UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-1/A
AMENDMENT NO. 5 TO
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
THE ALKALINE WATER COMPANY
INC.
(Exact name of registrant as specified in its
charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
2080
(Primary Standard Industrial
Classification Code Number)
99-0367049
(I.R.S. Employr
Identification Number)
7730 E Greenway Road Ste. 203
Scottsdale, AZ
85260
Telephone: (480) 656-2423
(Address,
including zip code, and telephone number,
including area code, of
registrant’s principal executive offices)
InCorp Services, Inc.
2360 Corporate Circle Ste.
400
Henderson, NV 89074-7722
Telephone: (702)
866-2500
(Name, address, including zip code, and telephone
number,
including area code, of agent for service)
Copy of Communications To:
Clark Wilson LLP
Suite 900 - 885 West Georgia Street
Vancouver, British
Columbia V6C 3H1, Canada
Telephone: (604) 687-5700
Attention: Mr. Virgil Z. Hlus
As soon as practicable
after the effective date of this registration statement.
(Approximate date of commencement of proposed sale to the public)
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [
]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated
filer [
]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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(Do not check if a smaller reporting company)
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Calculation of Registration Fee
Title of Each Class
of Securities to be
Registered
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Amount to be
Registered
(1)
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Proposed Maximum
Offering Price
Per Share
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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Common stock
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$10,000,000
(2)
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$1,288.00
(6)
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Warrants to purchase shares of common stock
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Shares of common stock issuable upon exercise of the
warrants
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$7,500,000
(2)
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$966.00
(6)
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Common stock to be offered for resale by selling
stockholders
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5,488,375
(3)
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$0.38
(4),(5)
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$2,085,582.50
(4),(5)
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$268.62
(5),(6)
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Total
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$19,585,582.50
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$2,522.62
(6)
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(1)
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Pursuant to Rule 416 under the Securities Act of 1933,
there is also being registered hereby such indeterminate number of
additional shares of common stock of The Alkaline Water Company Inc. as
may be issued or issuable because of stock splits, stock dividends, stock
distributions, and similar transactions.
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(2)
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Estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rule 457(o) under the
Securities Act of 1933.
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(3)
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Consists of (i) up to 2,000,002 shares of common stock
that may be issued upon conversion of shares of 10% Series B Convertible
Preferred Stock and (ii) up to 3,488,373 shares of common stock that may
be issued upon exercise of warrants.
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(4)
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Estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
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(5)
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Based on the closing price per share ($0.38) for The Alkaline Water Company Inc.’s common stock on November 26, 2013, as reported by Financial Industry Regulatory Authority’s OTC Bulletin Board.
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(6)
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Previously paid.
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
ii
Explanatory Note
This registration statement contains a prospectus to be used in
connection with the public offering of shares and warrants of The Alkaline Water
Company Inc. (the
“Public Offering Prospectus”
). In addition, The
Alkaline Water Company Inc. is contractually obligated to register for resale
the shares of its common stock that may be issued upon the conversion of
outstanding 10% Series B Convertible Preferred Stock and exercise of outstanding
Series A, B and C Common Stock Purchase Warrants) (the
“Registrable
Securities”
) held by selling stockholders. Consequently, this registration
statement contains a second prospectus to cover the resale of the Registrable
Securities (the
“Resale Prospectus”
) by the selling stockholders named in
the Resale Prospectus (the
“Selling Stockholders”
). The Public Offering
Prospectus and the Resale Prospectus are substantively identical, except for the
following principal differences:
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they contain different outside and inside front covers;
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they contain different The Offering sections in the Prospectus Summary
section;
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the Risks Related to This Offering section is deleted from the Resale
Prospectus;
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they contain different Use of Proceeds sections;
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the Determination of Offering Price section is deleted from the Resale
Prospectus;
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the Dilution section is deleted from the Resale Prospectus;
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the Private Placement section is included in the Resale Prospectus;
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the Selling Stockholder section is included in the Resale Prospectus;
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they contain different Plan of Distribution sections; and
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they contain different outside back covers.
The Alkaline Water Company Inc. has included in this
registration statement, after the outside back cover of the Public Offering
Prospectus, alternate sections to reflect the foregoing differences.
iii
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The information in this prospectus is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
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Subject to Completion, Dated April 3, 2014
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Prospectus
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The Alkaline Water Company Inc.
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35,000,000 Shares of Common Stock
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Warrants to Purchase up to 17,500,000 Shares of
Common Stock
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17,500,000 Shares of Common Stock Underlying the
Warrants
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_____________________________
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We are offering up to 35,000,000 shares of our common stock and
warrants to purchase up to 17,500,000 shares of our common stock. Each share of
common stock we sell in the offering will be accompanied by a warrant to
purchase one-half of a share of common stock. Each share of common stock and
warrant will be sold at a price of $<>. The common stock and warrants are
immediately separable and will be issued separately. There is no minimum
offering amount required as a condition to closing in this offering, therefore
we are not required to sell any specific dollar amount or number of securities,
but will use our best efforts to sell all of the securities being offered. This
offering will terminate on <>, unless the offering is fully subscribed
before that date or we decide to terminate the offering prior to that date. The
offering price for the common stock and warrants and the exercise price of the
warrants will remain fixed for the duration of the offering.
Our common stock is quoted on the OTC Bulletin Board under the
symbol “WTER”. We do not intend to apply for listing of the warrants on any
securities exchange and we do not expect that the warrants will be quoted on the
OTC Bulletin Board. On April 2, 2014, the closing price of our common
stock on the OTC Bulletin Board was $0.2844 per share.
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Per Share
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Total
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Offering Price
(1)
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$
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<>
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$
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<>
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Placement Agent’s
Fees
(2)
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$
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<>
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$
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<>
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Offering Proceeds, Before Expenses
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$
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<>
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$
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<>
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(1)
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Per share price represents the offering price for a share
of common stock and a warrant to purchase one-half of a share of common
stock.
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(2)
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In addition, we have agreed to issue to the placement agent warrants to purchase up to an aggregate of 5.5% of the aggregate number of shares of common stock sold in this offering (excluding any shares of common stock issuable upon exercise of the warrants) and a non-accountable expense allowance equal to the lesser of (i) 1% of the aggregate gross proceeds raised in the offering and (ii) $50,000.
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H.C. Wainwright & Co., LLC has agreed to act as our exclusive placement agent in connection with this offering. The placement agent is not purchasing the securities offered by us, and is not required to sell any specific number or dollar amount of securities, but will use its reasonable best efforts to sell the securities offered. We have agreed to pay the placement agent a placement fee equal to 8% of the aggregate gross proceeds to us from the sale of common stock and warrants in this offering a and to issue warrants to the placement agent to purchase up to an aggregate of 5.5% of the aggregate number of shares of common stock sold in this offering (excluding any shares of common stock issuable upon exercise of the warrants), provided that, with respect to sales to certain investors in this offering which are identified in our engagement agreement with the placement agent, we shall pay to the placement agent a fee of 5% of the aggregate gross proceeds to us from the sale of common stock and warrants and shall issue warrants to purchase up to 5% of the aggregate number of shares of common stock sold to such investors. We estimate total expenses of this offering, excluding the placement agent fees and expenses, will be approximately $150,000. Because there is no minimum offering amount required as a condition to closing in this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above. See “Plan of Distribution” beginning on page 15 of this prospectus for more information on this offering and the placement agent arrangements.
Investing in our common stock involves risks. See “Risk
Factors” beginning on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
H.C. WAINWRIGHT & CO., LLC
The date of this prospectus is _____________, 2014.
Table of Contents
2
About This Prospectus
You should rely only on the information that we have provided
in this prospectus and any applicable prospectus supplement. We have not
authorized anyone to provide you with different information. No dealer,
salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus and any applicable
prospectus supplement. You must not rely on any unauthorized information or
representation. This prospectus is an offer to sell only the securities offered
hereby, but only under circumstances and in jurisdictions where it is lawful to
do so. You should assume that the information in this prospectus and any
applicable prospectus supplement is accurate only as of the date on the front of
the document, regardless of the time of delivery of this prospectus, any
applicable prospectus supplement, or any sale of a security.
As used in this prospectus, the terms “we”, “us” “our” and
“Alkaline” refer to The Alkaline Water Company Inc., a Nevada corporation, and
its wholly-owned subsidiary, Alkaline Water Corp., and Alkaline Water Corp.’s
wholly-owned subsidiary, Alkaline 88, LLC (formerly Alkaline 84, LLC), unless
otherwise specified.
Prospectus Summary
The Offering
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Securities offered
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(i) Up to 35,000,000 shares of common stock;
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(ii) Warrants to purchase up to 17,500,000 shares of common
stock; and
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(iii) Up to 17,500,000 shares of common stock issuable upon
exercise of the warrants
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Common stock outstanding prior to offering
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81,602,175
(1)
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Common stock to be outstanding after the offering
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116,602,175
(2)
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Use of proceeds
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We expect to use the proceeds received from the offering
to fund the purchase of alkaline generating electrolysis system machines
to make our alkaline water, the purchase of a bottling plant, redemption
of preferred stock and for working capital and general corporate purposes.
See “Use of Proceeds” for more information.
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OTCBB Symbol
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“WTER”. There is no established trading market for the
warrants and we do not expect a market to develop.
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Risk Factors
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See “Risk Factors” beginning on page 5 and other
information in this prospectus for a discussion of the factors you should
consider before you decide to invest in our common stock and warrants.
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(1)
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Excludes (i) 19,485,000 shares of common stock reserved
for future issuance under our 2013 Equity Incentive Plan, (ii) 8,194,136
shares of common stock issuable upon the exercise of outstanding warrants
and (iii) 1,162,791 shares of common stock issuable upon the conversion of
outstanding shares of 10% Series B Convertible Preferred Stock. As of
April 3, 2014, there were (i) stock options to purchase up to
6,000,000 shares of our common stock outstanding under our 2013 Equity
Incentive Plan, with a weighted average exercise price of $0.605 per share
(ii) 8,194,136 shares of common stock issuable upon the exercise of
outstanding warrants with exercise prices ranging from $0.43 to $0.60 per
share, and (iii) 1,162,791 shares of common stock issuable upon the
conversion of the outstanding shares of 10% Series B Convertible Preferred
Stock with the conversion price of $0.43 per share.
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(2)
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Assumes the sale of all shares of common stock covered by
this prospectus. Excludes (i) up to 17,500,000 shares of common stock that
could be issued upon exercise of the warrants sold as part of this
offering and (ii) the shares of common stock underlying the warrants
issuable to the placement agent in connection with this
offering.
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3
Our Business
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.
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.
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 7-11’s; large national retailers, including Albertson’s, Fry’s and Smith’s, (both Kroger companies) and regional grocery chains such as Bashas’, Bristol Farms, Vallarta, Superior Foods, Brookshire’s and other companies throughout the United States.
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.
We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to support 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. In its report on the financial statements of Alkaline Water Corp., the predecessor of The Alkaline Water Company Inc., for the period from inception (June 19, 2012) to March 31, 2013, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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.
Summary of Financial Data
The following information represents selected audited financial
information for Alkaline Water Corp. for the period from inception on June 19,
2012 through March 31, 2013 and selected unaudited financial information for The
Alkaline Water Company Inc. for the three and nine month period ended December 31, 2013. The summarized financial information presented below is derived from
and should be read in conjunction with our audited and unaudited financial
statements, as applicable, including the notes to those financial statements
which are included elsewhere in this prospectus along with the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” beginning on page 52 of this prospectus.
4
Statements of
Operations Data
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For Three Month Period
Ended
December 31, 2013
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For Nine Month Period
Ended
December 31, 2013
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From Inception on June
19, 2012
to
March 31, 2013
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Revenue
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$171,137
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$333,404
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$15,110
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Cost of Goods Sold
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$102,609
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$193,566
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$8,026
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Total Operating Expenses
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$2,506,201
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$3,242,285
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$284,580
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Net Loss
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$(2,397,827)
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$(3,066,156)
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$(283,388)
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Balance Sheets Data
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As of December 31, 2013
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As of March 31, 2013
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Cash
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$22,465
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$64,607
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Working Capital
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$(282,396)
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$(82,566)
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Total Assets
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$782,901
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$140,373
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Total Liabilities
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$563,856
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$169,856
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Total Stockholders’ Equity (Deficit)
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$178,588
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$(29,483)
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Accumulated Deficit
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$(3,349,544)
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$(283,388)
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Risk Factors
An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating
our company and our business before purchasing our securities. Our business,
operating results and financial condition could be seriously harmed as a result
of the occurrence of any of the following risks. You could lose all or part of
your investment due to any of these risks. You should invest in our common stock
only if you can afford to lose your entire investment.
Risks Related to This Offering
You will experience immediate and substantial dilution as
a result of this offering and may experience additional dilution in the future.
