The following is a summary of the status of all of our warrants
as of December 31, 2013 and changes during the nine months ended on that
date:
The following table summarizes information about stock warrants
outstanding and exercisable at December 31, 2013:
As of December 31, 2013, the Company had an equipment deposit
totaling $201,900 to an entity that is controlled and owned by an officer,
director and shareholder of the Company (see Note 5 Equipment Deposits
Related Party). The Company acquired equipment totaling $219,000 from an entity
that is controlled and majority-owned by an officer, director and shareholder of
the Company.
During the period from Inception (June 19, 2012) to March 31,
2013, the Company purchased $39,897 in equipment from an entity that is
controlled and owned by an officer, director and shareholder of the Company.
During the three and nine months ended December 31, 2013, the
Company had a total of $3,286 and $65,378, respectively, in general and
administrative expenses with related parties. Of that total, for the three and
nine months ended December 31, 2013, respectively, $3,286 and $36,878 was
consulting fees to an officer, director and shareholder of the Company, $0 and
$12,000 was rent to an entity that is controlled and owned by an officer,
director and shareholder of the Company and $0 and $16,500 was professional fees
to an entity that is controlled and owned by an officer, director and
shareholder. During the period from inception to December 31, 2012, the Company
had a total of $46,682 in general and administrative expenses, principally
management fee to an entity that is controlled and owned by an officer, director
and shareholder, which are related parties.
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Forward-looking statements
This report contains forward-looking statements. All
statements other than statements of historical fact are forward-looking
statements for purposes of federal and state securities laws, including, but
not limited to, any projections of earnings, revenue or other financial items;
any statements of the plans, strategies and objections of management for future
operations; any statements concerning proposed new services or developments; any
statements regarding future economic conditions or performance; any statements
or belief; and any statements of assumptions underlying any of the
foregoing.
Forward-looking statements may include the words may,
could, estimate, intend, continue, believe, expect or anticipate
or other similar words. These forward-looking statements present our estimates
and assumptions only as of the date of this report. Accordingly, readers are
cautioned not to place undue reliance on forward-looking statements, which speak
only as of the dates on which they are made. Except for our ongoing securities
laws, we do not intend, and undertake no obligation, to update any
forward-looking statement. You should, however, consult further disclosures we
make in future filings of our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K.
Although we believe the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to:
-
our current lack of working capital;
-
inability to raise additional financing;
-
the fact that our accounting policies and methods are fundamental to how we
report our financial condition and results of operations, and they may require
our management to make estimates about matters that are inherently uncertain;
-
deterioration in general or regional economic conditions;
-
adverse state or federal legislation or regulation that increases the costs
of compliance, or adverse findings by a regulator with respect to existing
operations;
-
inability to efficiently manage our operations;
-
inability to achieve future sales levels or other operating results; and
-
the unavailability of funds for capital expenditures.
Throughout this Quarterly Report, references to we, our,
us, Alkaline, the Company, and similar terms refer to The Alkaline Water
Company Inc.
Corporate Overview
Our company, The Alkaline Water Company Inc., was incorporated
under the laws of the State of Nevada on June 6, 2011 under the name Global
Lines Inc. Our business model prior to the acquisition of Alkaline Water Corp.
on May 31, 2013 was to provide chauffeuring and transportation services to
residents within our local market, primarily providing transportation services
such as private school student transport, sightseeing trips, and elderly
transportation, and offering transportation to the airport and special event
such as proms and weddings. However, as we had not successfully developed our
service and had no source of revenue from our business plan, we determined to
seek out a new business opportunity to increase value for our stockholders.
On February 20, 2013, The Alkaline Water Company Inc. (formerly
Global Lines Inc) entered into a non-binding letter of intent with Alkaline 88,
LLC (formerly Alkaline 84, LLC), a wholly-owned subsidiary of Alkaline Water
Corp., for the acquisition of all of the issued and outstanding securities of
the capital of Alkaline 88, LLC. Further to this letter of intent, on May 31,
2013, The Alkaline Water Company Inc. entered into a share exchange agreement
with Alkaline Water Corp. and all of its stockholders, and as a result of the
closing of this agreement on the same date, Alkaline Water Corp. became a
wholly-owned subsidiary of The Alkaline Water Company Inc. Consequently, after
the closing of this agreement we adopted the business of Alkaline Water Corp.s
wholly-owned subsidiary, Alkaline 88, LLC.
