U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

(Mark One)
[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
    1934
             For the fiscal year ended July 31, 2002

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

For the Transition period from____________________ to _____________________
Commission file number 0-24801

                          AQUA VIE BEVERAGE CORPORATION
                 (Name of small business issuer in its charter)

           Delaware                                             82-056425
--------------------------------                            -------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

P.O. Box 6759 333 South Main Street Ketchum, Idaho                 83340
--------------------------------------------------                 -----
    (Address of principal executive offices)                     (Zip Code)
   Issuer's telephone number (208) 622-7792

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class             Name of each exchange on which registered
----------------------------         -------------------------------------------

Securities registered pursuant to Section 12(g) of the act:


--------------------------------------------------------------------------------
                                (Title of class)

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

Check if disclosure  of delinquent  filers in response to Item 405 of regulation
S-B is not contained in this form, and  incorporated by reference in Part III of
this  Form  10-KSB  or any  amendment  to this  Form  10-KSB ( )

State issuer's  revenues for Its most recent fiscal year  $162,809.00  State the
aggregate  market  value of the  voting and  non-voting  common  equity  held by
non-affiliates computed by reference to the price at which the common equity was
sold,  or the  average  bid and  asked  price  of such  common  equity,  as of a
specified date within the past 60 days.

On October  24, 2002 the  aggregate  market was  approximately  $
2,400,000.00.

Note:  If  determining  whether  a  person  is  an  affiliate  will  involve  an
unreasonable  effort and expense,  the issuer may calculate the aggregate market
value of the common  equity held by  non-affiliated  on the basis of  reasonable
assumptions, if the assumptions are stated.

     (ISSUERS  INVOLVED IN BANKRUPTCY  PROCEEDINGS  DURING THE PAST FIVE YE ARS)
check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13, or 5(d) of the Exchange Act after the  distribution  of
securities under a plan confirm by a court. Yes [ ] No [ ]

     (APPLICABLE  ONLY TO  CORPORATE  REGISTRANTS)  State  the  number of shares
outstanding  of each of  issuer's  classes  of common  equity,  as of the latest
practicable date.  Approximately 7,107,065 million shares outstanding on October
31, 2002.



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DOCUMENTS INCORPORATED BY REFERENCE:

IF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE,  BRIEFLY DESCRIBE THEM
AND  IDENTIFY  THE PART OF THE FORM 10-KSB  (e.g.,  Part I, Part II,  etc.) into
which the documents incorporated: (1) any annual report to security holders; (2)
any proxy or information  statement;  and (3) any  prospectus  filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities  Act"). The listed
documents  should be clearly  described for  identification  Transitional  Small
Business Disclosure Format (Check one):

Yes [ ]  No [X]


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

The Company

Aqua  Vie  Beverage  Corporation,  a  Delaware  Corporation,  ("Aqua  Vie")  was
incorporated  on July 29, 1998 and was  initially a wholly owned  subsidiary  of
BEVA ("BEVA")  Corporation,  which had been  incorporated in Delaware in 1990. A
merger procedure under Section 251(g) of the Delaware  Corporate Code in October
1998  resulted in Aqua Vie  becoming  the parent,  and BEVA  becoming the wholly
owned subsidiary, with the former shareholders of BEVA becoming by action of law
the shareholders of Aqua Vie. BEVA retained certain  liabilities it had prior to
this  procedure,  but is now inactive.  BEVA had been  originally  acquired in a
Chapter 11 Bankruptcy proceeding.

BARHILL  EXCHANGE:  Pursuant to an agreement and plan of merger dated August 31,
1999 between Barhill Acquisition  Corporation (Barhill), a Delaware corporation,
and Aqua Vie Beverage  Corporation,  all  outstanding  shares of common stock of
Barhill  were  exchanged  for  250,000  shares of common  stock of Aqua Vie in a
transaction in which Aqua Vie was the surviving company.  Barhill had no assets,
liabilities,  or history of operations. This transaction is more fully described
in Form 8-K/A dated October 28, 1999.

BUSINESS OF ISSUER:

PRODUCTS:  Aqua Vie Beverage  Corporation  is a  development-stage  company that
develops,  manufactures,  and  markets  all-natural  beverages.  The Company has
developed  a category of  beverages  called  "water  beverages",  that  includes
Hydrators(TM),  a line  of  spring  water  beverages  that  encourages  personal
hydration,  "Eau Vin"(TM) a line of non-alcoholic  wines and champagne made from
spring water, and PurePlay(TM) a line of spring water beverages for children. Of
these, seven flavors are currently in production of its Hydrator line.

                                       2
<PAGE>


PROCESS:  Aqua Vie presently  enters into long term contracts  with  specialized
beverage co-packing companies,  to produce all of its product lines, utilizing a
bottling filler technology that provides for all-natural beverage ingredients to
be bottled in Polyethylene  Terephthlate  (PET) plastic  bottles,  a universally
accepted  container/vehicle  for bottled water. This aseptic filling  technology
protects the desired attributes of the all-natural ingredients, resulting in the
exclusive,  all-natural  product lines that have been developed by Aqua Vie, all
without  preservatives.  All Aqua Vie  production  is currently  outsourced to a
commercial bottler in Fresno, CA, Lyons Magnus Company.

Spring water is cold filtered with micron  filtration so fine that it can remove
bacteria  from  water,  and is then  combined  with  crystalline  fructose,  and
all-natural  flavors and fragrances that undergo the same filtration process. No
artificial  ingredients  or  preservatives  are used,  and the entire process is
reviewed for Kosher  certification.  The products are then  aseptically  bottled
into  distinctive  shrink  wrapped  PET  plastic  bottles.  They are  sealed for
freshness,  capped with a sports cap and then sealed with a  tamper-proof  outer
seal.

Although a more  expensive  process than  non-aseptic  bottling which requires a
higher  wholesale price for the same profit than non-aseptic  bottling,  aseptic
PET bottling  provides for the  complete  sterilization  of a PET bottle and its
contents, without the addition of preservatives. Traditional bottling processes,
that utilize preservatives,  are believed to destroy a substantial amount of the
natural attributes of spring waters and all-natural ingredients

                                       2
<PAGE>

and all-natural beverages during the bottling process and can affect the quality
of color,  taste,  and aroma,  as well as many  nutritional  elements  including
vitamins and minerals.  Aqua Vie's PET aseptic process retains natural nutrients
of spring water.

When  Aqua  Vie's  aseptic  research  began in the early  1990's,  there was one
aseptic/PET beta test site in the United States capable of processing Aqua Vie's
new "water beverages",  which Aqua Vie employed as its first domestic co-packer,
Lyons Magnus,  Fresno California,  which is still the domestic co-packer for the
Company.  Presently,  numerous PET/aseptic production facilities are starting up
in the US and Europe with equipment  manufactured by several large manufacturing
companies.

Aqua Vie has designed all facets of the retail packaging systems for its product
lines to accommodate  high-speed  production in bottling facilities in the U. S.
as well as Europe, for both the co-packer and company owned equipment.  Aqua Vie
is  believed  to be the first  company to  introduce  the use of a  poly-shrink,
full-body label on a PET plastic  bottle,  and in doing so created a system that
can   be   applied   by   readily   available   commercial   labelers   onto   a
consumer-acceptable,  generic  PET  bottle.  Production  has been in cases of 24
bottles,  but  acquisition  of new  bottling  machinery  is  intended  to permit
production  of 12 bottle  cases as well.  The  smaller  cases are  required  for
certain new markets the Company is presently shipping new product too.

Aqua Vie has developed a comprehensive  quality  assurance system for use in the
bottling process.  Aqua Vie currently  utilizes quality control  consultants for
production  runs with its  bottler in Fresno,  CA. The  Bottler is  required  to
adhere to the quality assurance manual as part of its bottling contract. Bottler
adherence to Aqua Vies' QA manual, when strictly followed, is intended to assure
exceptional product quality.

Aqua Vie maintains a small  administrative  staff,  and relies on outsourcing of
production,  labeling  and  shipping,  and  utilization  of sales and  marketing
consultants.  Aqua  Vie has a total  of 19  employees,  consultants,  and  sales
agents, 5 of which work full time.

DISTRIBUTION  OF  THE  PRODUCT:   The  Company   utilizes  sales  and  marketing
consultants,  and food brokers in its target markets that focus their efforts on
a  pre-determined  network of chain retail grocery such as Safeway  supermarkets
and Shaws Markets that have well defined  all-natural  departments  within their
stores (frequently  called  store-within-a-store.  Independent  distributors who
sell to, and service stores within the all-natural food industry, distribute the
product at store  level.  Aqua Vie offers  information  about its products and a
product purchasing and a subscription service on its Internet site.

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AQUA VIE'S Distribution and PLACE IN THE MARKET: Aqua Vie Hydrators product line
bridges two primary market categories in the beverage industry:  soft drinks and
bottled water. Standard & Poor's Foods & Nonalcoholic Beverages Industry Survey,
May 2000, reports, "U.S. retail sales of the five major nonalcoholic refreshment
beverage  categories  totaled   approximately  $81.7  billion  in  1998  (latest
available),  up 2.8% from 1997's level,  according to Beverage  World  magazine.
These  categories  are soft  drinks  ($54.3  billion),  fruit  beverages  ($17.5
billion),  bottled water ($5.2 billion),  ready-to-drink tea ($2.5 billion), and
sports  drinks  ($2.3  billion)."  Aqua Vie has  entered the market with what is
believed a unique  packaging  and product to establish a new market  segment for
all-natural  flavored  water  that  does  not use  preservatives  or  artificial
sweeteners.