You will incur immediate and substantial dilution as a result
of this offering. After giving effect to the sale by us of up to 35,000,000 shares
of common stock and warrants to purchase an additional 17,500,000 shares of our
common stock, and after deducting placement agent commissions and estimated
offering expenses payable by us, investors in this offering can expect an
immediate dilution of $<> per share, or <>%, at the offering price,
assuming no exercise of the warrants. To the extent any of the warrants we have
issued in this offering, or any other warrants or options that we have issued,
are exercised, you will sustain future dilution. We may also acquire other
assets or businesses by issuing equity, which may result in additional dilution
to our stockholders.
Upon completion of this offering, we are required to use 25% of the gross proceeds from this offering to redeem our 10% Series B Convertible Preferred Stock.
On November 7, 2013, we sold to certain institutional investors an aggregate of 500 shares of our 10% Series B Convertible Preferred Stock at a stated value of $1,000 per share of Series B Preferred Stock for gross proceeds of $500,000. Within three trading days from the closing of any subsequent financing by us, we must use 25% of the proceeds from such financing to redeem our 10% Series B Convertible Preferred Stock on a pro rata basis, until such time that all of our 10% Series B Convertible Preferred Stock then outstanding are redeemed in full. Accordingly, upon completion of this offering, we are required to use 25% of the gross proceeds from this offering to redeem our 10% Series B Convertible Preferred Stock ($500,000) and accrued but unpaid dividends and make-whole amount (approximately $50,000) and the redemption of these securities may have an adverse effect on our cash position.
We will have immediate and broad discretion over the use
of the net proceeds from this offering and we may use these proceeds in ways
with which you may not agree.
We have considerable discretion in the application of the
proceeds of this offering. We currently expect to use the net proceeds from this
offering for the purchase of alkaline generating electrolysis system machines to
make our alkaline water, the purchase of a bottling plant and for working
capital and general corporate purposes. However, there may be circumstances
where, for sound business reasons, a reallocation of funds may be necessary or
advisable. You must rely on our judgment regarding the application of the net
proceeds of this offering. Our judgment may not result in positive returns on
your investment and you will not have an opportunity to evaluate the economic,
financial, or other information upon which we base our decisions.
5
There is no public market for the warrants being offered
in this offering.
There is no established public trading market for the warrants
being offered in this offering, and we do not expect a trading market to
develop. In addition, we do not intend to apply for listing the warrants on any
securities exchange or expect the warrants to be quoted on the OTC Bulletin
Board. Without an active trading market, the liquidity of the warrants will be
limited.
Risks Related to Our Business
Because we have a limited operating history, our ability
to fully and successfully develop our business is unknown.
We were incorporated in June 6, 2011, and we have only recently
begun producing and distributing alkaline bottled water, and we have a limited
operating history from which investors can evaluate our business. Our ability to
successfully develop our products, and to realize consistent, meaningful
revenues and profit has not been established and cannot be assured. We have not
generated any significant revenues and do not expect to do so in near future.
For us to achieve success, our products must receive broad market acceptance by
consumers. Without this market acceptance, we will not be able to generate
sufficient revenue to continue our business operation. If our products are not
widely accepted by the market, our business may fail.
Our ability to achieve and maintain profitability and positive
cash flow is dependent upon our ability to generate revenues, manage development
costs and expenses, and compete successfully with our direct and indirect
competitors. We anticipate operating losses in upcoming future periods. This
will occur because there are expenses associated with the development,
production, marketing, and sales of our product. As a result, we may not
generate significant revenues in the future. Failure to generate significant
revenues in near future may cause us to suspend or cease activities.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a 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. In its report on the financial statements of Alkaline Water Corp., the predecessor of The Alkaline Water Company Inc., for the period from inception (June 19, 2012) to March 31, 2013, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Alkaline Water Corp. did not assess its internal control
over financial reporting as of March 31, 2013.
6
Alkaline Water Corp., The Alkaline Water Company Inc.’s
predecessor, did not assess its internal control over financial reporting as of
March 31, 2013 because it was a private company at that time. If Alkaline Water
Corp. failed to maintain proper and effective internal control over financial
reporting as of March 31, 2013, the audited financial statements included in
this prospectus may not be accurate, which could adversely affect our business,
financial condition or results of operations.
We will need additional funds to produce, market, and
distribute our product.
We will have to spend additional funds to produce, market and
distribute our product. If we cannot raise sufficient capital, we may have to
cease operations and you could lose your investment. We will need additional
funds to produce our product for distribution to our target market. Even after
we have produced our product, we will have to spend substantial funds on
distribution, marketing and sales efforts before we will know if we have
commercially viable and marketable/sellable products.
There is no guarantee that sufficient sale levels will be
achieved.
There is no guarantee that the expenditure of money on
distribution and marketing efforts will translate into sufficient sales to cover
our expenses and result in profits. Consequently, there is a risk that you may
lose all of your investment.
Our development, marketing, and sales activities are
limited by our size.
Because we are small and do not have much capital, we must
limit our product development, marketing, and sales activities. As such we may
not be able to complete our production and business development program in a
manner that is as thorough as we would like. We may not ever generate sufficient
revenues to cover our operating and expansion costs and you may, therefore, lose
your entire investment.
Changes in the non-alcoholic beverage business
environment and retail landscape could adversely impact our financial results.
The non-alcoholic beverage business environment is rapidly
evolving as a result of, among other things, changes in consumer preferences,
including changes based on health and nutrition considerations and obesity
concerns; shifting consumer tastes and needs; changes in consumer lifestyles;
and competitive product and pricing pressures. In addition, the non-alcoholic
beverage retail landscape is very dynamic and constantly evolving, not only in
emerging and developing markets, where modern trade is growing at a faster pace
than traditional trade outlets, but also in developed markets, where discounters
and value stores, as well as the volume of transactions through e-commerce, are
growing at a rapid pace. If we are unable to successfully adapt to the rapidly
changing environment and retail landscape, our share of sales, volume growth and
overall financial results could be negatively affected.
Intense competition and increasing competition in the
commercial beverage market could hurt our business.
The commercial retail beverage industry, and in particular its
non-alcoholic beverage segment, is highly competitive. Market participants are
of various sizes, with various market shares and geographical reach, some of
whom have access to substantially more sources of capital.
We compete generally with all liquid refreshments, including
bottled water and numerous specialty beverages, such as: SoBe; Snapple; Arizona;
Vitamin Water; Gatorade; and Powerade.
We compete indirectly with major international beverage
companies including but not limited to: the Coca-Cola Company; PepsiCo, Inc.;
Nestlé; Dr Pepper Snapple Group; Groupe Danone; Kraft Foods Group, Inc.; and
Unilever. These companies have established market presence in the United States,
and offer a variety of beverages that are substitutes to our product. We face
potential direct competition from such companies, because they have the
financial resources, and access to manufacturing and distribution channels to
rapidly enter the alkaline water market.
We 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. These companies could bolster their position in the
alkaline water market through additional expenditure and promotion.
7
As a result of both direct and indirect competition, our
ability to successfully distribute, market and sell our product, and to gain
sufficient market share in the United States to realize profits may be limited,
greatly diminished, or totally diminished, which may lead to partial or total
loss of your investments in our company.
Alternative non-commercial beverages or processes could
hurt our business.
The availability of non-commercial beverages, such as tap
water, and machines capable of producing alkaline water at the consumer’s home
or at store-fronts could hurt our business, market share, and profitability.
Expansion of the alkaline beverage market or sufficiency
of consumer demand in that market for operations to be profitable are not
guaranteed.
The alkaline water market is an emerging market and there is no
guarantee that this market will expand or that consumer demand will be
sufficiently high to allow our company to successfully market, distribute and
sell our product, or to successfully compete with current or future competition,
all of which may result in total loss of your investment.
Our growth and profitability depends on the performance
of third-parties and our relationship with them.
Our distribution network and its success depend on the
performance of third parties. Any non-performance or deficient performance by
such parties may undermine our operations, profitability, and result in total
loss to your investment. To distribute our product, we use a
broker-distributor-retailer network whereby brokers represent our products to
distributors and retailers who will in turn sell our product to consumers. The
success of this network will depend on the performance of the brokers,
distributors and retailers of this network. There is a risk that a broker,
distributor, or retailer may refuse to or cease to market or carry our product.
There is a risk that the mentioned entities may not adequately perform their
functions within the network by, without limitation, failing to distribute to
sufficient retailers or positioning our product in localities that may not be
receptive to our product. Furthermore, such third-parties’ financial position or
market share may deteriorate, which could adversely affect our distribution,
marketing and sale activities. We also need to maintain good commercial
relationships with third-party brokers, distributors and retails so that they
will promote and carry our product. Any adverse consequences resulting from the
performance of third-parties or our relationship with them could undermine our
operations, profitability and may result in total loss of your investment.
The loss of one or more of our major customers or a
decline in demand from one or more of these customers could harm our business.
We have 3 major customers that together account for 51% (25%, 14% and 12%, respectively) of accounts receivable at December 31, 2013, and 2 customers that together account for 28% (18% and 10%, respectively) of the total revenues earned for the nine month period ended December 31, 2013. There can be no assurance that such customers will continue to order our products in the same level or at all. A reduction or delay in orders from such customers, including reductions or delays due to market, economic or competitive conditions, could have a material adverse effect on our business, operating results and financial condition.
Health benefits of alkaline water is not guaranteed or
proven, rather it is perceived by consumers.
Health benefits of alkaline water are not guaranteed and have
not been proven. There is a consumer perception that drinking alkaline water has
beneficial health effects. Consequently, negative changes in consumers’
perception of the benefits of alkaline water or negative publicity surrounding
alkaline water may result in loss of market share or potential market share and
hence loss of your investment.
8
Water scarcity and poor quality could negatively impact
our production costs and capacity.
Water is the main ingredient in our product. It is also a
limited resource, facing unprecedented challenges from overexploitation,
increasing pollution, poor management, and climate change. As demand for water
continues to increase, as water becomes scarcer, and as the quality of available
water deteriorates, we may incur increasing production costs or face capacity
constraints that could adversely affect our profitability or net operating
revenues in the long run.
Increase in the cost, disruption of supply or shortage of
ingredients, other raw materials or packaging materials could harm our
business.
We and our bottlers will use water, 84 trace Himalayan salts,
packaging materials for bottles such as plastic and paper products. The prices
for these ingredients, other raw materials and packaging materials fluctuate
depending on market conditions. Substantial increases in the prices of our or
our bottlers’ ingredients, other raw materials and packaging materials, to the
extent they cannot be recouped through increases in the prices of finished
beverage products, would increase our operating costs and could reduce our
profitability. Increases in the prices of our finished products resulting from a
higher cost of ingredients, other raw materials and packaging materials could
affect the affordability of our product and reduce sales.
An increase in the cost, a sustained interruption in the
supply, or a shortage of some of these ingredients, other raw materials, or
packaging materials and containers that may be caused by a deterioration of our
or our bottlers’ relationships with suppliers; by supplier quality and
reliability issues; or by events such as natural disasters, power outages, labor
strikes, political uncertainties or governmental instability, or the like, could
negatively impact our net revenues and profits.
Changes in laws and regulations relating to beverage
containers and packaging could increase our costs and reduce demand for our
products.
We and our bottlers intend to offer our product in
nonrefillable, recyclable containers in the United States. Legal requirements
have been enacted in various jurisdictions in the United States requiring that
deposits or certain ecotaxes or fees be charged for the sale, marketing and use
of certain nonrefillable beverage containers. Other proposals relating to
beverage container deposits, recycling, ecotax and/or product stewardship have
been introduced in various jurisdictions in the United States and overseas, and
we anticipate that similar legislation or regulations may be proposed in the
future at local, state and federal levels in the United States. Consumers’
increased concerns and changing attitudes about solid waste streams and
environmental responsibility and the related publicity could result in the
adoption of such legislation or regulations. If these types of requirements are
adopted and implemented on a large scale in the geographical regions in which we
operate or intend to operate, they could affect our costs or require changes in
our distribution model, which could reduce our net operating revenues or
profitability.
Significant additional labeling or warning requirements
or limitations on the availability of our product may inhibit sales of affected
products.
Various jurisdictions may seek to adopt significant additional
product labeling or warning requirements or limitations on the availability of
our product relating to the content or perceived adverse health consequences of
our product. If these types of requirements become applicable to our product
under current or future environmental or health laws or regulations, they may
inhibit sales of our product.
9
Unfavorable general economic conditions in the United
States could negatively impact our financial performance.
Unfavorable general economic conditions, such as a recession or
economic slowdown, in the United States could negatively affect the
affordability of, and consumer demand for, our product in the United States.
Under difficult economic conditions, consumers may seek to reduce discretionary
spending by forgoing purchases of our products or by shifting away from our
beverages to lower-priced products offered by other companies, including
non-alkaline water. Consumers may also cease purchasing bottled water and
consume tap water. Lower consumer demand for our product in the United States
could reduce our profitability.