16
Alkaline Water Corp. was incorporated in the State of Arizona
on March 7, 2013, and it is the sole stockholder of Alkaline 88, LLC. Alkaline
Water Corp. is the wholly-owned subsidiary of The Alkaline Water Company Inc.,
and Alkaline 88, LLC is Alkaline Water Corp.s wholly-owned subsidiary.
Prior to the closing of the share exchange agreement, on May
30, 2013, our company effected a name change by merging with its wholly-owned
Nevada subsidiary named The Alkaline Water Company Inc. with our company as
the surviving corporation under the new name The Alkaline Water Company Inc.
In addition, on May 30, 2013, our company effected a 15:1 forward stock split of
our authorized and issued and outstanding common stock.
On October 7, 2013, we amended our articles of incorporation to
create 100,000,000 shares of preferred stock by filing a Certificate of
Amendment to Articles of Incorporation with the Secretary of State of the State
of Nevada. The preferred stock may be divided into and issued in series, with
such designations, rights, qualifications, preferences, limitations and terms as
fixed and determined by our board of directors. As a result, the aggregate
number of shares that we have the authority to issue is 1,225,000,000, of which
1,125,000,000 shares are common stock, with a par value of $0.001 per share, and
100,000,000 shares are preferred stock, with a par value of $0.001 per
share.
On October 8, 2013, we designated 20,000,000 shares of the
authorized and unissued preferred stock of our company as Series A Preferred
Stock by filing a Certificate of Designation with the Secretary of State of the
State of Nevada. The Series A Preferred Stock has 10 votes per share and is not
convertible into shares of our common stock.
On November 5, 2013, we designated 1,000 shares of the
authorized and unissued preferred stock of our company as 10% Series B
Convertible Preferred Stock by filing a Certificate of Designation with the
Secretary of State of the State of Nevada. The 10% Series B Convertible
Preferred Stock is convertible into shares of our common stock at a price of
$0.43 per share, subject to adjustment as provided for in the Certificate of
Designation, and has, among other things, liquidation preferences, dividend
rights, redemption rights and conversion rights.
The principal offices of our company are located at 7730 E
Greenway Road, Ste. 203, Scottsdale, AZ 85260. Our telephone number is (480)
656-2423.
Principal Products
Our company offers retail consumers bottled alkaline water in
three-liter and one-gallon volumes through our brand Alkaline88. Our product
is produced through an electrolysis process that uses specialized electronic
cells coated with a variety of rare earth minerals to produce our 8.8 pH
drinking water without the use of any chemicals. Our product also incorporates
84 trace Himalayan salts.
The main reason consumers drink our product is for the
perceived benefit that a proper pH balance helps fight disease and boosts the
immune system and the perception that alkaline water helps to maintain a proper
body pH and keeps cells young and hydrated.
Operations
Alkaline 88, LLC, our operating subsidiary, operates primarily
as a marketing and distribution company. Alkaline 88, LLC has entered into
exclusive arrangements with Water Engineering Solutions LLC, an entity that is
controlled and owned by our President, Chief Executive Officer, director and
majority stockholder Steven P. Nickolas and our Vice-President, Secretary,
Treasurer and director Richard A. Wright, for the manufacture and production of
our alkaline generating electrolysis system machines. Alkaline 88, LLC has
entered into one-year agreement(s) with Arizona Bottled Water, LLC and White
Water, LLC to act as our initial co-packers. Our branding is being coordinated
through 602 Design, LLC and our component materials are readily available
through multiple vendors. Our principal suppliers are Plastipack Packaging and
Polyplastics Co.
Sample production and testing of our product began in late
2012. We have currently established initial contract manufacturing in Phoenix,
Arizona and plan to establish other key manufacturing facilities throughout the
United States to support the national distribution of our product.