Seven flavors of Hydrators  beverages  are currently  produced and available for
sale. Two new product lines are presently  under  development and expected to be
available in 2003. Fees and promotions are often required to be paid to induce a
store or chain to reserve shelf space for a new product.  Other devices may also
be  required,  such as  provision  of free  promotional  product.  There  are no
long-term agreements with any distributor or purchaser at this time.

COMPETITION:

The Company  believes  its  products do not have any direct  competition  in the
natural  foods  market.  However,   several  large  and  well-financed  beverage
companies  compete in the over-all  beverage  market,  including  Coke and Pepsi
which offer carbonated,  as well as non-carbonated beverages (Coke, Pepsi, Sobe,
Gatorade).

Suppiers:

The  company's   principal  suppliers  include   Danisco-Coulter   (flavors  and
fragrances), and Seal-It, New York (shrink labels for bottles).

GOVERNMENT APPROVAL:  Other than normal corporate registration and licensing the
Company does not need any additional and/or unique government license or permit.
The food and  beverage  industries  are  highly  regulated  and  subject to many
federal and state government rules,  regulations and oversight but compliance is
usually  part  of the  service  furnished  by the  bottler  under  the  bottling
production  contract.  As to any future  possible  government  regulations it is
believed  that if any are ever imposed that they will be broad market  pervasive
and of general  application to all members of the beverage industry.  Government
regulations  in the food  industry are  significant  due to the  possibility  of
recall if  non-compliant,  which can damage the product  reputation and severely
affect revenues.

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<PAGE>

The Company is constantly considering new flavors, revision of existing flavors,
and new products but has not maintained an R&D budget dedicated to that purpose.

The Company relies on trade secret protection, copyright and trademark, and does
not relay on any licenses, franchises, or concessions, and pays no royalties. It
is not a party to any labor agreements.

 ITEM 2. DESCRIPTION OF PROPERTY.

Aqua Vie leases approximately 2,828 square feet of office space in Ketchum,Idaho
for its corporate  headquarters.  The lease runs until November 30, 2002.  Lease
payments for the past year totaled $37,896.00.  The renewal lease is expected to
be  approximately  $4,892.00 per month.  The company  maintains three automobile
loans,  outsources all  production  costs for its beverage  products,  and ships
finished goods from the packer to independent  distribution warehouses servicing
accounts in 17 states.

ITEM 3. LEGAL PROCEEDINGS.

There are a number of routine  litigations  involving claims against the company
for past-due accounts payable, which are considered normal for a company at this
stage  of  development  and  not  of  any  consequence  in  the  opinion  of the
registrant.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company submitted two Information Statements with respect to consent actions
proposed to be taken during the last quarter of the fiscal year. Consent actions
do not require a vote of the shareholders aside from the consent of the majority
shareholders  under Delaware law. One consent action  referred to an increase in
authorized  capital,  the  other to  authorization  to  amend  the  Articles  of
Incorporation to combine common shares. Both actions were undertaken  subsequent
to the end of the fiscal  year by filing  the  appropriate  amendments  with the
State of  Delaware.  The  increase  in  capital  was  taken as  proposed  in the
Information  Statement.  The  combination  selected was 20 common  shares to one
common  share.  Please  see the  SEC  web  site,  twww.sec.gov  for the  Company
definitive  information  statement  filings on this topic, and the shareholders,
which may have voted therefore.

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<PAGE>

PART II

 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

(a) Market for Common Equity:

Aqua Vie's common stock is traded in the over-the  counter market and prices are
quoted on the NASDAQ Bulletin Board. The quotations reflect inter-dealer prices,
without retail mark-up,  mark-down or commission,  and may not represent  actual
transactions.


Year Ended July 31, 2002          High        Low
------------------------------------------------------

          First quarter           .095       .04

          Second quarter          .064       .02

          Third quarter           .06        .096

          Fourth quarter          .021       .003


Year Ended July 31, 2001          High        Low
------------------------------------------------------

          First quarter           .572       .312

          Second quarter          .36        .065

          Third quarter           .155       .063

          Fourth quarter          .175       .065



There is one class of common stock and  approximately  600 shareholders  plus an
estimated  18,500  beneficial  holders in street name.  No  dividends  have been
declared and none are planned.

(b) Sales of Unregistered Securities:

(b) Sales of Unregistered Securities:

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<PAGE>

Year Ending July 31, 2000:

During the fiscal year ending  July 31,  2000 the  Company  issued  unregistered
securities  as  follows:  In  September  1999  under  Rule 701,  to a group of 7
employees, consultants and for professional services, the Company issued a total
of 896,500 shares of common stock. Also in that month the Company issued 250,000
shares as part of the merger  transaction with the Barhill  Company.  During the
fiscal  year  accredited  investor  E.  Hamlin was issued at total of  1,261,000
shares for various cash investments totaling and consulting services; accredited
investor R. Schneiderman  received 1,115,000 shares for various cash investments
and for consulting  services (please see Financial  Statement).  Also during the
fiscal year another 12  accredited  investors  for  services  and cash  totaling
$148,900 received  1,042,400  shares.  The President of the Company in July 2000
received 300,000 shares for services. Two pre-incorporation accredited investors
received 179,000 shares for their previous  involvement.  The Company issued 200
shares of Series C preferred to an  accredited  investor for the  investment  of
$100,000 that that preferred was convertible into 200,000 shares of the Company.
The five holders of Series A preferred stock converted during the a year portion
of their preferred  holdings for 2,580,851 shares and the holder of the Series B
preferred  stock  converted a portion of their holding for 644,000  shares.  The
company relied on regulation D for the above transactions.

Year Ending July 31, 2001:

During the fiscal year ending  July 31,  2001 the  Company  issued  unregistered
securities as follows:  The President of the Company  received 300,000 shares of
common for services;  in August and October a product broker received a total of
150,000 shares as part of his broker  agreement with the Company;  in April 2001
two  individuals  received  230,000 shares as settlement  for  pre-incorporation
assistance;   in  May  an  advertising  agency  received  1,500,000  shares  and
accredited  investor R.  Schneiderman  received  500,000 shares in July 2001 for
consulting  services the total value received was $321,600.  Accredited investor
R.  Schneiderman  received 850,000 shares in October for conversion of debt owed
to him in the amount of $340,850.  The five holders of Series A preferred  stock
converted  during the year a portion of their  preferred  holdings for 4,614,123
shares of common and the  holder of the Series B  preferred  stock  converted  a
portion of their  holding for  16,442,642.  In  February  2001 the holder of the
Series C preferred  converted  his  position  for 200,000  shares of common.  In
November  2000 the Company  issued to the Brace  Trust,  holders of the Series B
preferred,  12,000  Series D preferred for the  investment  of $1,200,000  which
preferred  carried  certain  provision  including a conversion  rate  adjustment
dependent  upon  future  common  stock  issuances  below a  certain  value and a
increase  conversion  based on market  success of the  Company  and 600 Series E
preferred to a former  employee for the  investment of $60,000  which  preferred
could be converted for 1,000,000  shares of the common stock of the Company.  In
July 2001 the Company  issued  1,240  shares of the Series F  preferred  for the
investment  of $124,000  that could be converted  into  2,480,000  shares of the
common stock of the Company.  The company  relied on  regulation D for the above
transactions.

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<PAGE>

Year Ending July 31, 2002:

During the fiscal year ending  July 31,  2002 the  Company  issued  unregistered
securities  as  follows:  Accredited  investors  E.  Hamlin and R.  Schneiderman
received in January and April a total of 5,300,000  for  conversion of debt owed
in the amount of $237,000  plus  interest.  In August and  September  2001 three
individuals  received a total of 425,000  shares for  services,  one  individual
received  20,000 shares as settlement  for  pre-incorporation  assistance and an
employee was issued 25,000 shares for services the total value for these 470,000
shares was $11,750.  Also during the year three  individuals were issued a total
of 240,000 shares for a prior existing claim and to settle their lawsuit. During
the year the four  holders of Series A  preferred  stock  converted a portion of
their  preferred  holdings for 1,601,611  shares of common and the holder of the
Series B preferred stock converted their remaining  portion of their holding for
191,236  shares  April.  In May and June the  holder of the  Series E  preferred
converted  their  position  for  1,000,000  shares  of the  common  stock of the
Company. In July 2002 the Company issued to the President the Series G preferred
as part of the transaction where he forgave a total of $800,000 in past debt and
accrued  compensation  owed to him by the  Company.  The Series G preferred  is,
initially  convertible  into  80,000,000  shares of the company and the terms of
this preferred include certain provisions including a conversion rate adjustment
dependent  upon  future  common  stock  issuances  below a certain  value and an
increase  conversion  based on market  success of the  company and in addition a
super  voting  position  of  320,000,000  common  shares  based  on the  maximum
allowable  conversion  of this  series  of  preferred  based on  certain  market
increase  in stock  price.  The  company  relied on  regulation  D for the above
transactions.


 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Matters discussed herein, contain  forward-looking  statements that involve risk
and uncertainties. This is particularly true as it relates to comments about the
development and funding of Aqua Vie's future production capability, expectations
about  profitability,   and  new  product   introduction.   Results  may  differ
significantly from results indicated by forward-looking statements.

Factors that might cause some differences,  include, but are not limited to: (1)
changes in general economic  conditions,  including but not limited to increases
in interest  rates;  (2)  government  regulations  affecting  customers  and the
bottling process for products;  (3) the potential for product recall and related
non-compliance  issues by third parties;(4) similar products competing for shelf
space  and market  share  in the bottled water industry; (5) the ability of Aqua


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Vie to successfully  bring new products from their  development  stage into full
and profitable  production and sales; (6) Aqua Vie's ability to raise sufficient
debt and/or equity capital to implement its business plans;  (7) the occurrences
of incidents that could subject Aqua Vie to liability or fines;  (8) the ability
of Aqua Vie to attract the needed networks for product distribution,  and secure
the shelf space in stores necessary to achieve sales forecasts.