Adverse weather conditions could reduce the demand for
our products.
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.
Changes in, or failure to comply with, the laws and
regulations applicable to our products or our business operations could increase
our costs or reduce our net operating revenues.
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, such as the Occupational Safety and
Health Act; various federal, state and local environmental protection laws; and
various other federal, state, and local statutes and regulations. Legal
requirements also 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. Changes to such
laws and regulations could increase our costs or reduce or net operating
revenues.
In addition, failure to comply with environmental, health or
safety requirements and other applicable laws or regulations could result in the
assessment of damages, the imposition of penalties, suspension of production,
changes to equipment or processes, or a cessation of operations at our or our
bottlers’ facilities, as well as damage to our image and reputation, all of
which could harm our profitability.
Our products are considered premium and healthy beverages
and are being sold at premium prices compared to our competitors; we cannot
provide any assurances as to consumers’ continued market acceptance of our
current and future products.
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 approximately $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 a suggested retail price (SRP) of $3.99 and
one-gallon bottle for an SRP of $4.99. Our competitors may introduce larger
sizes and offer them at an SRP that is lower than our product. We can provide no
assurances that consumers will continue to purchase our product or that they
will not prefer to purchase a competitive product.
We rely on key executive officers, and their knowledge of
our business would be difficult to replace.
We are highly dependent on our two executive officers, Steven
P. Nickolas and Richard A. Wright. We do not have “key person” life insurance
policies for any of our officers. The loss of management and industry expertise
of any of our key executive officers could result in delays in product
development, loss of any future customers and sales and diversion of management
resources, which could adversely affect our operating results.
10
Our executive officers are not subject to supervision or
review by an independent board or audit committee.
Our board of directors consists of Steven P. Nickolas and
Richard A. Wright, our executive officers. Accordingly, we do not have any
independent directors. Also we do not have an independent audit committee. As a
result, the activities of our executive officers are not subject to the review
and scrutiny of an independent board of directors or audit committee.
Risk Related to Our Stock
Because Steven P. Nickolas controls a large percentage of
our voting stock, he has the ability to influence matters affecting our
stockholders.
Steven P. Nickolas, our President, Chief Executive Officer and
Director, exercises voting and dispositive power with respect to 43,000,000
shares of our common stock, which are beneficially owned by WiN Investments, LLC
and Lifewater Industries, LLC, and owns 10,000,000 shares of Series A Preferred
Stock, which has 10 votes per share upon any matter submitted to our
stockholders for a vote. Accordingly, he controls a majority of the votes
attached to our outstanding voting securities. As a result, he has the ability
to influence matters affecting our stockholders, including the election of our
directors, the acquisition or disposition of our assets, and the future issuance
of our securities. Because he controls such majority of votes, investors may
find it difficult to replace our management if they disagree with the way our
business is being operated. Because the influence by Mr. Nickolas could result
in management making decisions that are in the best interest of Mr. Nickolas and
not in the best interest of the investors, you may lose some or all of the value
of your investment in our common stock.
Because we can issue additional shares of common stock,
our stockholders may experience dilution in the future.
We are authorized to issue up to 1,125,000,000 shares of common stock and 100,000,000 shares of preferred stock, of which 81,602,175 shares of common stock are issued and outstanding, 20,000,000 shares of Series A Preferred Stock are issued and outstanding and 500 shares of 10% Series B Convertible Preferred Stock are issued and outstanding as of April 3, 2014. Our board of directors has the authority to cause us to issue additional shares of common stock and preferred stock, and to determine the rights, preferences and privileges of shares of our preferred stock, without consent of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.
Because we became public by means of a reverse takeover
transaction, we may not be able to attract the attention of major brokerage
firms.
Additional risks may exist since we became public through a
“reverse takeover” with a shell company. Security analysts of major brokerage
firms and securities institutions may not cover us since there are no
broker-dealers who sold our stock in a public offering who would have an
incentive to follow or recommend the purchase of our common stock. No assurance
can be given that established brokerage firms will want to conduct any
financings for us in the future.
Trading on the OTC Bulletin Board may be volatile and
sporadic, which could depress the market price of our common stock and make it
difficult for our stockholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board. Trading
in stock quoted on the OTC Bulletin Board is often thin and characterized by
wide fluctuations in trading prices, due to many factors that may have little to
do with our operations or business prospects. This volatility could depress the
market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTC Bulletin Board is not a stock exchange, and trading of
securities on the OTC Bulletin Board is often more sporadic than the trading of
securities listed on a national securities exchange like the NASDAQ or the NYSE.
Accordingly, stockholders may have difficulty reselling any of our shares.
11
A decline in the price of our common stock could affect
our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because we plan to acquire a significant portion
of the funds we need in order to conduct our planned operations through the sale
of equity securities, a decline in the price of our common stock could be
detrimental to our liquidity and our operations because the decline may cause
investors not to choose to invest in our stock. If we are unable to raise the
funds we require for all our planned operations, we may be forced to reallocate
funds from other planned uses and may suffer a significant negative effect on
our business plan and operations, including our ability to develop new products
and continue our current operations. As a result, our business may suffer, and
not be successful and we may go out of business. We also might not be able to
meet our financial obligations if we cannot raise enough funds through the sale
of our equity securities and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our
shares of common stock in the near future, our stockholders will not be able to
receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the
development and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the near future. The declaration, payment and
amount of any future dividends will be made at the discretion of the board of
directors, and will depend upon, among other things, the results of operations,
cash flows and financial condition, operating and capital requirements, and
other factors as the board of directors considers relevant. There is no
assurance that future dividends will be paid, and if dividends are paid, there
is no assurance with respect to the amount of any such dividend. Unless we pay
dividends, our stockholders will not be able to receive a return on their shares
unless they sell them.
Our stock is a penny stock. Trading of our stock may be
restricted by the SEC’s penny stock regulations, which may limit a stockholder’s
ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange
Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock”
to be any equity security that has a market price (as defined in Rule 15g-9)
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Our securities are covered by the penny stock
rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and “accredited investors”. The
term “accredited investor” refers generally to institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the SEC, which provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules; the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.
FINRA sales practice requirements may also limit a
stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the SEC,
the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of
these rules, the FINRA believes that there is a high probability that
speculative low priced securities will not be suitable for at least some
customers. The FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit your
ability to buy and sell our stock.
12
Forward-Looking Statements
This prospectus contains forward-looking statements.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “intend”, “expect”, “plan”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, or “continue” or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, including the risks in
the section entitled “Risk Factors”, uncertainties and other factors, which may
cause our company’s or our industry’s actual results, levels of activity or
performance to be materially different from any future results, levels of
activity or performance expressed or implied by these forward-looking
statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity or performance. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Use of Proceeds
We expect to receive up to $9 million in net proceeds from the
sale of the securities in this offering, based on a price of $<> per share
of common stock and corresponding warrant and after deducting placement agent
fees and expenses and estimated offering expenses payable by us and assuming the
sale of all of the securities offered in this offering. However, this is a best
efforts offering with no minimum, and we may not sell all or any of the
securities; as a result, we may receive significantly less in net proceeds, and
the net proceeds received may not be sufficient to continue to operate our
business.
We currently expect to use the net proceeds from this offering
as specified in the following table, and we have ordered the specific uses of
proceeds in order of priority. We do not expect that our priorities for fund
allocation would change if the amount we raise in this offering is less than the
maximum proceeds to be potentially raised in this offering. The data in the
table set forth below excludes any proceeds we could receive from the exercise
of the warrants to be issued in this offering.
Description of
Use
|
|
25% of
Maximum
Proceeds
Obtained
|
|
|
50% of
Maximum
Proceeds
Obtained
|
|
|
75% of
Maximum
Proceeds
Obtained
|
|
|
100% of
Maximum
Proceeds
Obtained
|
|
|
Purchase of alkaline generating
electrolysis system machines
(1)
|
$
|
1,380,000
|
|
$
|
1,840,000
|
|
$
|
2,760,000
|
|
$
|
3,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase bottling plant
(2)
|
|
-
|
|
|
-
|
|
$
|
1,700,000
|
|
$
|
1,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
(3)
|
$
|
550,000
|
|
$
|
550,000
|
|
$
|
550,000
|
|
$
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital including legal, audit,
accounting, investor relations & corporate communications, and
financing-related expenses
|
$
|
320,000
|
|
$
|
2,110,000
|
|
$
|
1,740,000
|
|
$
|
3,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
$
|
2,250,000
|
|
$
|
4,500,000
|
|
$
|
6,750,000
|
|
$
|
9,000,000
|
|
Notes
|
(1)
|
Each machine costs approximately $230,000, including
shipping and installation, and is purchased from Water Engineering
Solutions, LLC (
“WES”
), 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. Per the agreement with WES, the
machine will be manufactured and sold to us at a price that will allow WES
a 40% gross profit margin on all components and an $85.00/hour/man hour
spent on production and installation of each machine. The 40% gross profit
margin represents a 10% reduction from WES’s standard margin. In addition,
we must provide a purchase order to WES with a 50% deposit for each
machine, an additional 40% upon WES’s receipt of the electrolysis cells
and the balance of 10% due upon delivery. We also agreed with WES to
purchase a minimum of 3 machines in the first 12 month period; 4 machines
in the next 12 month period; and 6 machines in the third 12 month period.
WES agreed to provide maintenance and service on all the machines at a
rate of $200 per day for a mechanic, $350 per day for a skilled mechanic,
and $500 per day for WES’ engineer.
|
13
|
(2)
|
If we obtain at least 75% of the maximum proceeds from
this offering, we plan to acquire the North Cove Bottling Plant in North
Carolina, which has an estimated purchase price of $1,700,000. If
consummated, this acquisition is expected to provide us with a calculated
logistical advantage given the plant’s strategic location and production
capacity. The plant was built in the mid-1990s and was designed for
high-speed manufacturing. Currently, the plant has no employees, no
customers and is not in operations. In addition, in order to bring the
plant online, we need to obtain certain licenses and re-certifications and
need to complete repairs and facility improvements. If all of these are
completed, we may be able to begin production as early as the second quarter of 2014.
|
|
|
|
|
(3)
|
On November 7, 2013, we sold to certain institutional
investors an aggregate of 500 shares of our 10% Series B Convertible
Preferred Stock (
“Series B Preferred Stock”
) at a stated value of
$1,000 per share of Series B Preferred Stock for gross proceeds of
$500,000. Upon completion of this offering, we are required to use 25% of
the gross proceeds from this offering to redeem the Series B Preferred
Stock, including accrued but unpaid dividends and make-whole
amount.
|
The (i) projected amount of proceeds to be spent on each
purpose set forth in the table above and (ii) the projected net proceeds to us
after deducting for applicable costs and expenses, are in each case estimates
based on our current expectations. Those estimates may prove to be wrong, and we
could require additional funding for any one of the purposes set forth in the
table above, which could consequently reduce the expenditures we use for another
purpose or be a lesser percentage of the total funds required for the particular
purpose.
If a warrant holder elects to exercise the warrants issued in
this offering, we may also receive proceeds from the exercise of the warrants.
We cannot predict when or if the warrants will be exercised. It is possible that
the warrants may expire and may never be exercised.
Determination of Offering Price
In determining the offering price of the common stock and the
warrants and the exercise price of the warrants, we will consider a number of
factors including, but not limited to, the current market price of our common
stock, trading prices of our common stock over time, the illiquidity and
volatility of our common stock, our current financial condition and the
prospects for our future cash flows and earnings, and market and economic
conditions at the time of the offering. Once the offering price is determined,
the offering price for the common stock and the warrants and the exercise price
of the warrants will remain fixed for the duration of the offering.
Our common stock is traded on the OTC Bulletin Board under the symbol “WTER”. On April 2, 2014, the closing price for one share of our common stock was $0.2844.
Dilution
If you invest in the securities offered in this offering, and
assuming no value is attributed to the warrants, your interest will be diluted
immediately to the extent of the difference between the offering price per share
of our common stock and the pro forma net tangible book value per share of our
common stock after this offering. As of December 31, 2013, our net tangible
book value was $149,166, or $0.002 per share of common stock. Our net tangible book value per share is equal to total assets less
intangible assets and total liabilities, divided by the number of shares of our
outstanding common stock.
