holder is currently seeking to
repossess these vehicles.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

Exhibit                           Description of Exhibit
  No.

31.1   Certification by the Chief Executive Officer and Chief Financial Officer
       pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       (filed herewith)

32.1   Certification by the Chief Executive Officer and Chief Financial Officer,
       Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
       the Sarbanes-Oxley Act of 2002.
       (filed herewith)



(b)      Reports on Form 8-K

On August 29, 2003, the Company filed a Form 8-K reporting under Item 5 with
respect to the filing of its Form 10-KSB for the year ended March 31, 2003 and
the Form 10-QSB for the quarter ended March 31, 2003.

                                   SIGNATURES

                                       12
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.

Date: October 14, 2003                            BEVSYSTEMS INTERNATIONAL, INC.


                                                  By: /s/ G. Robert Tatum
                                                      ---------------------
                                                          G. Robert Tatum
                                                       CEO, CFO & Chairman


Pursuant to the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.

    Signature                           Capacity                      Date

 /s/ G. Robert Tatum                 CEO, CFO & Chairman        October 14, 2003
 --------------------
     G. Robert Tatum

 /s/ James Dale Davidson             Director                   October 14, 2003
 -----------------------
    James Dale Davidson

 /s/ E. Douglas Cifers               Director                   October 14, 2003
 ----------------------
     E. Douglas Cifers

                                       13