INTRODUCTION

In fiscal year 2001, the Company initiated a targeted  supermarket sales program
with the Albertsons divisions of Northern and Southern California,  Arizona, and
Nevada. These arrangements  required substantial slotting fees (one time fees to
stores),  to be paid in  order  to  secure  shelf  space  and  provided  for the
company's  products being featured in approximately  1,200 Albertsons  stores in
California and adjacent States. The Company also negotiated supermarket sales in
the Raleys, Knob Hill, Savemart and other chains in the same general regions. At
that time the  strategy  was to  specifically  focus on mass  markets  and chain
grocery sales in the limited geography of greater California,  and later utilize
these sales to penetrate  additional  regions,  such as Texas,  where Albertsons
also had a strong presence.  As the Company's available capital was limited, and
the public  capital  markets  continued  their steep  decline,  the Company also
attempted to secure  additional  financing  for working  capital,  inventory and
production.

In  March,  2001,  the  Company  secured  a  financing  arrangement  with  their
co-packer,  Lyons  Magnus  of  Fresno  CA.,  whereby  the  cost of the  bottling
production  would be secured by the finished  inventory.  This  financing of new
inventory  was to be further  secured by a guarantee  from one of the  Company's
larger  shareholders (not affiliated with management),  who had a close personal
relationship  with the  Management of Lyons.  The sales and  marketing  plan for
supermarket  penetration depended on the Lyons financing  arrangement  providing
adequate  growth  production  in  advance,  so that  there  would be  sufficient
inventory  to meet the sales  orders from the chain  grocers  (such sales orders
often required short lead time before shipment). Supermarket sales of this type,
were  estimated,  would produce a modest  profit,  but also had the advantage of
producing  higher  gross  revenues,  and  the  consequent  increased  levels  of
marketing and advertising.

The Lyons arrangement was only able to fund a limited amount of early production
due to the inability of Lyons and the guaranteeing  shareholder to come to terms
over the scope and form of the guarantee. This difficulty was further aggravated
by a declining  business climate which it is believed affected Lyons willingness
to take a  credit  risk,  as well as a  delayed  submission  of  re-orders  from
Albertsons  due to their internal  system of forwarding  reorders from stores to
the central ordering facilities.

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<PAGE>

During the summer of 2001,  as the seasonal  demand for the  company's  products
began to  increase,  the Company  attempted to somewhat  "restrain"  large chain
grocery sales opportunities  because of the uncertainty over whether Lyons would
honor the  financing  arrangements  it had made.  The Company was not willing to
risk entering into a situation  where its marketing  efforts  created  increased
demand, without the inventory being available to satisfy that demand. Management
determined  that  if  that  risk  occurred,  it  would  have  severe  difficulty
re-opening  those sales outlets when quality  production  was secured,  due to a
loss of credibility with store  management.  Ultimately in late summer 2001, the
Company  reached  a  settlement  with  Lyons  which  provided  for very  limited
additional production  financing,  with the balance on a "cash and carry" basis.
These arrangements, which included a provision for an increased level of quality
assurance to maintain preservative-free products, are still in place today.

As it became  evident that the Company could not count on additional  production
of inventory  being financed,  simultaneous  with the general shock and economic
spiral that the capital  markets  encountered  following the tragedy of 9/11/01,
management chose to maintain a "holding  pattern" while attempting to secure new
production financing and shifted the focus on the long term sales development of
it's products within the natural foods retail markets,  with particular emphasis
on the newly emerging "all-natural, store within a store" divisions within major
retail grocery chains.

During the second half of 2002,  the Company has  continued  to develop a unique
sales niche within all-natural divisions of major retail grocery chains shipping
products  to over 500  grocery  chain  stores with  "all-natural  stores  within
stores" in 17 states,  and is additionally  entering the all-natural health food
retail  markets  (health  food  stores),  being  distributed  by the two largest
all-natural food distributors in the U. S.

The Company has further  accelerated  the  development of two new lines of water
beverages;  a line of flavored water beverages for children called PurePlay, and
a line of  non-alcoholic  wines made from spring water called Eau Vin,  both are
expected to be available at retail in 2003.

The Company believes that higher profit margins attainable in specialty sections
offset the lower  general  grocery  revenues  and  substantial  new  product and
slotting   introduction   costs.   Because  the  products  represent  the  first
"all-natural",  preservative-free  flavored bottled spring water available, less
initial  marketing  expense  is needed  to  distinguish  it from many  generally
competing  products.  Finally,  it is also  anticipated  that  when the  capital
markets  improve  it may be easier  to  secure  funding  from  investors  for an
"all-natural" preservative-free company.

With a proven sales execution in the natural foods sections of large stores, and
with additional new distribution  and continuous  product  availability  through
natural foods sales, Management believes that the caution exercised in promoting
general  retail  sales  during  late 2001 into  fiscal  2002,  while it severely
dampened  overall sales,  preserved those sales for the future while the company
pursued a natural food strategy.

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<PAGE>

While transitioning through a re-orientation in sales strategy, the Company also
considered means to improve overall gross profits on sales. The Company recorded
revenues of $151,924 in fiscal 2000,  $912,000 in fiscal  2001,  and $162,809 in
fiscal 2002. Gross profit on sales was respectively  $(80,434),  $107,936, and $
(19,204). Management believes that the improvement in profit relative to similar
sales  levels  in 2000 and  2002 was due to the  experience  it  gained  in cost
control and pricing  during that  period,  and it is hoped that this  experience
will enable higher gross profit  relative to sales in 2003 than the 12% that was
achieved in 2001.  While the  Company's  success in  improving  profits  through
improved  cost  control  and higher  profits  margins  through  specialty  sales
strategies will only be determined by experience,  Management  believes that the
parameters are in place for improved margins as the new sales strategy develops.

While maintaining  general sales and developing the introduction of the products
into the  all-natural  chain  market,  the  Company  received  a series of small
production and working  capital  financings  from a shareholder  (not affiliated
with management).

The  Company  is in the  process of  seeking  additional  capital in the form of
either  secured debt,  factoring,  and/or equity  funding.  The Company seeks to
secure an initial $2.2 million for immediate  inventory growth support,  working
capital and  marketing  as it  consistently  develops the sales base within each
targeted market.  Management believes the relative costs for such capital may be
high  initially,  however  with  consistent  growth and a proven track record of
sales within this new market, it is anticipated the costs of such financing will
become  commercially  acceptable.  While  parties  have shown  interest  in such
financing arrangements the Company presently does not have a firm commitment for
the $2.2 million that management believes will be required for the rest of 2003.


PLAN OF OPERATION: During the last fiscal year Aqua Vie continued establishing a
market  presence for its line of Hydrators,  the lightly  flavored  spring water
beverages.   Throughout   calendar  2002,  this  effort  has  been  concentrated
exclusively  through  all-natural  retailers and major retailers who exclusively
maintain all-natural departments within their stores.

Given  Aqua  Vie's  market   distribution   presence,   frequently   based  upon
introductory fee and promotion  arrangements  with distributors or directly with
major grocery and convenience store chains, its relationship with its co-packer,
and the present  production  and overhead  cost  structure,  adequate  levels of
profitability  can  be  achieved  in a  timely  fashion  given  adequate  bridge
financing. The immediate solution to profitability in this early growth scenario
rests with Aqua Vie obtaining the adequate bridge  financing to rapidly increase
initial  production to meet the increased  product demand  available  within the
account base the Company has presently secured shelf space, while building brand
awareness through consumer marketing programs.

                                       12
<PAGE>

In the future Aqua Vie expects to improve  margins  through  economies of scale,
and by  introducing  new products that  management  believes will support higher
gross margins,  even in today's  competitive market  environment.  The first new
product line expected to be introduced in 2003, is line of Hydrators  especially
designed for children.  Subsequently,  multi-flavor  line of non-alcoholic  wine
made from spring  water is planned.  It has been  designed to satisfy the desire
for a glass or bottle of wine or  champagne,  without the presence of alcohol or
preservatives.

Aqua Vie's product line contains no directly patented or patentable  features or
components.  Copyrighting,  trade marking and the use of trade secret techniques
and     formulations    are    utilized     extensively.     Aqua    Vie    uses
non-disclosure/non-compete  agreements with  employees,  suppliers and co-packer
bottlers.  At present  the  company  has not issued  any  licenses,  franchises,
concessions,  royalty  agreements or labor contracts,  though future development
may include such actions being incorporated into the corporate strategy.

Aqua Vie continues to offer  information  about its products and a  subscription
service on its Internet  site.  Aqua Vies revenue from Internet  sales remains a
small portion of current  revenue but it is projected to be an important part of
future revenue.  Management  intends to expand and develop marketing of Aqua Vie
beverages through the Internet.

To date,  the means and ability to obtain  meaningful  sales volume is in place,
with  product  on the  shelves  in over  500  major  chain  retail  grocery  and
convenience store outlets.  The Company has recently engaged a Quality Assurance
specialist and a comprehensive  co-packer line and production  inspection system
and audit program.  It is believed these  inspections  and oversight will ensure
salable quality and assist the Company in maintaining delivery schedules.

Subsequent to the fiscal year end, the Company  obtained the services of parties
that had been directly  involved in the Hydrator product design and development,
including the quality assurance standards, protocols and procedures.

LIQUIDITY  AND  CAPITAL  RESOURCES:  Aqua Vie's  current  capitalization  is not
sufficient to meet the necessity of  maintaining a company  presence and to fund
the  production  of  the  anticipated  growth  in  orders  and  apparent  market
acceptance.