14
Net tangible book value dilution per share represents the
difference between the amount per share of common stock paid by the new
investors who purchase securities in this offering and the pro forma net
tangible book value per share in common stock immediately after completion of
this offering, assuming no value is attributed to the warrants. After giving
effect to our sale of up to 35,000,000 shares of common stock at an offering price
of $<> per share, and after deducting placement agent fees and expenses
and estimated offering expenses payable by us, our pro forma net tangible book
value as of December 31, 2013 would have been $<>, or $<> per
share. This represents an immediate increase of net tangible book value of
$<> per share to our existing stockholders and an immediate dilution in
net tangible book value of $<> per share to purchasers of securities in
this offering. The following table illustrates this per share dilution:
|
Offering price per share
|
$
|
<>
|
|
|
|
|
|
|
|
Net tangible book value per share as of
December 31, 2013
|
$
|
0.002
|
|
|
|
|
|
|
|
Increase in net tangible book value per
share attributable to this offering
|
$
|
<>
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share
after this offering
|
$
|
<>
|
|
|
|
|
|
|
|
Dilution in net tangible book value per
share to new investors
|
$
|
<>
|
|
|
|
|
|
|
|
The above discussion and table do not
include the following:
|
|
|
|
-
19,485,000 shares of common stock reserved for future issuance under our
2013 Equity Incentive Plan. As of April 3, 2014, there were stock
options to purchase up to 6,000,000 shares of our common stock outstanding
under our 2013 Equity Incentive Plan with a weighted average exercise price of
$0.605 per share;
-
8,194,136 shares of common stock issuable upon the exercise of outstanding
warrants as of April 3, 2014, with exercise prices ranging from
$0.43 to $0.60 per share;
-
1,162,791 shares of common stock issuable upon the conversion of 10% Series
B Convertible Preferred Stock with the conversion price of $0.43 per share;
and
-
Up to 17,500,000 shares of common stock issuable upon exercise of warrants at
an exercise price of $<> per share sold as part of this offering.
Plan of Distribution
We are offering up to 35,000,000 shares of our common stock and
warrants to purchase up to 10,000,000 shares of our common for an offering price
of $<>per combination of one share of common stock and a warrant to
purchase one-half of a share of common stock with an exercise price of $<>
per share, with aggregate gross proceeds of up to $17,500,000. The common stock
and warrants are immediately separable and will be issued separately. However,
there is no minimum offering amount required as a condition to closing and we
may sell significantly fewer shares of common stock and warrants in the
offering.
H.C. Wainwright & Co., LLC, referred to as the placement
agent or Wainwright, has entered into an engagement agreement with us in which
it has agreed to act as the exclusive placement agent in connection with the
offering. The placement agent has no obligation to buy any of the securities
from us nor is it required to arrange the purchase or sale of any specific
number or dollar amount of the securities, but has agreed to use its reasonable
best efforts to arrange for the sale of all of the securities. The placement agent may engage one or more sub-placement agents or selected dealers to assist with the offering. Subject to the
terms and conditions contained in the engagement agreement, the placement agent is using its reasonable best
efforts to introduce us to selected institutional investors who will purchase
the securities. We will enter into purchase agreements directly with the
investors in this offering.
15
We have agreed to pay Wainwright a placement fee equal to 8% of the aggregate gross proceeds to us from the sale of common stock and warrants in this offering, provided that, with respect to certain investors in this offering which are set forth in our engagement agreement with the placement agent, we shall pay to the placement agent a fee of 5% of the gross proceeds to us from such investors from the sale of common stock and warrants. In addition, subject to FINRA Rule 5110(f)(2)(D), we have agreed to pay a non-accountable expense allowance equal to the lesser of (i) 1% of the aggregate gross proceeds raised in the offering and (ii) $50,000. We estimate total expenses of this offering, excluding the placement agent fees and expenses, will be approximately $150,000. The following table shows the per security and total fees we will pay to the placement agent assuming the sale of all of the securities offered pursuant to this prospectus, excluding any proceeds that we may receive upon exercise of the warrants issued in this offering.
|
Per security
|
$ <>
|
|
|
|
|
Total
|
$<>
|
In addition to the cash fees and expense allowance set forth above, we have agreed to issue to the placement agent warrants to purchase up to an aggregate of 5.5% of the aggregate number of shares of common stock sold in this offering (excluding any shares of common stock issuable upon exercise of the warrants), provided that, with respect to certain investors in this offering which are set forth in our engagement agreement with the placement agent, we shall issue warrants to the placement agent to purchase up to 5% of the aggregate number of shares of common stock sold to such investors (excluding any shares of common stock issuable upon exercise of the warrants). The placement agent warrants shall have substantially the same terms as the warrants offered by this prospectus, except that the placement agent warrants will have an exercise price equal to 125% of the public offering price per share, or an exercise price of $___ per share, and the termination date of the placement agent warrants shall be five years from the effective date of the registration statement. In connection with our private placement on November 7, 2013, Wainwright acted as placement agent and we issued warrants to purchase up to 116,279 shares of common stock with an exercise price of $0.55 per share and a five year term to Wainwright as a part of its compensation. FINRA has determined that the warrants issued to Wainwright in our private placement are compensation in this offering. Pursuant to FINRA Rule 5110(f)(2)(H), the placement agent warrants and the warrants issued to Wainwright in our private placement will not have an anti-dilution provision. Pursuant to FINRA Rule 5110(g)(1), the placement agent warrants and any shares of common stock issued upon exercise of the placement agent warrants and the warrants issued to Wainwright in our private placement and any shares issued upon exercise of such warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be subject to any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of reorganization, (ii) to any FINRA member firm participating in the offering and the officers and partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period, (iii) if the aggregate amount of our securities held by the placement agent or related person does not exceed 1% of the securities being offered, (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund, or (v) the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period. The warrants and the shares underlying the warrants issuable to the placement agent in the offering are not being registered under the registration statement of which this prospectus forms a part. Subject to FINRA Rule 5110(f)(2)(D), we have also granted to Wainwright a right of first refusal with respect to any additional raises of funds by means of a public offering or private placement of equity or debt securities or any refinancing of debt in which we use an underwriter, placement agent or agent during the 12 months following the effective date of the registration statement. Because there is no minimum offering amount required as a condition to closing, the actual total proceeds received by us and the total fees and warrants issuable to the placement agent, if any, are not presently determinable and may be substantially less than the maximum amount set forth above.
We have agreed to indemnify the placement agent against certain
liabilities under the Securities Act of 1933, as amended (
“Securities
Act”
). The placement agent may be deemed to be an underwriter within the
meaning of Section 2(a)(11) of the Securities Act and any commissions received
by it and any profit realized on the sale of securities by them while acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. The placement agent is required to comply with the requirements
of the Securities Act and the Securities Exchange Act of 1934, including without limitation,
Rule 10b-5 and Regulation M under the Securities Exchange Act of 1934. These
rules and regulations may limit the timing of purchases and sales of shares of
common stock and warrants to purchase shares of common stock by the placement
agent acting as principal. Under these rules and regulations, the placement
agent may not (i) engage in any stabilization activity in connection with our
securities or (ii) bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities, other than as permitted
under the Securities Exchange Act of 1934, until they have completed their
participation in the distribution. The placement agent has informed us that it
will not engage in overallotment, stabilizing transactions or syndicate covering
transactions in connection with this offering.
16
State Blue Sky Information
We intend to offer and sell the securities offered hereby to
institutional investors in certain states. However, we will not make any offer
of these securities in any jurisdiction where the offer is not permitted or
exempted.
Description of Securities
Capital Stock
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. 20,000,000 shares of our authorized preferred
stock are designated as “Series A Preferred Stock”, which have 10 votes per
share and are not convertible into shares of our common stock. 1,000 shares of
our authorized preferred stock are designated as “10% Series B Convertible
Preferred Stock”, which have a stated value of $1,000 per share and have
liquidation preferences, dividend rights, redemption rights and conversion
rights.
As of April 3, 2014, there were 81,602,175 shares of
our common stock issued and outstanding, 20,000,000 shares of Series A Preferred
Stock issued and outstanding and 500.00028 shares of 10% Series B Convertible
Preferred Stock issued and outstanding.
Common Stock
Our common stock is entitled to one vote per share on all
matters submitted to a vote of our stockholders, including the election of
directors. Except as otherwise provided by law or as provided in any resolution
adopted by our board of directors providing for the issuance of any series of
preferred stock, the holders of our common stock possess all voting power. There
is no cumulative voting in the election of directors. Stockholders holding at
least 10% of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, will constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the articles of incorporation. When a quorum is
present or represented at any meeting, the vote of the stockholders of a
majority of the stock having voting power present in person or represented by
proxy will be sufficient to elect members of our board of directors or to decide
any question brought before such meeting, unless the question is one upon which
by express provision of statute or of the articles of incorporation, a different
vote is required in which case such express provision will govern and control
the decision of such question. Except as otherwise required by law, any action
required to be taken at a meeting of our stockholders, or any other action which
may be taken at a meeting of our stockholders, may be taken without a meeting,
without prior notice and without a vote if written consents are signed by our
stockholders representing a majority of the shares entitled to vote at such a
meeting.
Our board of directors has the power to amend our bylaws. As a
result, our board of directors can change the quorum and voting requirements at
a meeting of our stockholders, subject to the applicable laws.
Subject to any preferential rights of any outstanding series of
preferred stock created by our board of directors from time to time, the holders
of our common stock are entitled to receive, when, as and if declared by our
board of directors, out of funds legally available therefore, dividends payable
in cash, stock or otherwise. Our board of directors is not obligated to declare
a dividend. Any future dividends will be subject to the discretion of our board
of directors and will depend upon, among other things, future earnings, the
operating and financial condition of our company, its capital requirements, general business conditions
and other pertinent factors. It is not anticipated that dividends will be paid
in the foreseeable future.
17
Upon any liquidation of our company, and after holders of any
outstanding series of preferred stock have been paid in full the amounts to
which they respectively are entitled or a sum sufficient for such payment in
full has been set aside, the remaining net assets of our company are to be
distributed pro rata to the holders of our common stock, to the exclusion of
holders of our preferred stock.
Our common stock is not convertible or redeemable and has no
preemptive, subscription or conversion rights. There are no conversions,
redemption, sinking fund or similar provisions regarding our common stock.
Preferred Stock
Our preferred stock may be divided into and issued in series.
Our board of directors is authorized to divide the authorized shares of
preferred stock into one or more series, each of which will be so designated as
to distinguish the shares thereof from the shares of all other series and
classes. Our board of directors is authorized to fix and determine the
designations, rights, qualifications, preferences, limitations and terms of the
shares of any series of preferred stock including but not limited to the
following.
|
|
(a)
|
The rate of dividend, the time of payment of dividends,
whether dividends are cumulative, and the date from which any dividends
will accrue;
|
|
|
(b)
|
Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption;
|
|
|
(c)
|
The amount payable upon shares in the event of voluntary
or involuntary liquidation;
|
|
|
(d)
|
Sinking fund or other provisions, if any, for the
redemption or purchase of shares;
|
|
|
(e)
|
The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion;
|
|
|
(f)
|
Voting powers, if any, provided that if any of the
preferred stock or series thereof will have voting rights, such preferred
stock or series will vote only on a share for share basis with the common
stock on any matter, including but not limited to the election of
directors, for which such preferred stock or series has such rights;
and
|
|
|
(g)
|
Subject to the foregoing, such other terms,
qualifications, privileges, limitations, options, restrictions, and
special or relative rights and preferences, if any, of shares or such
series as our board of directors may, at the time so acting, lawfully fix
and determine under the laws of the State of
Nevada.
|
We must not declare, pay or set apart for payment any dividend
or other distribution (unless payable solely in shares of common stock or other
class of stock junior to the preferred stock as to dividends or upon
liquidation) in respect of common stock, or other class of stock junior to the
preferred stock, nor must we redeem, purchase or otherwise acquire for
consideration shares of any of the foregoing, unless dividends, if any, payable
to holders of preferred stock for the current period (and in the case of
cumulative dividends, if any, payable to holders of preferred stock for the
current period and in the case of cumulative dividends, if any, for all past
periods) have been paid, are being paid or have been set aside for payment, in
accordance with the terms of the preferred stock, as fixed by our board of
directors.
In the event of the liquidation of our company, holders of
preferred stock are entitled to receive, before any payment or distribution on
the common stock or any other class of stock junior to the preferred stock upon
liquidation, a distribution per share in the amount of the liquidation
preference, if any, fixed or determined in accordance with the terms of such
preferred stock plus, if so provided in such terms, an amount per share equal to
accumulated and unpaid dividends in respect of such preferred stock (whether or
not earned or declared) to the date of such distribution. Neither the sale,
lease or exchange of all or substantially all of the property and assets of our
company, nor any consolidation or merger of our company, will be deemed to be a
liquidation for this purpose.
Series A Preferred Stock
18
20,000,000 shares of our authorized preferred stock are
designated as “Series A Preferred Stock”. Except with respect to matters which
adversely affect the holders of Series A Preferred Stock, as required by law, or
as required by the articles of incorporation, the holders of Series A Preferred
and the holders of common stock of our company, are entitled to notice of any
stockholders' meeting and to vote as a single class upon any matter submitted to
the stockholders for a vote, on the following basis: (a) holders of common stock
will have one vote per share of common stock held by them; and holders of Series
A Preferred Stock will have 10 votes per share of Series A Preferred Stock.
Shares of Series A Preferred Stock are not convertible into shares of our common
stock.