Our product is currently at the introduction phase of its
lifecycle. In March 2012 Alkaline 88, LLC did market research on the demand for
a bulk alkaline product at the Natural Product Expo West in Anaheim, California.
In January 2013, we began the formal launching of our product in Southern
California and Arizona. Since then, we have begun to deliver product through
approximately 600 retail outlets throughout the United States, primarily in the
Southwest and Texas, through large national distributors (UNFI and KeHe). Our
current stores include convenience stores, natural food products stores, large
ethnic markets and national retailers. Currently, we sell all of our products to our retailers through brokers and distributors. Our
larger retail clients bring the water in through their own warehouse
distribution network. Our current retail clients are made up of a variety of the
following; convenience stores, including 7-11s; large national retailers,
including Albertsons, Frys and Smiths, (both Kroger companies) and regional
grocery chains such as Bashas, Bristol Farms, Vallarta, Superior Foods,
Brookshires and other companies throughout the United States.
17
In order to continue our expansion, we anticipate that we will
be required, in most cases, to continue to give promotional deals throughout
2014 and in subsequent years on a quarterly basis ranging from a 5%-15% discount
similar to all other beverage company promotional programs. It has been our
experience that most of the retailers have requested some type of promotional
introductory program which has included either a $0.25 -$0.50 per unit discount
on an initial order; a buy one get one free program; or a free-fill program
which includes 1-2 cases of free product per store location. Slotting has only
been presented and negotiated in the larger national grocery chains and, in most
cases, is offset by product sales. Our slotting fees with our current national
retailers do not exceed $40,000 in the aggregate and are offset through product
sales. In addition we participate in promotional activities of our distributors,
these fees are not in excess of $100,000 and are offset through product
sales.
Plan of Operations
In order for us to implement our business plan over the next
twelve-month period, we have identified the following milestones that we expect
to achieve:
-
Training of Staff - The first milestone that we expect to achieve in the
first calendar quarter of 2014 will be the internal training of our sales and
marketing staff, located in Scottsdale, Arizona. We expect to also complete
the training and contractual relationship with our national broker network
known as Beacon United. Except in the Northeast, the Beacon United Network has
been fully engaged. In order to take advantage of the initial sales season,
which runs from January through April, we anticipate a considerable amount of
travel and ongoing training for both internal staff and Beacon United at an
estimated cost during that time of $50,000.
-
Increase Manufacturing Capacity We anticipate that we will need to secure
an additional four contract manufacturing facilities, beyond those that
currently exist in Phoenix, Arizona. The strategic importance of this is to
reduce freight costs that are currently being incurred with respect to
shipping product around the country. We are currently in negotiations with
four contract packaging facilities located in Texas, Illinois, Georgia and
California. Based on the location of various retailers in different parts of
the country and our expected growth, we anticipate that we will need to open a
new facility every quarter in 2014. In addition to these contract packaging
facilities, it is strategically important for us to raise capital to complete
the acquisition of the North Cove Bottling Plant located in North Carolina,
which we are expecting to finalize in the first quarter 2014. If we cannot
finalize this purchase, we will have to continue to outsource to the four
contract facilities at higher manufacturing and shipping costs. Each of the
contract packaging facilities will require the installation of a specifically
designed proprietary piece of equipment that will allow them to manufacture
and produce our Alkaline 88 products. The cost of each of these systems,
including installation, is approximately $230,000, per system. We anticipate
having all four of these locations in operation by the end of 2014. Depending
on the demand for our product, we anticipate that some of these contract
packers including the North Carolina plant will require up to three or four of
our standard systems. Given the total cost of each machine, along with the
ancillary storage equipment and installation, of approximately $230,000, the
total cost of implementation and expansion to the various contract packers
could be in excess of $3,400,000. The plant acquisition and upgrades could be
another $1,700,000. Accordingly, we expect the total maximum cost for the next
12 months to be $5,100,000.
-
Expand Retail Distribution - As the contract packaging facilities continue
to come online, it is imperative to the execution of our business plan that we
continue to sign up major retailers for the acceptance and sales of our
product throughout the United States, Canada and Mexico. We anticipate most
major markets and retailers in the country to be opened prior to the end of
2014. We are currently in negotiations or have received the new item paperwork
from retailers that will introduce our Alkaline 88 product line to over 350
retailers, representing approximately 30,000 store locations throughout North
America. We believe that it will be possible for us to bring on an additional
four to five retailers per month over the next twelve months. The cost of this
retail expansion is expected to be $500,000 during that time.