Company  capital  resources have  traditionally  been used for promotion,  sales
support,  slotting fees,  inventory  support and general  administration as more
particularly  described in prior  filings.  The Company has devoted  substantial
resources  in the past  several  years and during the current  year to inventory
support in the expectation that sales would in part offset other working capital
requirements  and would thus result in less  dependence  on  additional  capital
resources.

                                       13
<PAGE>


The Company is currently engaged in seeking new sources of inventory and general
working capital  financing in the approximate  amount of $2.2 million to support
the sales  which it  believes  it can effect in 2002 and 2003 in the  outlets in
which it has had  product  presence.  The  market  for  finance  for  developing
companies has been difficult in the past several months particularly as a result
of the September 11, 2001 Terrorist attack but management  believes that climate
has now  begun to show  some  improvement  and is  cautiously  optimistic  about
additional financing possibilities.

In fiscal 2002 the Company realized  $178,756 in financing  activities  compared
with  $1,368,473.00  in 2001.  This  reflected the extremely  difficult  capital
markets in 2002. As previously  discussed  this was a major factor in Management
decision to maintain a "hold fast" sales  strategy to maintain  market  presence
with minimum capital expenditure in 2002. Please see the statement of Cash Flows
for additional information.

RESULTS OF  OPERATIONS:

General and  administrative,  legal and accounting  expenses were  $1,476,287 in
2002  compared  to  $2,299,803  in  2001.   All  categories   decreased   except
depreciation. remained proportionately unchanged from the previous year.



                                       14
<PAGE>
                                    PART III

 "The Items contained in this Part III will be updated to the end of the current
fiscal  year by either a  Definitive  proxy or  Information  Statements,  or and
amendment to this Report made within 120 days of the end of the fiscal year,  as
provided in General Instruction E-3 to the Form."

                                   SIGNATURES

In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

Aqua Vie Beverage Corp.
(Registrant)

Date 11-13-01                      By /s/ Thomas J. Gillespie
     --------                        --------------------------
                                     Thomas J. Gillespie, CEO and President
                                     CEO, President, Director


Signature
/s/ Thomas J. Gillespie             Title                            Date
-----------------------             ------------------------         --------
    Thomas J. Gillespie             CEO, President, Director         11-13-01



                                       15
<PAGE>


                                 CERTIFICATIONS

I, Thomas Gillespie certify that:

1.         I have  reviewed  this  annual  report  on Form  10-KSB  of Aqua Vie
           Beverage Corporation >;

2.         Based on my  knowledge,  this  report  does not  contain  any  untrue
           statement  of a  material  fact  or omit to  state  a  material  fact
           necessary to make the statements made, in light of the  circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this quarterly report;

3.         Based on my knowledge, the financial statements,  and other financial
           information  included in this report,  fairly present in all material
           respects the  financial  condition,  results of  operations  and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

4.         I am responsible for establishing and maintaining disclosure controls
           and  procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
           for the registrant and I have:

a)         designed  such  disclosure  controls  and  procedures  to ensure that
           material  information  relating  to  the  registrant,  including  its
           consolidated subsidiaries, is made known to us by others within those
           entities,  particularly  during the  period in which  this  quarterly
           report is being prepared;

b)         evaluated the effectiveness of the registrant's  disclosure  controls
           and  procedures  as of a date within 90 days prior to the filing date
           of this quarterly report (the "Evaluation Date"); and

c)         presented in this report our conclusions  about the  effectiveness of
           the disclosure  controls and procedures based on our evaluation as of
           the Evaluation Date;

5.         I  have  disclosed,  based  on our  most  recent  evaluation,  to the
           registrant's  auditors and the audit committee of registrant's  board
           of directors (or persons performing the equivalent function):

a)         all  significant  deficiencies in the design or operation of internal
           controls which could  adversely  affect the  registrant's  ability to
           record,  process,  summarize  and  report  financial  data  and  have
           identified for the registrant's  auditors any material  weaknesses in
           internal controls; and

b)         any fraud, whether or not material, that involves management or other
           employees who have a significant  role in the  registrant's  internal
           controls; and

6.         I have indicated in this report whether or not there were significant
           changes  in  internal   controls  or  in  other  factors  that  could
           significantly  affect internal controls subsequent to the date of our
           most recent evaluation,  including any corrective actions with regard
           to significant deficiencies and material weaknesses.


Date:  November  19, 2002


                                       16







                          AQUA VIE BEVERAGE CORPORATION
                              Financial Statements
                                  July 31, 2002




















                            WILLIAMS & WEBSTER, P.S.
                          Certified Public Accountants
                        Bank of America Financial Center
                          601 W. Riverside, Suite 1940
                            Spokane, Washington 99201
                                 (509) 838-5111

<PAGE>

                          AQUA VIE BEVERAGE CORPORATION

                                 C O N T E N T S



Independent Auditor's Report................................................F-1

Balance Sheets..............................................................F-2

Statements of Operations....................................................F-3

Statement of Stockholders' Deficit..........................................F-4

Statements of Cash Flows....................................................F-55

Notes to the Financial Statements...........................................F-6









<PAGE>


Board of Directors and Stockholders
Aqua Vie Beverage Corporation
Ketchum, Idaho

                          INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying balance sheets of Aqua Vie Beverage Corporation
(a  Delaware  corporation)  as of July  31,  2002  and  2001,  and  the  related
statements  of  operations,  stockholders'  deficit and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Aqua Vie Beverage  Corporation
as of July 31,  2002 and 2001,  and the results of its  operations  and its cash
flows  for the  years  then  ended  in  conformity  with  accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As discussed in Note 2, the Company's
significant  operating  losses  raise  substantial  doubt  about its  ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 2. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.

/s/ Williams & Webster, P.S.
------------------------------
    Williams & Webster, P.S.
    Certified Public Accountants
    Spokane, Washington
    November 7, 2002







                                      F-1
<PAGE>


<TABLE>
<CAPTION>
                          AQUA VIE BEVERAGE CORPORATION
                                 BALANCE SHEETS

                                                                                           July 31,
                                                                               ---------------------------------
ASSETS                                                                            2002                2001
                                                                               -----------           -----------
<S>                                                                            <C>                   <C>
      CURRENT ASSETS
           Cash                                                                $     2,179           $     3,608
           Accounts receivable                                                       6,471                82,776
           Inventory                                                               120,006               155,372
           Prepaid and other assets                                                  6,737                24,434
                                                                               -----------           -----------
                Total Current Assets                                               135,393               266,190
                                                                               -----------           -----------

      PROPERTY AND EQUIPMENT, net of depreciation                                   51,386               115,993
                                                                               -----------           -----------

      OTHER ASSETS
           Intangibles, net of accumulated amortization                            175,731               246,881
                                                                               -----------           -----------

      TOTAL ASSETS                                                             $   362,510           $   629,064
                                                                               ===========           ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

      CURRENT LIABILITIES
           Accounts payable                                                    $   374,322           $   362,312
           Bank overdraft                                                           16,388                52,412
           Settlements payable                                                      36,000                10,000
           Accrued expenses                                                         87,367                64,101
           Accrued compensation - related party                                    180,000                  --
           Loan from related party                                                 161,544               128,520
           Notes payable - current                                                 218,479               455,135
                                                                               -----------           -----------
                Total Current Liabilities                                        1,074,100             1,072,480
                                                                               -----------           -----------

      LONG-TERM DEBT
           Notes payable, net of current portion                                     5,651                14,632
                                                                               -----------           -----------

      COMMITMENTS AND CONTINGENCIES                                                   --                    --
                                                                               -----------           -----------

      STOCKHOLDERS' DEFICIT
           Preferred stock, Series A, B, C, D, E, F and G, $0.001 par
                value; 5,000,000 shares authorized, 12,941 and 15,074
                shares issued and outstanding, respectively                             13                    15
           Common stock, $0.001 par value; 5,000,000,000 shares
                authorized, 106,749,217 and 58,253,173 shares
                issued and outstanding, respectively                               106,749                58,253
           Additional paid-in capital                                            6,907,173             5,562,162
           Subscriptions receivable                                                   --                (176,977)
           Accumulated deficit                                                  (7,731,176)           (5,901,501)
                                                                               -----------           -----------
                Total Stockholders' Deficit                                       (717,241)             (458,048)
                                                                               -----------           -----------

      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                              $   362,510           $   629,064
                                                                               ===========           ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-2
<PAGE>


<TABLE>
<CAPTION>

                          AQUA VIE BEVERAGE CORPORATION
                            STATEMENTS OF OPERATIONS

                                                                      Years Ended July 31,
                                                            ---------------------------------------
                                                                 2002                      2001
                                                            ------------              -------------

<S>                                                         <C>                       <C>
NET REVENUES                                                $    162,809              $    912,000

COST OF GOODS SOLD                                               182,013                   804,064
                                                            ------------              ------------

GROSS PROFIT (LOSS)                                              (19,204)                  107,936
                                                            ------------              ------------

GENERAL AND ADMINISTRATIVE EXPENSES
      Promotion and advertising                                  157,064                   544,815
      Legal and accounting                                       141,234                   165,614
      Depreciation and amortization                              149,111                   100,427
      Bad debts                                                     --                      92,175
      Other general and administrative expenses                1,328,889                 1,396,772
                                                            ------------              ------------
           Total expenses                                      1,776,298                 2,299,803
                                                            ------------              ------------

OPERATING LOSS                                                (1,795,502)               (2,191,867)

OTHER EXPENSE
      Interest expense                                           (34,173)                  (55,553)
                                                            ------------              ------------
           Total other expense                                   (34,173)                  (55,553)
                                                            ------------              ------------

LOSS BEFORE TAXES                                             (1,829,675)               (2,247,420)

INCOME TAXES                                                        --                        --
                                                            ------------              ------------

NET LOSS                                                    $ (1,829,675)             $ (2,247,420)
                                                            ============              ============