10% Series B Convertible Preferred Stock
1,000 shares of our authorized preferred stock are designated
as “10% Series B Convertible Preferred Stock” (
“Series B Preferred
Stock”
), which have a stated value of $1,000 per share.
Holders of the Series B Preferred Stock will be entitled to
receive cumulative dividends at the rate per share (as a percentage of the
stated value per share) of 10% per annum, payable semi-annually on April 30 and
October 31 and on each conversion date (with respect only to Series B Preferred
Stock being converted) and on each Mandatory Redemption Date and One Year
Redemption Date (with respect only to Series B Preferred Stock being redeemed).
Upon any liquidation, dissolution or winding-up of Alkaline, holders of the
Series B Preferred Stock will be entitled to receive out of the assets of
Alkaline an amount equal to the stated value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages then due and owing
thereon for each share of the Series B Preferred Stock before any distribution
or payment is made to the holders of any junior securities.
Each share of the Series B Preferred Stock is convertible at
the option of the holder thereof into that number of shares of Common Stock
determined by dividing the stated value of such share of the Series B Preferred
Stock by the conversion price of $0.43, subject to adjustment pursuant to the
terms of the Series B Preferred Stock. In addition, on the earlier (the
“Trigger Date”
) of (a) the date that a registration statement that
registers the resale of the shares of Common Stock issuable upon conversion of
the shares of the Series B Preferred Stock (the
“Registration Statement”
)
is first declared effective by the Securities and Exchange Commission and (b)
the 180th calendar day following the date of the issuance of the Series B
Preferred Stock, which occurred on November 7, 2013, the conversion price will
be reduced to the lesser of (i) the then conversion price or (ii) 85% of the
average of the volume weighted average price for the five trading dates
immediately prior to such Trigger Date, subject to a floor price of $0.25. The
conversion right is subject to the beneficial ownership limitation, which will
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock held by the applicable holder. The
holder may increase or decrease the beneficial ownership limitation upon not
less than 61 days’ prior notice to Alkaline, but in no event will such
beneficial ownership limitation exceed 9.99% .
Within three trading days from the closing of any subsequent
financing by us (each, a
“Mandatory Redemption Date”
), we must use 25% of
the proceeds from such financing to redeem the Series B Preferred Stock on a pro
rata basis, until such time that all of the Series B Preferred Stock then
outstanding are redeemed in full (each, a
“Mandatory Redemption”
). If any
portion of the cash payment for a Mandatory Redemption has not been paid by
Alkaline on the Mandatory Redemption Date, interest will accrue until such
amount is paid in full at a rate equal to the lesser of 18% per annum or the
maximum rate permitted by applicable law. In addition, on the first anniversary
of the earliest date on which any shares of the Series B Preferred Stock were
issued (the
“One Year Redemption Date”
), we must redeem all of the then
outstanding Series B Preferred Stock, for an amount in cash equal to the sum of
100% of the aggregate stated value then outstanding, the accrued but unpaid
dividends and all the liquidated damages and other amounts due in respect of the
Series B Preferred Stock.
In addition, upon the occurrence of a triggering event (as more particularly described below), each holder will have the right to require Alkaline to redeem all of the Series B Preferred Stock then held by such holder for a redemption price, in cash, equal to the sum of (a) the greater of (i) 130% of the stated value and (ii) the product of (y) the volume weighted average price on the trading day immediately preceding the date of the triggering event and (z) the stated value divided by the then conversion price, (b) all accrued but unpaid dividends thereon, (c) the make-whole amount (being an amount in cash equal to all of the dividends that, but for the applicable conversion, redemption or default payment, would have accrued with respect to the applicable stated value being so converted or redeemed for the period commencing on the applicable redemption date or conversion date or default payment date and ending on November 8, 2014) and (d) all liquidated damages and other costs, expenses or amounts due in respect of the Series B Preferred Stock. The term “triggering event” means any of the following events (whatever the reason for such event and whether such event is voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
|
|
(a)
|
the failure of the Registration Statement to be declared effective by the Securities and Exchange Commission on or prior to the 180th day after the date of the issuance of the Series B Preferred Stock, which occurred on November 7, 2013.
|
|
|
(b)
|
during the period that we are required to keep the Registration Statement effective under the registration rights agreement entered into on November 4, 2013, the effectiveness of the Registration Statement lapses for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12 month period, or the holders are not otherwise be permitted to resell their registered shares under the Registration Statement for more than an aggregate of 60 calendar days (which need not be consecutive calendar days) during any 12 month period;
|
|
|
(c)
|
we fail to deliver the shares of our common stock issuable upon conversion of the shares of the Series B Preferred Stock prior to the seventh trading day after such shares are required to be delivered, or we provide written notice to any holder, including by way of public announcement, at any time, of our intention not to comply with requests for conversion of any shares of the Series B Preferred Stock in accordance with the terms of the Series B Preferred Stock;
|
|
|
(d)
|
(i) we fail to file with the Securities and Exchange Commission a request for acceleration of the Registration Statement within five trading days of the date that we are notified by the Securities and Exchange Commission that the Registration Statement will not be subject to further review or (ii) prior to the effective date of the Registration Statement, we fail to file a pre-effective amendment and otherwise respond in writing to comments made by the Securities and Exchange Commission in respect of such Registration Statement within 20 calendar days after the receipt of comments by or notice from the Securities and Exchange Commission that such amendment is required in order for the Registration Statement is declared effective, and such event has not been cured to the satisfaction of the holders prior to the expiration of 30 calendar days from the date of such event;
|
|
|
(e)
|
we fail for any reason to pay in full the amount of cash due pursuant to a buy-in on failure to timely deliver shares of our common stock upon conversion of the Series B Preferred Stock within five calendar days after notice therefor is delivered or fail to pay all amounts owed on account of any specified events (consisting of the events described in paragraphs (a) and (d) and the failure of the Registration Statement from being declared effective by the 120th day from November 4, 2013 and the failure to keep the Registration Statement effective for more than 10 consecutive calendar days or more than an aggregate of 20 calendar days during any 12-month period;
|
|
|
(f)
|
we fail to have available a sufficient number of authorized and unreserved shares of our common stock to issue to the holder upon conversion of the Series B Preferred Stock;
|
|
|
(g)
|
we fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the transaction documents relating to the Series B Preferred Stock, and such failure or breach, if subject to the possibility of a cure by us, have not been cured within 30 calendar days after the date on which written notice of such failure or breach has been delivered;
|
|
|
(h)
|
we redeem more than a de minimis number of junior securities other than as to repurchases of our common stock from departing officers and directors, provided that, while any of the Series B Preferred Stock remains outstanding, such repurchases must not exceed an aggregate of $100,000 from all officers and directors;
|
|
|
(i)
|
we are party to a change of control transaction;
|
|
|
(j)
|
a bankruptcy event has occurred;
|
|
|
(k)
|
our common stock fails to be listed or quoted for trading on a trading market for more than seven trading days, which need not be consecutive trading days; or
|
|
|
(l)
|
any monetary judgment, writ or similar final process is entered or filed against us, any subsidiary or any of our respective property or other assets for more than $250,000, and such judgment, writ or similar final process remains unvacated, unbounded or unstayed for a period of 45 calendar days.
|
19
Warrants Being Issued in This Offering
We are offering warrants to purchase up to 17,500,000 shares of
our common stock to purchasers in this offering. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $<>
per share. The warrants are exercisable immediately upon issuance and have an
exercise term equal to five years. The exercise of the warrants is subject
to certain exercise limitations, such that the holder may not exercise the
warrants if such exercise results in the holder becoming the beneficial owner of
more than 4.99% of the number of shares of common stock outstanding immediately
after giving effect to such exercise, provided that upon at least 61 days prior
notice to us, the holder may increase or decrease such limitation up to a
maximum of 9.99% of the number of shares of common stock outstanding.
The warrants provide for the adjustment of the exercise price
and number of shares issuable upon exercise of the warrants in connection with
stock dividends and splits, such that the number of shares issuable upon
exercise of the warrant is adjusted in proportion to the change in the number of
shares outstanding and the aggregate exercise price of the warrant remains
unchanged. In addition, if we sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue any common stock at an effective price per share less than the exercise price of the warrants then in effect, the exercise price will be reduced to such lower effective price per share, provide, however, no such adjustment will be made for certain exempt issuances. In addition, if we grant, issue or sell any common stock equivalents
or rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of common stock (and not the holder of
the warrant), then the warrant holder will be entitled to acquire, upon the
terms applicable to such purchase rights, the aggregate purchase rights which
the holder could have acquired if the holder had held the number of shares of
common stock acquirable upon complete exercise of the warrant. If we declare or
make any dividend or other distribution of our assets to holders of our common
stock, the warrant holder shall be entitled to participate in the distribution
to the same extent that the holder would have participated therein if the holder
had held the number of shares of common stock acquirable upon complete exercise
of the warrant. Other than as described above, the warrants do not contain
anti-dilution provisions.
Upon the reclassification, reorganization or recapitalization
of our common stock, our merger or consolidation with or into another entity,
the consummation of a stock purchase agreement whereby more than 50% of the
outstanding shares of the common stock are acquired by another person or entity,
or a sale or other disposition of substantially all of our assets, the holder of
each of the warrants is entitled to receive the number of shares of our common
stock or the common stock of our successor or acquirer that such holder would
have been entitled to receive immediately prior to such transaction, and the
exercise price for such shares shall be adjusted based on the amount of any
alternate consideration receivable as a result of such transaction by a holder
of the number of shares of common stock for which the warrant is exercisable
immediately prior to such transaction. The holder of the warrant may also
require us or any successor entity to purchase the warrant from the holder by
paying to the holder an amount of cash equal to the Black Scholes value of the
remaining unexercised portion of the warrant on the date of the consummation of
the transaction.
Anti-Takeover Provisions
Some features of the Nevada Revised Statutes, which are further
described below, may have the effect of deterring third parties from making
takeover bids for control of our company or may be used to hinder or delay a
takeover bid. This would decrease the chance that our stockholders would realize
a premium over market price for their shares of common stock as a result of a
takeover bid.
Combination with Interested Stockholder
The Nevada Revised Statutes contain provisions governing
combination of a Nevada corporation that has 200 or more stockholders of record
with an interested stockholder. As of April 3, 2014, we had
approximately 15 stockholders of record. Therefore, we believe that these
provisions governing combination of a Nevada corporation do not apply to us and
will not until such time as these requirements have been met. At such time as
they may apply to us, these provisions may also have effect of delaying or
making it more difficult to effect a change in control of our company.
20
A corporation affected by these provisions may not engage in a
combination within three years after the interested stockholder acquires his,
her or its shares unless the combination or purchase is approved by the board of
directors before the interested stockholder acquired such shares. Generally, if
approval is not obtained, then after the expiration of the three-year period,
the business combination may be consummated with the approval of the board of
directors before the person became an interested stockholder or a majority of
the voting power held by disinterested stockholders, or if the consideration to
be received per share by disinterested stockholders is at least equal to the
highest of:
-
the highest price per share paid by the interested stockholder within the
three years immediately preceding the date of the announcement of the
combination or within three years immediately before, or in, the transaction
in which he, she or it became an interested stockholder, whichever is higher;
-
the market value per share on the date of announcement of the combination
or the date the person became an interested stockholder, whichever is higher;
or
-
if higher for the holders of preferred stock, the highest liquidation value
of the preferred stock, if any.
Generally, these provisions define an interested stockholder as
a person who is the beneficial owner, directly or indirectly of 10% or more of
the voting power of the outstanding voting shares of a corporation. Generally,
these provisions define combination to include any merger or consolidation with
an interested stockholder, or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions
with an interested stockholder of assets of the corporation having:
-
an aggregate market value equal to 5% or more of the aggregate market value
of the assets of the corporation;
-
an aggregate market value equal to 5% or more of the aggregate market value
of all outstanding shares of the corporation; or
-
representing 10% or more of the earning power or net income of the
corporation.
Articles of Incorporation and Bylaws
There are no provisions in our articles of incorporation or our
bylaws that would delay, defer or prevent a change in control of our company and
that would operate only with respect to an extraordinary corporate transaction
involving our company, such as merger, reorganization, tender offer, sale or
transfer of substantially all of its assets, or liquidation.
Experts and Counsel
The financial statements of Alkaline Water Corp. for the period
from inception (June 19, 2012) to March 31, 2013 included in this prospectus
have been audited by Seale and Beers, CPAs, to the extent and for the period set
forth in their report (which contains an explanatory paragraph regarding our
ability to continue as a going concern) appearing elsewhere in the prospectus,
and are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
Clark Wilson LLP will provide us with an opinion on the
validity of the shares of our common stock being offered pursuant to this
prospectus.