18
-
Addition of Support Staff - In order to support expansion efforts and to
continue the training and support of our broker network, we will need to hire
approximately ten more people on the corporate level, most of which will be
hired for the specific purpose of supporting the broker, distributor and
retailers and their logistical requirements. We continue to seek and interview
candidates to fill our growing need for additional staffing. The additional
cost of these new hires is expected to be approximately $1,000,000 in salary
and benefits over the next twelve months.
-
Capital Considerations Our business plan can be adjusted based on the
available capital to the business. We plan to begin moving in an eastward
direction and building machines and entering into co-packing arrangements as
funding allows. We anticipate that approximately $9,000,000, is necessary in
order to build-out a national presence for our product and to allow for the
purchase of the necessary equipment and facilities over the next twelve
months.
We believe that cash flow from operations will not meet our
present and near-term cash needs and thus we will require additional cash
resources, including the sale of equity or debt securities, to meet our planned
capital expenditures and working capital requirements for the next 12 months. We
estimate that our capital needs over the next 12 months will be $2,000,000 to
$5,000,000. We will require additional cash resources to achieve the milestones
indicated above. If our own financial resources and future current cash-flows
from operations are insufficient to satisfy our capital requirements, we may
seek to sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity securities will result in dilution to
our stockholders. The incurrence of indebtedness will result in increased debt
service obligations and could require us to agree to operating and financial
covenants that could restrict our operations or modify our plans to grow the
business. Financing may not be available in amounts or on terms acceptable to
us, if at all. Any failure by us to raise additional funds on terms favorable to
us, or at all, will limit our ability to expand our business operations and
could harm our overall business prospects.
Distribution Method for Our Product
Our distribution network is a broker-distributor-retailer
network, whereby brokers represent our products to distributors and retailers.
Our target retail markets are: (a) chain and independent health food stores; (b)
grocery stores; (c) convenience stores; (d) drug stores; and the mass retail
market.
Currently our broker network consists of A&L Sales &
Marketing, Savi Sales & Marketing, Co-Sales Company and Perimeter Sales
& Merchandising.
National distribution is being arranged through our distributor
network including, but not limited to, Santa Monica Distributing Company, Las
Vegas Beer & Beverage Company, Alford Distributing, North Central
Distributors, United Natural Foods (UNFI) and KeHE Distributors.
Our retail network currently consists of Albertsons/SuperValu,
Amazon.com, Bashas, Bristol Farms, Superior Grocers, Kroger (Frys and Smiths)
and Vallarta Supermarkets.
Dependence on Few Customers
We have 3 major customers (consisting of UNFI, KeHe
Distributors and Brookshire Grocery Company) that together account for 51% (25%,
14% and 12%, respectively) of accounts receivable at December 31, 2013, and 2
customers (consisting of Albertson and Superior Grocers) that together account
for 38% (10% and 18%, respectively) of the total revenues earned for the nine
month period ended December 31, 2013.
Marketing
We intend to market our product through our broker network and
to avail ourselves to the promotional activities of other companies and
competitors regarding the benefits of alkaline water. We anticipate that our
initial marketing thrust will be to support the retailers and distribution
network with point of sales displays and other marketing materials,
strategically adding an extensive public relations program and other marketing
as the markets dictate.
Competition
The beverage industry is extremely
competitive. The principal areas of competition include pricing, packaging,
development of new products and flavors, and marketing campaigns. Our product
will be competing directly with a wide range of drinks produced by a relatively
large number of manufacturers. Most of these brands have enjoyed broad,
well-established national recognition for years, through well-funded ad and
other marketing campaigns. In addition, companies manufacturing these products
generally have far greater financial, marketing, and distribution resources than we have.
19
Important factors that will affect our ability to compete
successfully include the continued public perception of the benefits of alkaline
water, taste and flavor of our product, trade and consumer promotions, the
development of new, unique and cutting edge products, attractive and unique
packaging, branded product advertising, pricing, and the success of our
distribution network.