NET LOSS PER COMMON SHARE,
      BASIC AND DILUTED                                     $      (0.03)             $      (0.06)
                                                            ============              ============

WEIGHTED AVERAGE NUMBER OF COMMON
      SHARES OUTSTANDING, BASIC AND DILUTED                   72,226,565                40,774,176
                                                            ============              ============

</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                      F-3
<PAGE>




<TABLE>
<CAPTION>


                                  Preferred Series A - G      Common Stock       Additional
                                 ----------------------- ----------------------
                                   Number                   Number                Paid-in     SubscriptionsAccumulated
                                  of Shares    Amount     of Shares    Amount     Capital     Receivable    Deficit        Total
                                 ----------- ----------- ------------  --------  -----------  -----------  -----------  ------------
<S>                                  <C>       <C>        <C>        <C>       <C>            <C>          <C>          <C>
Balance, July 31, 2000                7,410    $      7   30,811,408 $  30,811 $  2,422,236   $     --    ($3,654,081)  $(1,201,027)

Issuance of common stock for services
  at an average of $0.13 per share     --         --       5,335,000     5,335      640,783         --           --         646,118

Issuance of common stock
  for debt at $0.41 per share          --         --         850,000       850      340,000         --           --         340,850

Conversion of preferred Series A to
  common stock                       (1,368)         (2)   4,489,123     4,489       (4,487)        --           --            --

Conversion of preferred Series B to
  common stock                       (4,608)         (4)  16,567,642    16,568      (16,564)        --           --            --

Conversion of preferred Series C to
  common stock                         (200)      --         200,000       200         (200)        --           --            --

Issuance of preferred Series D
  for cash and receivable
  at $100 per share   12,000             12       --            --   1,199,988     (176,952)        --           --       1,023,048

Issuance of preferred Series E
  for cash and receivable
  at $100 per share                     600           1         --        --         59,999          (25)        --          59,975

Issuance of preferred Series F
  for cash and receivable
  at $100 per share                   1,240           1         --        --        123,999         --           --         124,000

Forgiveness of debt and accrued
  payroll by officer                   --         --            --        --     796,408            --           --         796,408

Net loss for the year ended
  July 31, 2001                        --         --            --        --           --           --      (2,247,420)  (2,247,420)
                                 ----------- ----------- ------------  --------  -----------  -----------  -----------  ------------

Balance, July 31, 2001               15,074          15   58,253,173     58,253    5,562,162     (176,977)  (5,901,501)    (458,048)

Issuance of common stock
  for cash at $0.04 per share          --         --       6,250,000      6,250      247,645         --           --        253,895

Issuance of common stock
  for services at at an average
  of $0.04 per share                   --         --      15,393,333     15,393      506,990         --           --        522,383

Issuance of common stock
  for debt at $0.05 per share          --         --       5,300,000      5,300      270,727         --           --        276,027

Issuance of common stock for
  settlement at $0.005 per share       --         --         240,000        240          960         --           --          1,200

Conversion of preferred Series A
  to common stock                     (376)       --       1,601,611      1,602       (1,602)        --           --           --

Conversion of preferred Series B
  to common stock                      (45)       --         191,236        191         (191)        --           --           --

Conversion of preferred Series D
  to common stock                   (11,112)        (11)  18,519,864     18,520      (18,509)        --           --           --

Conversion of preferred Series E
  to common stock                      (600)         (1)   1,000,000      1,000         (999)        --           --           --

Forgiveness of payroll by officer      --         --            --         --         60,000         --           --         60,000

Issuance of preferred Series G for
  waiver from officer                10,000          10         --         --        279,990         --           --        280,000

Payment of stock subscriptions
  receivable                           --         --            --         --           --        176,977         --        176,977

Net loss for the year ended
  July 31, 2002                        --         --         --            --           --           --     (1,829,675)  (1,829,675)
                                 ----------- ----------- ------------  --------  -----------  -----------  -----------  ------------
Balance, July 31, 2002               12,941  $       13   106,749,217  $106,749  $ 6,907,173  $      --    $(7,731,176) $  (717,241)
                                 =========== =========== ============  ========  ===========  ===========  ===========  ============

</TABLE>
   The accompanying notes are an integral part of these financial statements.



                                      F-4
<PAGE>



<TABLE>
<CAPTION>

                          AQUA VIE BEVERAGE CORPORATION
                            STATEMENTS OF CASH FLOWS

                                                                                          Years Ended July 31,
                                                                                   -----------------------------------
                                                                                        2002               2001
                                                                                   ----------------   ----------------
<S>                                                                                <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                     $(1,829,675)           $(2,247,420)
      Adjustments to reconcile net loss to net cash
          used by operating activities:
               Bad debts                                                                  --                   92,175
               Depreciation and amortization                                           149,111                100,427
               Common stock issued for interest                                        276,027                    850
               Common stock issued for services                                        522,383                646,118
               Common stock issued for settlement                                        1,200                   --
               Preferred stock issued for waiver from officer                          280,000                   --
               Compensation of officer as additional paid-in capital                    60,000                240,000
               Expenses paid by the issuance of note payable                              --                  128,520
      Changes in assets and liabilities:
               Accounts receivable                                                      76,305                (57,538)
               Inventory                                                                35,366                 94,418
               Prepaid expenses                                                         17,697                 69,042
               Accounts payable                                                         12,010                207,691
               Settlements payable                                                      26,000                 10,000
               Accrued expenses                                                        (13,620)              (403,463)
               Accrued compensation                                                    180,000                   --
                                                                                   -----------            -----------
          Net cash used by operating activities                                        444,196)            (1,119,180)
                                                                                   -----------            -----------

CASH USED BY INVESTING ACTIVITIES:
      Refund of intangible assets                                                       57,088               (207,540)
      Purchase of intangible assets                                                    (33,212)                  --
      Purchases of equipment                                                              --                  (49,272)
                                                                                   -----------            -----------
          Net cash provided (used) by investing activities                              23,876               (256,812)
                                                                                   -----------            -----------

CASH PROVIDED BY FINANCING ACTIVITIES
      Sale of common stock                                                             253,895                   --
      Sale of preferred stock, Series C, D, E and F                                       --                1,207,023
      Payments on notes payable                                                         (8,981)                  (595)
      Receipts from stock subscription                                                 176,977                   --
      Bank overdraft                                                                   (36,024)                52,412
      Loans - related parties                                                           33,024                109,633
                                                                                   -----------            -----------
          Net cash provided by financing activities                                    418,891              1,368,473
                                                                                   -----------            -----------

INCREASE (DECREASE) IN CASH                                                             (1,429)                (7,519)

BEGINNING BALANCE                                                                        3,608                 11,127
                                                                                   -----------            -----------

ENDING BALANCE                                                                     $     2,179            $     3,608
                                                                                   ===========            ===========

SUPPLEMENTAL CASH FLOW DISCLOSURES:
      Income taxes paid                                                            $      --              $      --
      Interest paid                                                                $      --              $      --

NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Issuance of common stock for debt                                            $   276,027            $   340,850
      Issuance of common stock for services                                        $   522,383            $   646,118
      Issuance of common stock for settlement                                      $     1,200            $      --
      Issuance of preferred stock for waiver from officer                          $   280,000            $      --
      Forgiveness of debt and accrued payroll by officer                           $    60,000            $   796,408

</TABLE>
   The accompanying notes are an integral part of these financial statements.



                                      F-5
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Aqua Vie Beverage  Corporation was incorporated on July 31, 1998 in the State of
Delaware.  The Company's  principal  assets were  acquired  through a bankruptcy
court ordered  liquidation of a predecessor company and included the trade name,
beverage formula and the predecessor's public status. These assets were acquired
by the issuance of Series B preferred stock. The Company's  business  activities
have been financed primarily through the issuance of equity securities,  outside
loans, and loans from officers and stockholders.

The Company's principal products include low calorie, non-preservative,  lightly
flavored bottled water.  Management plans include the marketing and distribution
of the Company's products nationally and internationally.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Aqua Vie Beverage Corporation
is presented to assist in understanding the Company's financial statements.  The
financial statements and notes are representations of the Company's  management,
which is  responsible  for their  integrity and  objectivity.  These  accounting
policies  conform to  accounting  principles  generally  accepted  in the United
States of America and have been  consistently  applied in the preparation of the
financial statements.

Accounting Method
-----------------
The Company's  financial  statements  are prepared  using the accrual  method of
accounting.

Advertising Costs
-----------------
The Company expenses all advertising expenditures as incurred.

Principles of Consolidation
---------------------------
The accompanying  financial statements are not deemed to be consolidated because
the Company's wholly owned subsidiary, BEVA Corporation is dormant.

Cash and Cash Equivalents
-------------------------
For  purposes  of the  statement  of  cash  flows,  the  Company  considers  all
short-term debt securities purchased with maturity of three months or less to be
cash equivalents.

Allowance for Doubtful Accounts
-------------------------------
Provision for losses on trade accounts receivable is made in amounts required to
maintain  an  adequate  allowance  to  cover  anticipated  bad  debts.  Accounts
receivable  are  charged  against the  allowance  when it is  determined  by the
Company that payment will not be received.

Inventories
-----------
Inventories  consist  primarily of raw  materials  and finished  product and are
valued at the lower of cost (first in, first out) or market.


                                      F-6
<PAGE>



                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories (continued)
Inventory is comprised of the following at July 31:

                                                     2002            2001
                                                 -------------    ------------
        Finished goods                        $        72,006  $      113,013
        Raw materials                                  48,000          42,359
                                                 -------------    ------------
           Total                              $       120,006  $      155,372
                                                 =============    ============

Property and Equipment
----------------------
Property,  plant  and  equipment  are  stated  at  cost.  All  expenditures  for
improvements,  replacements  and  additions  are added to the asset  accounts at
cost.