Interest of Named Experts and Counsel
No expert named in the registration statement of which this
prospectus forms a part as having prepared or certified any part thereof (or is
named as having prepared or certified a report or valuation for use in
connection with such registration statement) or counsel named in this prospectus
as having given an opinion upon the validity of the securities being offered
pursuant to this prospectus or upon other legal matters in connection with the
registration or offering such securities was employed for such purpose on a
contingency basis. Also at the time of such preparation, certification or opinion or at any time thereafter, through the
date of effectiveness of such registration statement or that part of such
registration statement to which such preparation, certification or opinion
relates, no such person had, or is to receive, in connection with the offering,
a substantial interest, direct or indirect, in our company or any of its parents
or subsidiaries. Nor was any such person connected with our company or any of
its parents or subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
21
Information with respect to Our Company
Description of Business
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.
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
22
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 7-11’s; large national retailers, including Albertson’s, Fry’s and Smith’s, (both Kroger companies) and regional grocery chains such as Bashas’, Bristol Farms, Vallarta, Superior Foods, Brookshire’s and other companies throughout the United States.
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 second 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 second 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.
-
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 the upper end of our funding, or $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 month 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 Albertson’s/SuperValu,
Amazon.com, Bashas’, Bristol Farms, Superior Grocers, Kroger (Fry’s and Smith’s)
and Vallarta Supermarkets.
Dependence on Few Customers
We have 3 major customers that together account for 51% (25%, 14% and 12%, respectively) of accounts receivable at December 31, 2013, and 2 customers that together account for 28% (18% and 10%, respectively) of the total revenues earned for the nine-month period ended December 31, 2013.
23
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.
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
24
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.
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, Director and majority stockholder, 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 management’s 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.
Description of Property
We do not own any real estate or other property used in the
operation of our current business. Our principal offices are located at 7730 E
Greenway Road Ste. 203, Scottsdale, AZ 85260 with the size of 3,500 square feet.
We have recently entered into a new leasing arrangement with rent arrangement
with 7730 E Greenway Properties, an unrelated third party, for $2,000 per month.
We believe that the condition of our principal offices is satisfactory, suitable
and adequate for our current needs.
25
Legal Proceedings
We know of no material pending legal proceedings to which our
company or any of our subsidiaries is a party or of which any of our properties,
or the properties of any of our subsidiaries, is the subject. In addition, we do
not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material
interest adverse to our company or any of our subsidiaries.
Market Price of and Dividends on Our Common Equity
and Related Stockholder Matters
Market information
Our common stock is quoted on the OTC Bulletin Board under the
trading symbol “WTER”. Trading in stocks quoted on the OTC Bulletin Board is
often thin and is characterized by wide fluctuations in trading prices due to
many factors that may be unrelated or have little to do with a company’s
operations or business prospects.
Our common stock became eligible for quotation on the OTC
Bulletin Board on July 10, 2012. During the year ended March 31, 2013, no shares
of our common stock traded.
Set forth below are the range of high and low bid quotations
for the periods indicated as reported by the OTC Bulletin Board. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
|
Quarter
Ended
|
High Bid
|
Low Bid
|
|
|
|
|
|
June 30, 2013
|
$0
|
$0
|
|
|
|
|
|
September 30, 2013
|
$1.305
|
$0.35
|
|
|
|
|
|
December 31, 2013
|
$0.70
|
$0.2501
|
|
|
|
|
|
March 31, 2014
|
$0.26
|
$0.15
|
On April 2, 2014, the closing price for our common
stock as reported by the OTC Bulletin Board was $0.2844 per share.
Transfer Agent
Our shares of common stock are issued in registered form. The
transfer agent and registrar for our common stock is Island Stock Transfer,
located at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.
Holders of Common Stock
As of April 3, 2014, there were approximately 15 registered holders
of record of our common stock. As of such date, 81,602,175 shares were issued
and outstanding.
Dividends
The payment of dividends, if any, in the future, rests within
the sole discretion of our board of directors. The payment of dividends will
depend upon our earnings, our capital requirements and our financial condition,
as well as other relevant factors. We have not declared any cash dividends since
our inception and have no present intention of paying any cash dividends on our
common stock in the foreseeable future.
There are no restrictions in our articles of incorporation or
bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect to
the distribution of the dividend:
26
|
|
1.
|
We would not be able to pay our debts as they become due
in the usual course of business; or
|
|
|
|
|
|
|
2.
|
Our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those receiving the
distribution.
|
27
Financial Statements
|
Financial Statements For the Period from
Inception (June 19, 2012) to March 31, 2013 and
|
|
|
|
Report of Independent Registered Public
Accounting firm
|
|
|
|
Consolidated Balance Sheet
|
|
|
|
Consolidated Statement of Operations
|
|
|
|
Consolidated Statement of Stockholders’
Deficit
|
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
Notes to the Consolidated Financial
Statements
|
|
|
|
Financial Statements for the Nine Month Period Ended December 31, 2013 and the Period from Inception (June 19, 2012) to December 31, 2012
|
|
|
|
Consolidated Balance Sheets
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
|
Notes to the Consolidated Financial
Statements
|
28
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED
AUDITORS
www.sealebeers.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
Alkaline Water Corporation
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of
Alkaline Water Corp. and Subsidiary (A Development Stage Company) as of March
31, 2013, and the related consolidated statements of operations, stockholders’
deficit, and cash flows for the period since inception on June 19, 2012 through
March 31, 2013. Alkaline Water Corporation’s management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 Alkaline
Water Corp. and Subsidiary (A Development Stage Company) as of March 31, 2013,
and the related consolidated statements of operations, stockholders’ deficit,
and cash flows for the period since inception on June 19, 2012 through March 31,
2013 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 to the financial statements, the Company has negative working capital at March
31, 2013, has incurred recurring losses and recurring negative cash flow from
operating activities, and has an accumulated deficit which raises substantial
doubt about its ability to continue as a going concern. Management’s plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
April 25, 2013
50 S. Jones Blvd. Suite 202 Las Vegas, NV 89107 Phone:
(888)727-8251 Fax: (888)782-2351
29
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED BALANCE SHEET
March 31, 2013
(Audited)
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash
|
$
|
64,607
|
|
|
Accounts
receivable
|
|
15,110
|
|
|
Inventory
|
|
7,573
|
|
|
Total Current Assets
|
$
|
87,290
|
|
|
|
|
|
|
|
Fixed Assets, net
|
|
38,083
|
|
|
Deposits – related party
|
|
15,000
|
|
|
|
|
|
|
|
Total Assets
|
$
|
140,373
|
|
|
|
|
|
|
|
LIABIITIES AND STOKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts
payable
|
$
|
12,651
|
|
|
Accounts payable –
related party
|
|
490
|
|
|
Accrued
expenses
|
|
5,400
|
|
|
Accrued interest
|
|
1,315
|
|
|
Notes
payable
|
|
150,000
|
|
|
Total Current Liabilities
|
$
|
169,856
|
|
|
|
|
|
|
|
Total Liabilities
|
$
|
169,856
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
Common
stock, Class A, $0.001 par value,
1,000,000
shares
authorized, 100,000 shares issued
and
outstanding
as of March 31, 2013
|
$
|
100
|
|
|
Additional paid in
capital
|
|
253,805
|
|
|
Deficit
accumulated during development stage
|
|
(283,388
|
)
|
|
|
|
|
|
|
Total Stockholders’ Deficit
|
$
|
(29,483
|
)
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
$
|
140,373
|
|
See Accompanying Notes to Financial Statements
30
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period from
Inception (June 19, 2012) to March 31, 2013
(Audited)
|
Revenue
|
$
|
15,110
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
8,026
|
|
|
|
|
|
|
|
Gross Profit
|
$
|
7,084
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Sales and marketing
expenses
|
$
|
88,229
|
|
|
General
and administrative expenses
|
|
89,608
|
|
|
General and
administrative expenses – related party
|
|
104,929
|
|
|
Depreciation expense
|
|
1,814
|
|
|
Total Operating Expenses
|
$
|
284,580
|
|
|
|
|
|
|
|
Other Expenses:
|
|
|
|
|
Interest
expense
|
$
|
(1,315
|
)
|
|
Other expense
|
|
(4,577
|
)
|
|
Total Other Expenses
|
$
|
(5,892
|
)
|
|
|
|
|
|
|
Net Loss
|
$
|
(283,388
|
)
|
|
|
|
|
|
|
Weighted average number of common shares outstanding –
basic
|
|
4,000
|
|
|
|
|
|
|
|
Net loss per share – basic
|
$
|
(70.85
|
)
|
See Accompanying Notes to Financial Statements
31
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Development
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
Inception (June 19, 2012)
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for
acquisition of Alkaline 84, LLC March 31, 2013
|
|
100,000
|
|
|
100
|
|
|
253,805
|
|
|
--
|
|
|
253,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(283,388
|
)
|
|
(283,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2013
|
|
100,000
|
|
$
|
100
|
|
$
|
253,805
|
|
$
|
(283,388
|
)
|
$
|
(29,483
|
)
|
See Accompanying Notes to Financial Statements
32
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from
Inception (June 19, 2012) to March 31, 2013
(Audited)
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net loss
|
$
|
(283,388
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation expense
|
|
1,814
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
(Increase) in accounts receivable
|
|
(15,110
|
)
|
|
(Increase) in inventory
|
|
(7,573
|
)
|
|
Increase in accounts payable
|
|
13,141
|
|
|
Increase in accrued expenses
|
|
5,400
|
|
|
Increase in accrued interest
|
|
1,315
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
$
|
(284,401
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Purchase
of fixed assets
|
$
|
(39,897
|
)
|
|
Deposits
|
|
(15,000
|
)
|
|
|
|
|
|
|
Net cash used in
investing activities
|
$
|
(54,897
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Proceeds
from notes payable
|
$
|
150,000
|
|
|
Shareholder contribution
|
|
264,575
|
|
|
Shareholder distribution
|
|
(10,670
|
)
|
|
|
|
|
|
|
Net cash
provided by financing activities
|
$
|
403,905
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
$
|
64,607
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
--
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
64,607
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
Interest
paid
|
$
|
--
|
|
|
|
|
|
|
|
Income
taxes paid
|
$
|
--
|
|
See Accompanying Notes to Financial Statements
33
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Alkaline Water Corp (the “Company”) was
incorporated or March 7, 2013 (“date of inception”) under the laws of Arizona.
The Company has not commenced significant operations and, in
accordance with ASC Topic 915-10, the Company is considered a development stage
company.
Principles of consolidation
For the period from June
19, 2012 to March 31, 2013, the consolidated financial statements include the
accounts of Alkaline Water Corp (Arizona Corporation) and Alkaline 84, LLC
(Arizona Limited Liability Company). All significant intercompany balances and
transactions have been eliminated. Alkaline Water Corp (Arizona Corporation) and
Alkaline 84, LLC (Arizona Limited Liability Company) will be collectively
referred herein to as the “Company”.
Nature of operations
The Company is in the beverage
industry and sells alkaline water. The Company has been in the development stage
since its formation and has not realized any significant revenues from its
planned operations.
Year end
The Company’s year end is March 31.
Use of estimates
The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ significantly
from those estimates.
Fair value of financial instruments
Fair value
estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of March 31, 2013. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values were assumed to approximate carrying values for
cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
Level 1: The preferred inputs to valuation efforts are “quoted
prices in active markets for identical assets or liabilities,” with the caveat
that the reporting entity must have access to that market. Information at this
level is based on direct observations of transactions involving the same assets
and liabilities, not assumptions, and thus offers superior reliability. However,
relatively few items, especially physical assets, actually trade in active
markets.
Level 2: FASB acknowledged that active markets for identical
assets and liabilities are relatively uncommon and, even when they do exist,
they may be too thin to provide reliable information. To deal with this shortage
of direct data, the board provided a second level of inputs that can be applied
in three situations.
34
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair value of financial instruments (continued)
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges
that fair value measures of many assets and liabilities are less precise. The
board describes Level 3 inputs as “unobservable,” and limits their use by saying
they “shall be used to measure fair value to the extent that observable inputs
are not available.” This category allows “for situations in which there is
little, if any, market activity for the asset or liability at the measurement
date”. Earlier in the standard, FASB explains that “observable inputs” are
gathered from sources other than the reporting company and that they are
expected to reflect assumptions made by market participants.
Income taxes
The Company follows ASC Topic 740 for
recording the provision for income taxes. Deferred tax assets and liabilities
are computed based upon the difference between the financial statement and
income tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in
the asset or liability each period. If available evidence suggests that it is
more likely than not that some portion or all of the deferred tax assets will
not be realized, a valuation allowance is required to reduce the deferred tax
assets to the amount that is more likely than not to be realized. Future changes
in such valuation allowance are included in the provision for deferred income
taxes in the period of change.