We will also be competing to secure distributors who will agree
to market our product over those of our competitors, provide stable and reliable
distribution, and secure adequate shelf space in retail outlets. The extremely
competitive pressures within the beverage categories could result in our product
never even being introduced beyond what they can market locally themselves.
Our product will compete generally with all liquid
refreshments, including bottled water and numerous specialty beverages, such as
SoBe, Snapple, Arizona, Vitamin Water, Gatorade, and Powerade. We will compete
directly with other alkaline water producers and brands focused on the emerging
alkaline beverage market including Eternal, Essentia, Icelandic, Real Water,
Aqua Hydrate, Mountain Valley, Qure, Penta, and Alka Power.
Products offered by our direct competitors are sold in various
volumes and prices with prices ranging from approximately $1.39 for a half-liter
bottle to $2.99 for a one-liter bottle, and volumes ranging from half-liter
bottles to one-and-a half liter bottles. We currently offer our product in a
three-liter bottle for an SRP of $3.99 and one-gallon bottle for an SRP of
$4.99.
Intellectual Property
Where available, we intend to obtain trademark protection in
the United States for a number of trademarks for slogans and product designs. We
intend to aggressively assert our rights under trade secret, unfair competition,
trademark and copyright laws to protect our intellectual property, including
product design, product research and concepts and recognized trademarks. These
rights are protected through the acquisition of patents and trademark
registrations, the maintenance of trade secrets, the development of trade dress,
and, where appropriate, litigation against those who are, in our opinion,
infringing these rights.
While there can be no assurance that registered trademarks will
protect our proprietary information, we intend to assert our intellectual
property rights against any infringer. Although any assertion of our rights
could result in a substantial cost to, and diversion of effort by, our company,
management believes that the protection of our intellectual property rights will
be a key component of our sales and operating strategy.
Seasonality of Business
The sales of our products are influenced to some extent by
weather conditions in the markets in which we operate. Unusually cold or rainy
weather during the summer months may have a temporary effect on the demand for
our product and contribute to lower sales, which could have an adverse effect on
our results of operations for such periods.
Research and Development Costs During the Last Two
Years
Alkaline 88, LLC has worked with Water Engineering Solutions
LLC, an entity that is controlled and majority-owned by Steven P. Nickolas and
Richard A. Wright, on the research and development activities related to the
development of our alkaline generating electrolysis system machines, a
proprietary alkaline water system.
Government Regulation
The advertising,
distribution, labeling, production, safety, sale, and transportation in the
United States of our product will be subject to: the Federal Food, Drug, and
Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer
protection laws; competition laws; federal, state and local workplace health and
safety laws; various federal, state and local environmental protection laws; and
various other federal, state and local statutes and regulations.
Legal requirements apply in many jurisdictions in the United
States requiring that deposits or certain ecotaxes or fees be charged for the
sale, marketing, and use of certain non-refillable beverage containers. The
precise requirements imposed by these measures vary. Other types of statutes and
regulations relating to beverage container deposits, recycling, ecotaxes and/or
product stewardship also apply in various jurisdictions in the United States. We
anticipate that additional, similar legal requirements may be proposed or
enacted in the future at the local, state and federal levels in the United
States.
20
Any third-party bottling facility that we may choose to utilize
in the future and any other such operations will be subject to various
environmental protection statutes and regulations, including those relating to
the use of water resources and the discharge of wastewater. It will be our
policy to comply with any and all such legal requirements. Compliance with these
provisions has not had, and we do not expect such compliance to have, any
material adverse effect on our capital expenditures, net income or competitive
position.