Expenditures  for normal repairs and maintenance are charged against earnings as
incurred. The cost and related accumulated  depreciation are eliminated from the
accounts  and the  resulting  gain or loss is  reflected  in the  statements  of
operations  when   depreciable   assets  are  retired  or  otherwise   disposed.
Depreciation is provided for by the use of straight-line and accelerated methods
over the  estimated  useful  lives of the assets.  Depreciation  expense for the
years ended July 31, 2002 and 2001 was $64,608 and $60,768, respectively.

The following is a summary of property and equipment at July 31:

                                                  2002                2001
                                              --------------      --------------
        Total property and equipment       $      201,608      $     201,608
        Less accumulated depreciation             (150,222)            (85,615)
                                              --------------      --------------

        Net property and equipment         $       51,386      $     115,993
                                              ==============      ==============

Intangible Assets
-----------------
Most intangible  assets are amortized over their estimated  useful lives of 3 to
10 years on a  straight-line  basis.  Amortization  expense for the years ending
July 31, 2002 and 2001 was $93,676 and $38,659,  respectively. In the year ended
July 31, 2002, the Company received $52,089 from a customer,  which represents a
refund of slotting fees paid and was recorded as a reduction of intangibles.

Income Taxes
Income taxes are provided based upon the liability method of accounting pursuant
to SFAS No. 109  "Accounting  for Income Taxes." Under this  approach,  deferred
income  taxes are  recorded to reflect the tax  consequences  in future years of
differences  between the tax basis of assets and liabilities and their financial
reporting  amounts at each year-end.  A valuation  allowance is recorded against
deferred tax assets if management does not believe the Company has met the "more
likely than not" standard  imposed by SFAS No. 109 to allow  recognition of such
an asset.



                                      F-7
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


At July 31,  2002,  the Company  had net  deferred  tax assets of  approximately
$1,900,000, principally arising from net operating loss carryforwards for income
tax  purposes.  As management of the Company  cannot  determine  that it is more
likely than not that the Company

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)
------------------------
will realize the benefit of the net deferred  tax asset,  a valuation  allowance
equal to the net deferred tax asset has been  established  at July 31, 2002. See
Note 3.

At  July  31,  2002,  the  Company  has  net  operating  loss  carryforwards  of
approximately $13,100,000, which expire in the fiscal years ending July 31, 2002
through July 31, 2022.

Basic and Diluted Loss Per Share
--------------------------------

Loss per share was  computed by dividing  the net loss by the  weighted  average
number of common  shares and common  share  equivalents  outstanding  during the
year. The weighted  average number of shares was calculated by taking the number
of  shares  outstanding  and  weighting  them by the  amount  of time  they were
outstanding.  Basic  and  diluted  loss per  share  were the  same  because  the
inclusion of outstanding  warrants and other  convertible  instruments  would be
considered antidilutive.

Revenue Recognition and Slotting Fees
-------------------------------------
Revenues  from sales of product are  recognized  when the product is shipped and
collectibility  is reasonably  assured with title passing at the shipping point.
Sales terms for  distributors  and retail  customers are 2%, net 30. At July 31,
2002,  the  Company  was not  selling to or through  distributors.  Sales  terms
generally  do not allow a right of return.  Products  are drop  shipped from the
bottler to the customer and the customer pays all shipping charges.

Sales of products  directly to  customers  through  e-commerce  and  traditional
channels are recognized when shipped. In these transactions, the Company acts as
merchant-of-record.  Accordingly,  the Company records as revenue the full sales
price of the  product  sold and  records  the full  cost of the  product  to the
Company as cost of revenues,  upon shipment of the product.  All internet  sales
are paid via credit card and are considered immediately collectible.

The Company pays slotting or shelving fees to  retailers.  In past years,  these
costs  were  deferred  and  expensed  over an  estimated  time frame of 3 years.
Slotting  fees paid  during  the year ended July 31,  2001 were  $207,540.  This
amount is included in  intangibles.  Effective with its April 30, 2002 financial
statements,  the Company has changed its  accounting  policy to record  slotting
fees as a reduction of revenue.  This new policy is in accord with the consensus
of EITF 01-09 "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller  of  the  Vendor's   Products,"  which  affirms  that  the  payment  of
consideration  by a vendor to a customer should not be recognized as an asset of
the vendor and further  affirms that  slotting fees should be accounted for as a
reduction of  revenues.  If the Company had  implemented  this new policy in the
year ended July 31, 2001,  then the Company's  net loss would have  increased by
$168,881.

Compensated Absences
--------------------
Employees  of the Company  are  entitled  to paid  vacation,  paid sick days and
personal days off, depending on job classification, length of service, and other
factors.  The Company's policy is to recognize the costs of compensated absences
when actually paid to employees.  The related  liability,  due to immateriality,
has not been recorded.


                                      F-8
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Estimates
---------
The  preparation  of  financial   statements,   in  conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Impaired Asset Policy
---------------------
The Company reviews its long-lived  assets  quarterly to determine if any events
or changes in  circumstances  have  transpired  which indicate that the carrying
value of its assets may not be  recoverable.  The  Company  does not believe any
adjustments are needed to the carrying value of its assets at July 31, 2002.

Derivative Instruments
----------------------
The Financial  Accounting Standards Board ("FASB") issued Statement of Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging  Activities - Deferral of the Effective Date of SFAS No.
133," and SFAS No. 138,  "Accounting  for  Certain  Derivative  Instruments  and
Certain Hedging Activities," which is effective for the Company as of January 1,
2001.  These  standards   establish   accounting  and  reporting  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts,  and for  hedging  activities.  They  require  that an  entity
recognize all  derivatives  as either assets or liabilities in the balance sheet
and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically  designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging  derivative  with the  recognition of (i) the changes in the fair
value of the hedged asset or liability that are  attributable to the hedged risk
or  (ii)  the  earnings  effect  of the  hedged  forecasted  transaction.  For a
derivative  not  designated  as a  hedging  instrument,  the  gain  or  loss  is
recognized in income in the period of change.

Historically,  the Company has not entered  into  derivative  contracts to hedge
existing risks or for speculative purposes.

At July 31, 2002 and 2001, the Company has not engaged in any transactions  that
would be considered derivative instruments or hedging activities.

Fair Value of Financial Instruments
-----------------------------------
The Company's  financial  instruments  as defined by SFAS No. 107,  "Disclosures
about  Fair  Value of  Financial  Instruments,"  include  cash,  trade  accounts
receivable,  accounts payable,  accrued expenses and short-term borrowings.  All
instruments  are accounted  for on a historical  cost basis,  which,  due to the
short maturity of these financial instruments, approximates fair value.


                                      F-9
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements
--------------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142,  "Goodwill  and Other  Intangible  Assets."  SFAS No. 141  provides for the
elimination  of the  pooling-of-interests  method  of  accounting  for  business
combinations  with an  acquisition  date of July 1, 2001 or later.  SFAS No. 142
prohibits  the  amortization  of  goodwill  and  other  intangible  assets  with
indefinite lives and requires  periodic  reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. An early adoption  provision  exists for companies with
fiscal years  beginning  after March 15, 2001.  The Company has adopted SFAS No.
142.  Application of the nonamortization  provision of SFAS No. 142 will have no
effect on the Company's  financial  statements as the Company does not currently
have assets with indefinite lives.

In October 2001, the FASB issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations."  SFAS No. 143 establishes  guidelines related to the retirement of
tangible  long-lived assets of the Company and the associated  retirement costs.
This  statement  requires  that  the  fair  value  of a  liability  for an asset
retirement  obligation  be recognized in the period in which it is incurred if a
reasonable  estimate of fair value can be made. The associated  asset retirement
costs are capitalized as part of the carrying  amount of the long-lived  assets.
This statement is effective for financial statements issued for the fiscal years
beginning  after June 15,  2002 and with  earlier  application  encouraged.  The
Company  adopted SFAS No. 143 and the  adoption  has no effect on the  financial
statements  of the Company at July 31,  2002.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121,  "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This new standard  establishes  a single  accounting  model for  long-lived
assets to be disposed of by sale, including  discontinued  operations.  SFAS No.
144 requires that these  long-lived  assets be measured at the lower of carrying
amount  or fair  value  less  cost  to  sell,  whether  reported  in  continuing
operations or discontinued operations. This statement is effective beginning for
fiscal years after December 15, 2001, with earlier application  encouraged.  The
Company  adopted SFAS No. 144 and the  adoption  has no effect on the  financial
statements of the Company at July 31, 2002.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of SFAS Statements No.
4, and 64, Amendment of SFAS No. 13, and Technical  Corrections," which updates,
clarifies and simplifies existing accounting  pronouncements.  SFAS No. 4, which
required all gains and losses from the  extinguishment  of debt to be aggregated
and, if material, classified as an extraordinary item, net of related tax effect


                                      F-10
<PAGE>

                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)
--------------------------------------------
was  escinded,  and as a result,  SFAS No.  64,  which  amended  SFAS No. 4, was
rescinded  as it was no longer  necessary.  SFAS No. 145 amended  SFAS No. 13 to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications which
have  economic  effects  similar to those of  sale-leaseback  transactions.  The
pronouncement  will not affect the Company as it has not entered into any of the
aforementioned transactions.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities."  SFAS No. 146 addresses  significant  issues
regarding the recognition,  measurement,  and reporting of costs associated with
exit and disposal activities,  including restructuring activities.  SFAS No. 146
also  addresses  recognition  of certain costs related to terminating a contract
that is not a  capital  lease,  costs  to  consolidate  facilities  or  relocate
employees, and termination benefits provided to employees that are involuntarily
terminated  under the terms of a  one-time  benefit  arrangement  that is not an
ongoing  benefit  arrangement or an individual  deferred-compensation  contract.
SFAS No.  146 was issued in June 2002.  The  impact on the  Company's  financial
position  or  results  of  operations  from  adopting  SFAS No. 146 has not been
determined.