Deferred income taxes may arise from temporary differences
resulting from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as current or
non-current, depending on the classification of assets and liabilities to which
they relate. Deferred taxes arising from temporary differences that are not
related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The Company applies a more-likely-than-not recognition
threshold for all tax uncertainties. ASC Topic 740 only allows the recognition
of those tax benefits that have a greater than fifty percent likelihood of being
sustained upon examination by the taxing authorities. As of March 31, 2013, the
Company reviewed its tax positions and determined there were no outstanding, or
retroactive tax positions with less than a 50% likelihood of being sustained
upon examination by the taxing authorities, therefore this standard has not had
a material effect on the Company.
The Company does not anticipate any significant changes to its
total unrecognized tax benefits within the next 12 months.
The Company classifies tax-related penalties and net interest
as income tax expense. As of March 31, 2013, no income tax expense has been
incurred.
For the period June 19, 2012 through March 31, 2013, Alkaline
84, LLC was treated as a partnership for federal income tax purposes and does
not incur income taxes. Instead, its earnings and losses are allocated to and
reported on the individual returns of the member’s tax returns. Accordingly, no
provision for income tax is included in the financial statements.
For the period March 7, 2013 through March 31, 2013, Alkaline
Water Corp. was treated as a C-corporation for federal income tax purposes.
Cash and cash equivalents
For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. The
carrying value of these investments approximates fair value.
35
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Accounts receivable
The Company uses the allowance
method to account for uncollectible accounts receivable. Accounts receivable are
presented net of an allowance for doubtful accounts of $0 at March 31, 2013. The
Company has extended payment terms of 60 – 90 days.
Inventory
Inventories are stated at the lower of
cost (first-in, first-out basis) or market (net realizable value).
Fixed assets
The Company records all property and
equipment at cost less accumulated depreciation. Improvements are capitalized
while repairs and maintenance costs are expensed as incurred. Depreciation is
calculated using the straight-line method over the estimated useful life of the
assets or the lease term, whichever is shorter. Depreciation periods are as
follows:
Stock-based compensation
The Company records stock
based compensation in accordance with the guidance in ASC Topic 505 and 718
which requires the Company to recognize expenses related to the fair value of
its employee stock option awards. This eliminates accounting for share-based
compensation transactions using the intrinsic value and requires instead that
such transactions be accounted for using a fair-value-based method. The Company
recognizes the cost of all share-based awards on a graded vesting basis over the
vesting period of the award.
The Company accounts for equity instruments issued in exchange
for the receipt of goods or services from other than employees in accordance
with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs
are measured at the estimated fair market value of the consideration received or
the estimated fair value of the equity instruments issued, whichever is more
reliably measurable. The value of equity instruments issued for consideration
other than employee services is determined on the earliest of a performance
commitment or completion of performance by the provider of goods or services as
defined by FASB ASC 505-50.
Revenue recognition
The Company recognizes revenue
when all of the following conditions are satisfied: (1) there is persuasive
evidence of an arrangement; (2) the product or service has been provided to the
customer; (3) the amount of fees to be paid by the customer is fixed or
determinable; and (4) the collection of our fees is probable.
The Company recorded revenue when it was realizable and earned
upon shipment of the finished products.
The Company does not accept returns due to the nature of the
product. However, they will provide credit to customers for damaged goods.
Major customers
During the period from June 19, 2012
(inception) to March 31, 2013, the Company generated its revenue from three
customers.
36
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Advertising costs
Advertising costs are anticipated
to be expensed as incurred; however there was $3,005 in advertising costs
included in sales and marketing expenses for the period from June 19, 2012
(inception) to March 31, 2013.
Shipping and handling costs
Shipping and handling
costs are expensed as incurred and are included in the cost of goods sold. The
Company does not charge its customers for shipping and handling.
Earnings per share
The Company follows ASC Topic 260
to account for the earnings per share. Basic earnings per common share (“EPS”)
calculations are determined by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
per common share calculations are determined by dividing net income by the
weighted average number of common shares and dilutive common share equivalents
outstanding. During periods when common stock equivalents, if any, are
antidilutive they are not considered in the computation.
Recent pronouncements
The Company has evaluated all
the recent accounting pronouncements through April 2013 and believes that none
of them will have a material effect on the Company’s consolidated financial
statements.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the recoverability and/or acquisition and sale of assets and the satisfaction of
liabilities in the normal course of business. As noted above, the Company is in
the development stage and, accordingly, has not yet generated significant
revenues from operations. Since its inception, the Company has been engaged
substantially in financing activities and developing its business plan and
incurring startup costs and expenses. As a result, the Company incurred
accumulated net losses from Inception (June 19, 2012) through the period ended
March 31, 2013 of ($283,388). In addition, the Company’s development activities
since inception have been financially sustained through debt and equity
financing.
The ability of the Company to continue as a going concern is
dependent upon its ability to raise additional capital from the sale of common
stock and, ultimately, the achievement of significant operating revenues. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this uncertainty.
NOTE 3 – INVENTORY
Inventories consist of the following at March 31, 2013:
|
Raw materials
|
$
|
5,125
|
|
|
Finished goods
|
|
2,449
|
|
|
|
$
|
7,574
|
|
37
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – FIXED ASSETS
Fixed assets consisted of the following at March 31, 2013:
|
Equipment
|
$
|
39,897
|
|
|
Less: accumulated depreciation
|
|
(1,814
|
)
|
|
Fixed assets, net
|
$
|
38,093
|
|
Depreciation expense for the period from Inception (June 19,
2012) to March 31, 2013 was $1,814.
Repairs and maintenance expense for the period from Inception
(June 19, 2012) to March 31, 2013 was $361.
NOTE 5 – DEPOSITS
On February 27, 2013, the Company paid a $15,000 deposit on
equipment that they are purchasing for approximately $145,000.
NOTE 6 – NOTES PAYABLE
Notes payable consists of the following at March 31, 2013:
|
Promissory note, secured by all of the
assets of the Company; 10% interest, due April 30, 2013
|
$
|
150,000
|
|
|
|
$
|
150,000
|
|
Interest expense for the period from Inception (June 19, 2012)
to March 31, 2013 was $1,315.
NOTE 7 – INCOME TAXES
At March 31, 2012, the Company had a federal operating loss
carryforward of $4,500, which begins to expire in 2032.
Components of net deferred tax assets, including a valuation
allowance, are as follows at March 31, 2013:
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforward
|
$
|
675
|
|
|
Total deferred tax assets
|
$
|
675
|
|
|
Less: Valuation allowance
|
|
(675
|
)
|
|
Net deferred tax assets
|
$
|
--
|
|
The valuation allowance for deferred tax assets as of March 31,
2013 was $675, respectively, which will begin to expire 2032. In assessing the
recovery of the deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those temporary
differences become deductible. Management considers the scheduled reversals of
future deferred tax assets, projected future taxable income, and tax planning
strategies in making this assessment. As a result, management determined it was
more likely than not the deferred tax assets would not be realized as of March
31, 2013 and maintained a full valuation allowance.
38
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INCOME TAXES (CONTINUED)
Reconciliation between the statutory rate and the effective tax
rate is as follows at March 31, 2013:
|
Federal statutory rate
|
|
(15.0)%
|
|
|
State taxes, net of federal benefit
|
|
(0.0)%
|
|
|
Change in valuation allowance
|
|
15.0 %
|
|
|
Effective tax rate
|
$
|
0.0 &
|
|
NOTE 8 – STOCKHOLDERS’ DEFICIT
The Company is authorized to issue 1,000,000 shares of $0.001
par value common stock, class A.
Common Stock
Prior to the acquisition of Alkaline 84, LLC, the Company had 0
shares of common stock, class A issued and outstanding.
On March 31, 2013, the Company issued 100,000 shares in
exchange for a 100% interest in Alkaline 84, LLC. For accounting purposes, the
acquisition of Alkaline 84, LLC by the Company has been recorded as a reverse
acquisition of a public company and recapitalization of Alkaline 84, LLC based
on the factors demonstrating that Alkaline 84, LLC represents the accounting
acquirer. The Company changed its business direction and is now a beverage
company.
NOTE 9 – WARRANTS AND OPTIONS
As of March 31, 2013, no stock options or warrants have been
issued.
NOTE 10 – AGREEMENTS
On February 20, 2013, the Company executed a non-binding letter
of intent with a foreign entity traded on the OTCBB (“Pubco”), for the sale of
all of the issued and outstanding securities of the capital of the Company.
Under the proposed terms, the parties will enter into a business combination
whereby Pubco will purchase all of the securities of the Company in exchange for
43,000,000 shares of common stock of Pubco, which will represent approximately
55”% of the issued and outstanding shares of Pubco as of the closing of the
transaction. Upon the closing, the Company will become a wholly-owned subsidiary
of Pubco. At closing, the Company will have the right to nominate all of the
officers of Pubco and three directors, while the other shareholders of Pubco
will have the right to nominate two directors.
The Company received a $150,000 bridge loan (see Note 6 above)
from Pubco on February 28, 2013 in connection with the execution of the letter
of intent. Upon consummation of the proposed sale, the bridge loan will become
convertible into one share of Pubco common stock and 1.5 warrants for additional
shares of Pubco common stock.
On or before the closing date, Pubco agrees to complete one or
more private placements for aggregate gross proceeds of not less than $500,000,
and within 135 days of the closing date to complete an additional one or more
private placements for aggregate gross proceeds of not less than $250,000.
The closing date for the contemplated transaction is on or
before April 16, 2013. In the event the proposed sale is not completed, the
bridge loan along with any unpaid or accrued interest is due and payable on
April 30, 2013.
39
ALKALINE WATER CORP.
(A DEVELOPMENT STATE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – RELATED PARTY TRANSACTIONS
As of March 31, 2013, the Company had accounts payable totaling
$490 due to an entity that is controlled and owned by an officer, director and
shareholder of the Company.
As of March 31, 2013, the Company had a deposit totaling
$15,000 with to an entity that is controlled and owned by an officer, director
and shareholder of the Company. (see Note 5 above)
During the period from Inception (June 19, 2012) to March 31,
2013, the Company purchased $36,297 in equipment from an entity that is
controlled and owned by an officer, director and shareholder of the Company.
During the period from Inception (June 19, 2012) to March 31,
2013, the Company had a total of $104,929 in general and administrative expenses
with related parties. Of the total, $69,732 was consulting fees to an officer,
director and shareholder of the Company, $32,322 was rent to an entity that is
controlled and owned by an officer, director and shareholder of the Company
$2,875 was professional fees to an entity that is controlled and owned by an
officer, director and shareholder.
The Company has a month-to-month rent arrangement with an
entity that is controlled and owned by an officer, director and shareholder for
$1,914 per month
NOTE 12 – SUBSEQUENT EVENT
On April 17, 2013, the Company executed a promissory note for
$25,000 for an additional bridge loan in connection with the contemplated sale
of the Company’s equity securities (see Note 10 above). The note bears interest
at the rate of 10% per annum and is due and payable along with any unpaid or
accrued interest on April 30, 2013. The note is secured by all of the business
assets of the Company. Upon consummation of the proposed sale, this bridge loan
will become convertible into one share of Pubco common stock and 1.5 warrants
for additional shares of Pubco common stock.
40
THE ALKALINE WATER COMPANY, INC.
FORMERLY GLOBAL LINES,
INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
|
December 31, 2013
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
$
|
22,465
|
|
$
|
64,607
|
|
|
Accounts receivable
|
|
99,266
|
|
|
15,110
|
|
|
Inventory
|
|
87,181
|
|
|
7,573
|
|
|
Prepaid Expenses and other current
assets
|
|
2,669
|
|
|
-
|
|
|
Deferred financing cost
|
|
69,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
281,460
|
|
|
87,290
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
299,541
|
|
|
38,083
|
|
|
Equipment deposits - related party
|
|
201,900
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
782,901
|
|
$
|
140,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
135,907
|
|
$
|
12,651
|
|
|
Accounts payable -
related party
|
|
-
|
|
|
490
|
|
|
Accrued expenses
|
|
16,374
|
|
|
5,400
|
|
|
Accrued interest
|
|
7,500
|
|
|
1,315
|
|
|
Notes payable
|
|
-
|
|
|
150,000
|
|
|
Derivative liability
|
|
404,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
563,856
|
|
|
169,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible Preferred stock (Redemption Value: $500,000)
|
|
40,457
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
Preferred stock -
$0.001 par value, 100,000,000 shares authorized.
Series A issued
20,000,000
|
|
20,000
|
|
|
|
|
Common stock, Class A, $0.001 par
value, 1,125,000,000 shares authorized, 81,322,175 and 77,500,000
shares issued and outstanding as of December 31, 2013 and March
31, 2013, respectively
|
|
81,322
|
|
|
77,500
|
|
|
Additional paid in
capital
|
|
3,426,810
|
|
|
176,405
|
|
|
Common stock issuable
|
|
-
|
|
|
-
|
|
|
Deficit accumulated
during development stage
|
|
(3,349,544
|
)
|
|
(283,388
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
$
|
178,588
|
|
$
|
(29,483
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' deficit
|
$
|
782,901
|
|
$
|
140,373
|
|
See Accompanying Notes to Condensed Consolidated Financial
Statements.