Employees
In addition to Steven P. Nickolas, who is our President, Chief
Executive Officer and Director, and Richard A. Wright, who is our
Vice-President, Secretary, Treasurer and Director, we currently employ 8 full
time employees and 1 part time employee in marketing, accounting and
administration. We also work with retail brokers in the United States who are
paid on a contract basis. Our operations are overseen directly by management
that engages our employees to carry on our business. Our management oversees all
responsibilities in the areas of corporate administration, business development,
and research. We intend to expand our current management to retain skilled
directors, officers, and employees with experience relevant to our business
focus. Our managements relationships with manufacturers, distillers,
development/research companies, bottling concerns, and certain retail customers
will provide the foundation through which we expect to grow our business in the
future. We believe that the skill-set of our management team will be a primary
asset in the development of our brands and trademarks. We also plan to form an
independent network of contract sales and regional managers, a promotional
support team, and several market segment specialists who will be paid on a
variable basis.
Going Concern
Our financial statements are prepared using generally accepted
accounting principles in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. We have not yet established an
ongoing source of revenues sufficient to cover our operating costs and to allow
us to continue as a going concern. As of December 31, 2013, we had an
accumulated deficit of $(3,349,544). Our ability to continue as a going concern
is dependent on our company obtaining adequate capital to fund operating losses
until we become profitable. If we are unable to obtain adequate capital, we
could be forced to significantly curtail or cease operations.
On November 7, 2013, we sold to three institutional investors
an aggregate of 500 shares of our 10% Series B Convertible Preferred Stock at a
stated value of $1,000 per share and Series A, B and C common stock purchase
warrants (each series being exercisable into an aggregate of 1,162,791 shares of
our common stock) for gross proceeds of $500,000. In addition to the sale of
these securities, we will need to raise additional funds to finance continuing
operations. However, there are no assurances that we will be successful in
raising additional funds. Without sufficient additional financing, it would be
unlikely for us to continue as a going concern.
Our ability to continue as a going concern is dependent upon
our ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations.
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
(June 19,
|
|
|
|
three
|
|
|
three
|
|
|
nine
|
|
|
|
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
2012) to
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
|
|
|
December
|
|
|
December
|
|
|
December
|
|
|
December
|
|
|
|
31, 2013
|
|
|
31, 2012
|
|
|
31, 2013
|
|
|
31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
171,137
|
|
$
|
-
|
|
$
|
333,404
|
|
$
|
-
|
|
Cost of goods sold
|
|
102,609
|
|
|
-
|
|
|
193,566
|
|
|
-
|
|
Gross profit
|
|
68,528
|
|
|
-
|
|
|
139,838
|
|
|
-
|
|
Net loss (after operating
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses and other expenses)
|
$
|
(2,397,827
|
)
|
$
|
(52,875
|
)
|
$
|
(3,066,156
|
)
|
$
|
(185,089
|
)
|
21
Revenue and Cost of Goods Sold
We had revenue from sales of our product for the three and nine
months ended December 31, 2013 of $171,137 and $333,404, respectively, as
compared to $0 for the period from inception on June 19, 2012 to December 31,
2012. Cost of goods sold is comprised of production costs, shipping and handling
costs.
Expenses
Our operating expenses for the three months ended December 31,
2013 and 2012 and for the nine months ended December 31, 2013 and the period
from inception on June 19, 2012 to December 31, 2012 are as follows:
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
Inception
|
|
|
|
three
|
|
|
three
|
|
|
nine
|
|
|
(June 19,
|
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
2012) to
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
|
|
|
December
|
|
|
December
|
|
|
December
|
|
|
December
|
|
|
|
31, 2013
|
|
|
31, 2012
|
|
|
31, 2013
|
|
|
31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
$
|
150,417
|
|
$
|
2,849
|
|
$
|
338,839
|
|
$
|
38,903
|
|
General and administrative
|
|
2,335,964
|
|
|
3,344
|
|
|
2,812,196
|
|
|
99,504
|
|
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
3,286
|
|
|
46,682
|
|
|
65,378
|
|
|
46,682
|
|
expenses related party
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expenses
|
|
16,534
|
|
|
-
|
|
|
25,872
|
|
|
-
|
|
Total operating expenses
|
$
|
2,506,201
|
|
$
|
52,875
|
|
$
|
3,242,285
|
|
$
|
185,089
|
|
During the three and nine months ended December 31, 2013, we
had a total of $3,286 and $52,875, respectively, in general and administrative
expenses with related parties. Of that total, for the three and nine months
ended December 31, 2013, respectively, $3,286 and $36,878 was consulting fees to
an officer, director and shareholder of the Company, $0 and $12,000 was rent to
an entity that is controlled and owned by an officer, director and shareholder
of the Company and $0 and $16,500 was professional fees to an entity that is
controlled and owned by an officer, director and shareholder. During the period
from inception to December 31, 2012, we had a total of $46,682 in general and
administrative expenses, principally management fee to an entity that is
controlled and owned by an officer, director and shareholder, which are related
parties.