Going Concern
-------------

As  shown  in the  financial  statements,  the  Company  incurred  a net loss of
$1,829,675  for the year ended July 31, 2002 and has an  accumulated  deficit of
$7,731,176.  The Company  has  negative  equity,  negative  working  capital and
limited cash resources. These factors indicate that the Company may be unable to
continue in existence.  The financial  statements do not include any adjustments
related to the  recoverability  and  classification  of recorded assets,  or the
amounts and  classification  of liabilities that might be necessary in the event
the  Company  cannot  continue  existence.  Management  plans to sell new  stock
issuances,  which are  expected  to raise the  capital  needed  to  operate  the
Company.  Management is also actively pursuing the distribution of the Company's
products nationally and internationally.

Shipping and Handling Costs
---------------------------
The Company includes all shipping and handling costs in cost of sales.

Stock Based Compensation
------------------------
The Company  accounts  for non-cash  issuances  of stock and warrants  under the
fair-value  method in accordance with SFAS No. 123,  "Accounting for Stock-Based
Compensation." Compensation cost is recognized over the service period.

Reclassification
----------------
Certain  amounts  from prior  periods have been  reclassified  to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's accumulated deficit or net losses presented.




                                      F-11
<PAGE>



                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 3 - NET OPERATING LOSS CARRYFORWARD

The  Company  acquired,  as  part  of the  assets  purchased  in the  bankruptcy
liquidation  sale, the  predecessor  company's net operating  loss  carryforward
(NOL) in the approximate amount of $15,000,000.  A valuation  allowance has been
established  so that no value is  reflected  at the balance  sheet dates for any
deferred tax benefit. The value, if any, of the NOL will depend upon a number of
unknowns,  including  attaining  profitable  operations and other tax law issues
related to the  acquisition  of the NOL from the  Company's  predecessor.  These
issues include the change in ownership  limitations and any adjustments from the
relief  of debts  from  prior  operations.  The  aggregate  net  operating  loss
carryforwards began to expire during the year ended July 31, 2001.

NOTE 4 - RELATED PARTY TRANSACTIONS

Advances from Officer
---------------------
At July 31, 2002 and 2001, the Company owed $95,121 and $128,520,  respectively,
to its CEO.  These  amounts are payable on demand and carry no interest.  During
the year  ended  July 31,  2001,  the  Company's  CEO  forgave  $176,440  of the
previously  accumulated  obligation.  This amount was recorded in the  financial
statements as a capital contribution.  The Company's chief executive officer has
the majority of the Company's common stock voting rights.

Forgiveness of Accrued Payroll
------------------------------
Capital contributions for the year ended July 31, 2001 were $499,968 of forgiven
accrued compensation and $120,000 of forgiven current period  compensation.  For
the year ended July 31, 2002,  $60,000 of compensation was forgiven as a capital
contribution.

Issuance of Series G Preferred Shares
-------------------------------------
In June 2002, the Company issued to its chief executive officer 10,000 shares of
a newly  created class of preferred  stock in a transaction  valued at $280,000.
The shares were issued as consideration for the CEO's waiver of prior year loans
made and earned compensation forgiven and for the CEO's agreeing not to withdraw
his waiver.  The  features  of the new stock,  Series G  preferred  shares,  are
detailed in Note 7.


                                      F-12
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 5 - STOCK WARRANTS

At July 31, 2002 and 2001,  there were warrants  outstanding to purchase 250,000
shares of the  Company's  common.  During the fiscal  year ended July 31,  2001,
warrants  to purchase  172,800  shares of the  Company's  common  stock  expired
unused. At July 31, 2001 and 2002, the Company's  outstanding warrants consisted
of the following:

                                                        Common       Common
 Date         Expiration      Price      Number of     Shares per    Shares
Issued           Date       per Share     Warrants      Warrant     Issuable
-------       ----------    ---------    ---------     ----------   --------
8/31/00         8/31/04       $1.00           1         250,000     250,000

NOTE 6 - COMMON STOCK

The Company is authorized to issue a total of 5,000,000,000 shares of $0.001 par
value  common  stock.  During the year ended July 31, 2002,  the Company  issued
5,300,000  shares of its common  stock in exchange for notes  payable  valued at
$276,027, 15,393,333 shares of its common stock for services valued at $522,383,
6,250,000  shares of its common stock for cash of $253,895 and 240,000 shares of
its common stock valued at $1,200 for the  settlement  of a dispute.  The shares
issued for  services  were  valued at their fair  market  values on the dates of
issuance.  Other  issuances  resulted  from  the  conversion  of 376  shares  of
preferred Series A stock, 45 shares of preferred  Series B stock,  11,112 shares
of  preferred  Series D stock  and 600  shares  of  preferred  Series E stock to
1,601,611,  191,236,  18,519,864  and  1,000,000  shares,  respectively,  of the
Company's common stock.

During the year ended July 31, 2001,  the Company  issued  850,000 shares of its
common stock in exchange for a convertible  note payable  valued at $340,850 and
5,335,000 shares of its common stock for services valued at $646,118. The shares
were valued at their fair market value on the date of issuance.  Other issuances
resulted from the conversion of 1,368 shares of preferred Series A stock,  4,608
shares of preferred Series B stock and 200 shares of preferred Series C stock to
4,489,123,  16,567,642 and 200,000 shares, respectively, of the Company's common
stock.

NOTE 7 - PREFERRED STOCK

The Company is  authorized  to issue a total of  5,000,000  shares of  preferred
stock,  par value at $0.001.  At July 31, 2002, the Company had seven classes of
preferred stock outstanding with an aggregate of 465,000 shares authorized.  The
Company has been authorized to issue 200,000 shares of $0.001 par value Series A
preferred  stock,  200,000 shares of $0.001 par value Series B preferred  stock,
10,000  shares of $0.001 par value Series C preferred  stock,  20,000  shares of
$0.001 par value  Series D  preferred  stock,  5,000  shares of $0.001 par value
Series E preferred  stock,  5,000  shares of $0.001 par value Series F preferred
stock and 25,000 shares of $0.001 par value Series G preferred  stock. The board
of directors of the Company has the authority to issue shares of preferred stock
from time to time in one or more  classes or series,  which may have such voting
power,  full or  limited  as  fixed  by the  board of  directors.  The  board of
directors may also  determine  the terms of any such series or class,  including
dividend rights, dividend rates, conversion,  exchange,  voting rights and terms
of redemption, the redemption price and the liquidation preference of such class
or series.



                                      F-13
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 7 - PREFERRED STOCK (continued)

The number of shares outstanding of preferred stock, Series A, B, C, D, E, F and
G and amounts were as follows:


                              July 31, 2002
                 -----------------------------------------
                 Number of Shares             Amount
                 ------------------------     ------------
Series A                             813      $         1
Series B                              --               --
Series C                              --               --
Series D                             888                1
Series E                              --               --
Series F                           1,240                1
Series G                          10,000               10
                 ------------------------     ------------
  Total                           12,941      $        13
                 ========================     ============



                              July 31, 2001
                 -----------------------------------------
                 Number of Shares             Amount
                 ------------------------     ------------
Series A                           1,189      $         1
Series B                              45               --
Series C                              --               --
Series D                          12,000               12
Series E                             600                1
Series F                           1,240                1
Series G                              --               --
                 ------------------------     ------------
  Total                           15,074   $           15
                 ========================     ============

General Terms
All Series A, B, C, D, E, F and G preferred stock shares contain  standard terms
relative  to  adjustment  for stock  splits and  combinations,  reorganizations,
mergers,  and  consolidations  or sales of assets,  registration of stock issued
upon conversion, and registration rights. For dividend, liquidation, mergers and
consolidations,  the respective  rights of each series are  different.  Series A
preferred  stock is  limited  to $300 per share in  non-cumulative  preferential
dividends  before common stock.  Each Series A preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series B
preferred  stock  is  limited  to $6 per  share in  non-cumulative  preferential
dividends  before common stock.  Each Series B preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series C
preferred  stock is  limited to $0.25 per share in  non-cumulative  preferential
dividends  before common stock.  Each Series C preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series D
preferred  stock is  limited  to $100 per share in  non-cumulative  preferential
dividends  before common stock.  Each Series D preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series E
preferred  stock is  limited  to $100 per share in  non-cumulative  preferential
dividends  before common stock.  Each Series E preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series F
preferred  stock is  limited  to $100 per share in  non-cumulative  preferential
dividends  before common stock.  Each Series F preferred  share has  liquidation
rights  and  merger  or  consolidation  rights  before  common  stock.  Series G
preferred stock is limited to


                                      F-14
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 7 - PREFERRED STOCK (continued)

General Terms (continued)
$80 per share in non-cumulative preferential dividends before common stock. Each
Series G  preferred  share has  liquidation  rights and merger or  consolidation
rights before common stock.

As of the date of these  financial  statements,  no dividends have been declared
due to the Company's accumulated deficit.

Voting Rights

All Series A, B, C, D, E, and F preferred shares have the right to vote based on
their  conversion  rights to common shares.  Series D preferred  shares have the
right to vote based on five and a half times their  conversion  rights to common
shares.  Series G  preferred  shares  have the right to vote based on four times
their conversion rights to common shares.

Conversion to Common Shares
Preferred  stock is  convertible  to  shares of common  stock and  common  stock
equivalent voting rights as of July 31, 2002 and 2001 as follows.