Liquidity and Capital Resources
Working Capital
Our working capital as of December 31, 2013 and March 31, 2013
was as follows:
|
|
December
|
|
|
March 31,
|
|
|
|
31,
2013
|
|
|
2013
|
|
Current assets
|
$
|
281,460
|
|
$
|
87,290
|
|
Current liabilities
|
|
563,856
|
|
|
169,856
|
|
Working capital
|
$
|
(282,396
|
)
|
$
|
(82,566
|
)
|
Current Assets
Current assets as of December 31, 2013 and March 31, 2013
primarily relate to $22,465 and $64,607 in cash, $99,266 and $15,110 in accounts
receivable and $87,181 and $7,573 in inventory, respectively.
Current Liabilities
Current liabilities as at December 31, 2013 primarily relate
$135,907 in accounts payable and $404,075 in derivative liability. Current
liabilities as at March 31, 2013 primarily relate $150,000 in notes payable.
22
Cash Flow
Our cash flow for the six months ended December 31, 2013 and
the period from inception on June 19, 2012 to September 30, 2012 are as
follows:
|
|
For the
|
|
|
Inception
|
|
|
|
nine
|
|
|
(June 19,
|
|
|
|
months
|
|
|
2012) to
|
|
|
|
ended
|
|
|
|
|
|
|
December
|
|
|
December
|
|
|
|
31, 2013
|
|
|
31, 2012
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
$
|
(1,089,912
|
)
|
$
|
(144,044
|
)
|
Net cash used in investing activities
|
|
(473,230
|
)
|
|
(66,524
|
)
|
Net cash provided by
financing activities
|
|
1,522,000
|
|
|
210,568
|
|
Net increase in cash and cash equivalents
|
$
|
(42,142
|
)
|
$
|
-
|
|
Operating activities
Net cash used in operating activities was $ 1,089,912 for the
nine months ended December 31, 2013, as compared to $144,044 used in operating
activities from inception June 19, 2012 to December 31, 2012. The increase in
net cash used in operating activities was primarily due to net loss from
operations and increase in accounts receivable and inventory.
Investing activities
Net cash used in investing activities was $473,230 for the nine
months ended December 31, 2013, as compared to $66,524 used in investing
activities from inception June 19, 2012 to December 31, 2012. The increase in
net cash used by investing activities was primarily from the equipment deposits
to related parties.
Financing activities
Net cash provided by financing activities for the nine months
ended December 31, 2013 was $1,522,000, as compared to $210,568 from inception
June 19, 2012 to December 31, 2012. The increase of net cash provided by
financing activities was mainly attributable to capital provided through sales
of our common stock.
Cash Requirements
We believe that cash flow from operations will not meet our
present and near-term cash needs and thus we will require additional cash
resources, including the sale of equity or debt securities, to meet our planned
capital expenditures and working capital requirements for the next 12 months. We
estimate that our capital needs over the next 12 month will be $2,000,000 to
$5,000,000. We will require additional cash resources to purchase equipment,
increase the production of our products, implement our strategy to expand our
sales and marketing initiatives and increase brand awareness. If our own
financial resources and then current cash-flows from operations are insufficient
to satisfy our capital requirements, we may seek to sell additional equity or
debt securities or obtain additional credit facilities. The sale of additional
equity securities will result in dilution to our stockholders. The incurrence of
indebtedness will result in increased debt service obligations and could require
us to agree to operating and financial covenants that could restrict our
operations or modify our plans to grow the business. Financing may not be
available in amounts or on terms acceptable to us, if at all. Any failure by us
to raise additional funds on terms favorable to us, or at all, will limit our
ability to expand our business operations and could harm our overall business
prospects.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.