<TABLE>
<CAPTION>

July 31, 2002
                                                                           Voting Right    Preferred
       Preferred Shares     Conversion            Common Shares              Ratio of     Equivalent
         Outstanding           Ratio         Issuable on Conversion         Preferred    Voting Rights
      -----------------     -----------      ----------------------        ------------  -------------
<S>               <C>         <C>                     <C>                       <C>         <C>
      A           813         1:4,259                 3,462,567                 4,259       3,462,567
      D           888         1:l,667                 1,480,296                 9,167       8,140,296
      F         1,240         1:2,000                 2,480,000                 2,000       2,480,000
      G        10,000         1:8,000                80,000,000                32,000     320,000,000
                                             ----------------------                      -------------
                                                     87,422,863                           334,082,863
                                             ----------------------                      -------------
</TABLE>

<TABLE>
<CAPTION>

July 31, 2001
                                                                           Voting Right    Preferred
       Preferred Shares     Conversion            Common Shares              Ratio of     Equivalent
         Outstanding           Ratio         Issuable on Conversion         Preferred    Voting Rights
      -----------------     -----------      ----------------------        ------------  -------------
<S>             <C>           <C>                     <C>                       <C>         <C>
      A         1,189         1:3,721                 4,424,269                 3,721       4,424,269
      B            45         1:3,721                   167,445                 6,000         270,000
      D        12,000         1:1,667                20,000,000                 9,167     110,004,000
      E           600         1:1,667                 1,000,000                 1,667       1,000,000
      F         1,240         1:2,000                 2,480,000                 2,000       2,480,000
                                             ----------------------                      -------------
                                                     28,071,714                           118,178,269
                                             ----------------------                      -------------
</TABLE>


The  Series  A and B  preferred  provide  that  each  share  is  entitled  to an
additional  conversion  share to common stock based on a formula  that  reflects
increased  market value of the common stock when the common shares have a market
price in excess of $2 but not greater than $12 per share.



                                      F-15
<PAGE>

                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 7 - PREFERRED STOCK (continued)

Conversion to Common Shares (continued)
Preferred  Series A, B, and C stock have a basic conversion rate of 1,000 shares
of common  stock for every share of preferred  stock.  The  conversion  ratio to
common for Series A and B preferred stock is adjusted  upwards  depending on any
future issue of common shares at below $1.65 per share. The conversion rates for
Series A and B preferred  stock were 1:4,259 and 1:3,721  preferred to common as
of July 31, 2002 and 2001,  respectively.  Preferred Series D and E have a basic
conversion  rate of 1,667  shares of common  stock for every share of  preferred
stock. Preferred Series F have a basic conversion rate of 2,000 shares of common
stock  for  every  share of  preferred  stock.  Preferred  Series G have a basic
conversion  rate of 8,000  shares of common  stock for every share of  preferred
stock.


                                      F-16
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 8 - NOTES PAYABLE

Current notes payable at July 31, 2002 and 2001 consisted of the following:
<TABLE>
<CAPTION>

Creditor and Conditions                                       2002                  2001
                                                           --------------------------------
<S>                                                         <C>                  <C>
Note  payable to GMAC,  interest at 13.99%,
secured by 2000  Plymouth  Voyager,
payable in monthly installments
of $452.07 through April 28, 2006                           $  9,130             $ 17,767

Bruce Butcher, unsecured, interest at
8%, convertible to one share of common
stock per $0.80 of debt, due on
September 1, 2001                                             75,000               75,000

Joe Wozniak, unsecured, interest at 8%,
convertible to one share of common stock
per $0.80 of debt, due on demand.
See Note 11.                                                  80,000               80,000

Keely Smith, secured by product
inventory of subsidiary, interest at
24%, due on September 25, 1998. Delinquent                    60,000               60,000

Roy Schneiderman, unsecured, interest at
8%, due on March 15, 2000.                                      --                237,000

Total notes payable                                          224,130              469,767

Less current portion                                         218,479              455,135

Net long-term debt                                          $  5,651             $ 14,632

</TABLE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Officer's Salary
The Company has a compensation  agreement to pay its CEO a salary of $20,000 per
month.  During the years ended July 31, 2002 and 2001, the Company's CEO forgave
$60,000 and $499,968 of accrued compensation,  respectively, which were recorded
as capital contributions. See Note 4.


                                      F-17
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)

Office Lease
------------
The Company maintains its administrative offices in Ketchum, Idaho under a lease
which  expires in November  2002 and is  personally  guaranteed by the Company's
CEO. Lease  payments for the years ended July 31, 2002 and 2001 totaled  $70,903
and $96,880 respectively. The Company plans to renew the lease for one year on a
reduced level in the amount of $3,906 per month.

Equipment Leases
----------------
The Company  leases two autos with monthly lease  payments,  which total $1,130.
The  leases on the  automobiles  are for five years and are set to expire in May
2003.

Distribution Agreements
-----------------------
The Company has several  agreements with distributors for the selling of product
with no ongoing commitment on the part of either party.

Merchant Service Agreement
--------------------------
The Company has an ongoing month-to-month merchant service agreement with Yahoo!
Store for internet sales of its products.  The agreement calls for a hosting fee
in the amount of $50 per month,  a monthly  insertion fee in the amount of $0.10
for every product available from the Merchant's Store, a monthly transaction fee
equal to 0.5% of total revenue and a monthly  revenue share fee equal to 3.5% of
network  revenue.  At July 31,  2002,  there  were no  amounts  owed  under this
agreement.

Litigation
----------
Certain  vendors of the Company are pursuing legal action for payment of overdue
amounts.  The  Company  is  working to resolve  these  issues.  In  management's
opinion,  all  reasonable  amounts  relating  to  these  past  due and  disputed
liabilities have been accrued in the accompanying financial statements.


                                      F-18
<PAGE>


                          AQUA VIE BEVERAGE CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS
                               July 31, 2002 DRAFT


NOTE 10 - CONCENTRATIONS

During the year ended July 31, 2002, 63% of the Company's  revenues were derived
from sales to one customer, a national supermarket chain.

NOTE 11 - SUBSEQUENT EVENTS

Stock Symbol Change
The symbol changed from AVBC to AQVB on September 3, 2002.

Reverse Stock Split
On September 3, 2002, the Company's common stock reverse split 1:20.



                                      F-19











                                       19



NOTE 11 - SUBSEQUENT EVENTS (continued)

Conversion of Note Payable
In September 2002, an $80,000 note payable together with accrued interest in the
amount of $16,000  was  converted  to  1,920,000  shares of common  stock in the
Company. See Note 8.

Common Stock Issuance
A disputed  liability was settled in September 2002 by the Company's issuance of
150,000 shares of common stock to a vendor.  The fair value of this issuance has
been  estimated  at  $36,000,  and  is  accrued  in the  accompanying  financial
statements under settlements payable.


                                       20



<PAGE>

 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

No reports on Form 8-K were filed since the third quarter.

Aqua Vie Beverage Corporation

FORM 10KSB Exhibit List



 2.1    Auditor's letter                                  April 10,
                                                                            2001
 4.1    Designation Series D                           November 15, 2000
 4.2    Designation Series E                           November 15, 2000
 4.3    Designation Series F                           July 27, 2001


                                   SIGNATURES

In accordance with Section13 or 15(d) of the Exchange Act, the registrant causes
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

Aqua Vie Beverage Corp.
(Registrant)

Date 11-13-01   By /s/ Thomas J. Gillespie
     --------      --------------------------
                     Thomas J. Gillespie, CEO and President

Signature                           Title                            Date
/s/ Thomas J. Gillespie                                              11-13-01
-----------------------             ------------------------         --------
    Thomas J. Gillespie                 CEO, President, Director


                                       21

                                 CERTIFICATIONS

I, Thomas Gillespie certify that:

1.         I have  reviewed  this  annual  report  on Form  10-KSB  of Aqua Vie
           Beverage Corporation;

2.         Based on my  knowledge,  this  report  does not  contain  any  untrue
           statement  of a  material  fact  or omit to  state  a  material  fact
           necessary to make the statements made, in light of the  circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this quarterly report;

3.         Based on my knowledge, the financial statements,  and other financial
           information  included in this report,  fairly present in all material
           respects the  financial  condition,  results of  operations  and cash
           flows of the registrant as of, and for, the periods presented in this
           report;

4.         I am responsible for establishing and maintaining disclosure controls
           and  procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
           for the registrant and I have:

a)         designed  such  disclosure  controls  and  procedures  to ensure that
           material  information  relating  to  the  registrant,  including  its
           consolidated subsidiaries, is made known to us by others within those
           entities,  particularly  during the  period in which  this  quarterly
           report is being prepared;

b)         evaluated the effectiveness of the registrant's  disclosure  controls
           and  procedures  as of a date within 90 days prior to the filing date
           of this quarterly report (the "Evaluation Date"); and

c)         presented in this report our conclusions  about the  effectiveness of
           the disclosure  controls and procedures based on our evaluation as of
           the Evaluation Date;

5.         I  have  disclosed,  based  on our  most  recent  evaluation,  to the
           registrant's  auditors and the audit committee of registrant's  board
           of directors (or persons performing the equivalent function):

a)         all  significant  deficiencies in the design or operation of internal
           controls which could  adversely  affect the  registrant's  ability to
           record,  process,  summarize  and  report  financial  data  and  have
           identified for the registrant's  auditors any material  weaknesses in
           internal controls; and

b)         any fraud, whether or not material, that involves management or other
           employees who have a significant  role in the  registrant's  internal
           controls; and

6.         I have indicated in this report whether or not there were significant
           changes  in  internal   controls  or  in  other  factors  that  could
           significantly  affect internal controls subsequent to the date of our
           most recent evaluation,  including any corrective actions with regard
           to significant deficiencies and material weaknesses.


Date:  November 19, 2002

                                       22