41
THE ALKALINE WATER COMPANY, INC.
FORMERLY GLOBAL LINES,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the three months
|
|
|
For the three months
|
|
|
For the nine months
|
|
|
Inception (June 19,
|
|
|
Inception (June 19,
|
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
2012 to
|
|
|
2012 to
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
171,137
|
|
$
|
-
|
|
$
|
333,404
|
|
$
|
-
|
|
$
|
348,514
|
|
|
Cost of goods sold
|
|
102,609
|
|
|
-
|
|
|
193,566
|
|
|
-
|
|
|
201,592
|
|
|
Gross profit
|
|
68,528
|
|
|
-
|
|
|
139,838
|
|
|
-
|
|
|
146,922
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
150,417
|
|
|
2,849
|
|
|
338,839
|
|
|
38,903
|
|
|
427,068
|
|
|
General and administrative
|
|
2,335,964
|
|
|
3,344
|
|
|
2,812,196
|
|
|
99,504
|
|
|
2,901,804
|
|
|
General and administrative - related
party
|
|
3,286
|
|
|
46,682
|
|
|
65,378
|
|
|
46,682
|
|
|
170,307
|
|
|
Depreciation expense
|
|
16,534
|
|
|
-
|
|
|
25,872
|
|
|
-
|
|
|
27,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
2,506,201
|
|
|
52,875
|
|
|
3,242,285
|
|
|
185,089
|
|
|
3,526,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(7,501
|
)
|
|
|
|
|
(11,056
|
)
|
|
-
|
|
|
(12,371
|
)
|
|
Amortization of debt discount
|
|
(48,578
|
)
|
|
|
|
|
(48,578
|
)
|
|
|
|
|
(48,578
|
)
|
|
Other expenses
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
(4,577
|
)
|
|
Change in derivative liability
|
|
95,925
|
|
|
|
|
|
95,925
|
|
|
|
|
|
95,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
expense
|
|
39,846
|
|
|
-
|
|
|
36,291
|
|
|
-
|
|
|
30,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(2,397,827
|
)
|
$
|
(52,875
|
)
|
$
|
(3,066,156
|
)
|
$
|
(185,089
|
)
|
$
|
(3,349,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding - basic
|
|
77,717,418
|
|
|
|
|
|
79,776,874
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic
|
$
|
(0
|
)
|
$
|
N/A
|
|
$
|
(0.04
|
)
|
$
|
N/A
|
|
|
|
|
See Accompanying Notes to Condensed Consolidated Financial
Statements.
42
THE ALKALINE WATER COMPANY INC.
FORMERLY GLOBAL LINES
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
For the nine months
|
|
|
Inception (June 19,
|
|
|
Inception (June 19, 2012
to
|
|
|
|
|
ended
|
|
|
2012) to
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(3,066,156
|
)
|
$
|
(185,089
|
)
|
|
(3,349,544
|
)
|
|
Adjustments to
reconcile net income
|
|
|
|
|
|
|
|
|
|
|
to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
25,872
|
|
|
-
|
|
|
27,686
|
|
|
Interest expense converted to common stock
|
|
3,555
|
|
|
-
|
|
|
3,555
|
|
|
Shares issued for services
|
|
2,019,357
|
|
|
-
|
|
|
2,019,357
|
|
|
Amortization of debt discount
|
|
48,578
|
|
|
|
|
|
48,578
|
|
|
Change in derivative liabilities
|
|
(95,925
|
)
|
|
|
|
|
(95,925
|
)
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(84,156
|
)
|
|
-
|
|
|
(99,266
|
)
|
|
Inventory
|
|
(79,608
|
)
|
|
(9,932
|
)
|
|
(87,181
|
)
|
|
Prepaid expenses and other current assets
|
|
(2,669
|
)
|
|
-
|
|
|
(2,669
|
)
|
|
Accounts payable
|
|
123,256
|
|
|
43,077
|
|
|
136,397
|
|
|
Accounts payable - related party
|
|
(490
|
)
|
|
7,900
|
|
|
(490
|
)
|
|
Accrued expenses
|
|
18,474
|
|
|
-
|
|
|
25,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
(1,089,912
|
)
|
|
(144,044
|
)
|
|
(1,374,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase of
fixed assets
|
|
(264,230
|
)
|
|
(66,524
|
)
|
|
(304,127
|
)
|
|
Deposits
|
|
(210,000
|
)
|
|
-
|
|
|
(225,000
|
)
|
|
Net cash used in investing
activities
|
|
(474,230
|
)
|
|
(66,524
|
)
|
|
(529,127
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
75,000
|
|
|
-
|
|
|
225,000
|
|
|
Proceeds from sale of common stock
|
|
1,025,000
|
|
|
-
|
|
|
1,025,000
|
|
|
Proceeds from sale of
manadatory redeemable preferred stock, net
|
|
422,000
|
|
|
-
|
|
|
422,000
|
|
|
Shareholder contribution
|
|
-
|
|
|
217,738
|
|
|
264,575
|
|
|
Shareholder distribution
|
|
-
|
|
|
(7,170
|
)
|
|
(10,670
|
)
|
|
Net cash provided by financing activities
|
|
1,522,000
|
|
|
210,568
|
|
|
1,925,905
|
|
|
NET CHANGE IN CASH
|
|
(42,142
|
)
|
|
(0
|
)
|
|
22,465
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
64,607
|
|
|
-
|
|
|
-
|
|
|
CASH AT END OF PERIOD
|
$
|
22,465
|
|
$
|
(0
|
)
|
$
|
22,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Debt converted to common stock
|
$
|
229,870
|
|
$
|
-
|
|
|
|
|
The interim consolidated financial statements included herein,
presented in accordance with United States generally accepted accounting
principles and stated in U.S. dollars, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management, are necessary for
fair presentation of the information contained therein. It is suggested that
these condensed interim consolidated financial statements be read in conjunction
with the financial statements of the Company for the period of inception (June
19, 2012) to March 31, 2013 and notes thereto included in the Company’s 8-K
current report and all amendments. The Company follows the same accounting
policies in the preparation of interim reports.
Results of operations for the interim period are not indicative
of annual results.
For the period from June 19, 2012 to March 31, 2013, the
consolidated financial statements include the accounts of Alkaline Water Corp.
(an Arizona Corporation) and Alkaline 88 LLC (formerly Alkaline 84, LLC) (an
Arizona Limited Liability Company). For the period from April 1, 2013 to
December 31, 2013, the consolidated financial statements include the accounts of
The Alkaline Water Company Inc. (a Nevada Corporation), Alkaline Water Corp. (an
Arizona Corporation) and Alkaline 84, LLC (an Arizona Limited Liability
Company).
All significant intercompany balances and transactions have
been eliminated. The Alkaline Water Company Inc. (a Nevada Corporation),
Alkaline Water Corp. (an Arizona Corporation) and Alkaline 88, LLC (an Arizona
Limited Liability Company) will be collectively referred herein to as the
“Company”. Any reference herein to “The Alkaline Water Company Inc.”, the
“Company”, “we”, “our” or “us” is intended to mean The Alkaline Water Company
Inc., including the subsidiaries indicated above, unless otherwise
indicated.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
For the purpose of the statements of cash flows, all
highly liquid investments with an original maturity of three months or less are
considered to be cash equivalents. The carrying value of these investments
approximates fair value.
The Company records all property and equipment at cost less
accumulated depreciation. Improvements are capitalized while repairs and
maintenance costs are expensed as incurred. Depreciation is calculated using the
straight-line method over the estimated useful life of the assets or the lease
term, whichever is shorter. Depreciation periods are as follows for the relevant
fixed assets:
The Company recognizes revenue when all of the following
conditions are satisfied: (1) there is persuasive evidence of an arrangement;
(2) the product or service has been provided to the customer; (3) the amount to
be paid by the customer is fixed or determinable; and (4) the collection of
such amount is probable.
The Company records revenue when it is realizable and earned
upon shipment of the finished products.
The Company does not accept returns due to the nature of the
product. However, we will provide credit to our customers for damaged goods.
The valuation of our embedded derivatives and warrant
derivatives are determined primarily by the multinomial distribution (Lattice)
model. An embedded derivative is a derivative instrument that is embedded within
another contract, which under the convertible note (the host contract) includes
the right to convert the note by the holder, certain default redemption right
premiums and a change of control premium (payable in cash if a fundamental
change occurs). In accordance with Accounting Standards Codification ("ASC") 815
“
Accounting for Derivative Instruments and Hedging Activities”
, as
amended, these embedded derivatives are marked-to-market each reporting period,
with a corresponding non-cash gain or loss charged to the current period. A
warrant derivative liability is also determined in accordance with ASC 815.
Based on ASC 815, warrants which are determined to be classified as derivative
liabilities are marked-to-market each reporting period, with a corresponding
non-cash gain or loss charged to the current period. The practical effect of
this has been that when our stock price increases so does our derivative
liability resulting in a non-cash loss charge that reduces our earnings and
earnings per share. When our stock price declines, we record a non-cash gain,
increasing our earnings and earnings per share. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, there exists a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable inputs when
determining fair value.
To determine the fair value of our embedded derivatives,
management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include our period end stock
price, historical stock volatility, risk free interest rate and derivative term.
The fair value recorded for the derivative liability varies from period to
period. This variability may result in the actual derivative liability for a
period either above or below the estimates recorded on our consolidated
financial statements, resulting in significant fluctuations in other income
(expense) because of the corresponding non-cash gain or loss recorded.
The following table sets forth the fair value hierarchy within
our financial assets and liabilities by level that were accounted for at fair
value on a recurring basis as of December 31, 2013.
The Company has 3 major customers that together account for 51%
(25%, 14% and 12%, respectively) of accounts receivable at December 31, 2013,
and 2 customers that together account for 28% (18% and 10%, respectively) of the
total revenues earned for the nine month period ended December 31, 2013.
The Company has 4 vendors that accounted for 80% (37%, 20%, 13%
and 10%, respectively) of purchases for the nine month period ended December 31,
2013.
The Company follows ASC Topic 260 to account for the earnings
per share. Basic earnings per common share (“EPS”) calculations are determined
by dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share calculations are
determined by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding. During periods when
common stock equivalents, if any, are anti-dilutive they are not considered in
the computation.
The Company has evaluated all the
recent accounting pronouncements through January 2014 and believes that none of
them will have a material effect on our financial statements.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the recoverability and/or acquisition and sale of assets and the satisfaction of
liabilities in the normal course of business. The Company has limited operating
history and, accordingly, has generated minimal revenues from operations. Since
its inception, the Company has been engaged substantially in financing
activities and developing its business plan and incurring startup costs and
expenses. As a result, the Company incurred accumulated net losses from
Inception (June 19, 2012) through the period ended December 31, 2013 of
$(3,349,544). In addition, the Company’s development activities since inception
have been financially sustained through debt and equity financing.
The ability of the Company to continue as a going concern is
dependent upon its ability to raise additional capital from the sale of common
stock and, ultimately, the achievement of significant operating revenues. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this uncertainty.
Depreciation expense for the three and nine months ended
December 31, 2013 was $16,534 and $25,872, respectively.
On February 27, 2013, we paid a $15,000 deposit on equipment
that we are purchasing for approximately $146,000. During the nine months ended
December 31, 2013, we paid an additional $131,000 for equipment that was
completed, and applied the $146,000 of deposits to the purchase price. We also
paid an additional $201,900 for more equipment. As of December 31, 2013, the
total amount of deposits for equipment is $201,900. The equipment was
manufactured by and purchased under an exclusive manufacturing contract from
Water Engineering Solutions, LLC, an entity that is controlled and majority
owned by Steven P. Nickolas and Richard A. Wright, for the production of our
alkaline water.
On November 7, 2013, we sold to certain institutional investors
10% Series B Convertible Preferred Shares which are subject to mandatory
redemption and include down-round provisions that reduce the exercise price of a
warrant and convertible instrument as required by ASC 815 “Derivatives and
Hedging” if the Company either issues equity shares for a price that is lower
than the exercise price of those instruments or issues new warrants or
convertible instruments that have a lower exercise price. The Company evaluated
whether its warrants and convertible debt instruments contain provisions that
protect holders from declines in its stock price or otherwise could result in
modification of either the exercise price or the shares to be issued under the
respective warrant agreements. The Company determined that a portion of its
outstanding warrants and conversion instruments contained such provisions
thereby concluding they were not indexed to the Company’s own stock and
therefore a derivative instrument.
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at December 31,
2013 is as follows:
The Company analyzed the warrants and conversion feature under
ASC 815 to determine the derivative liability. The Company estimated the fair
value of these derivatives using a multinomial distribution (Lattice) valuation
model. The fair value of these warrant liabilities at December 31, 2013 was $
224,042 and their conversion feature liability was $180,033. At November 7, 2013
the fair value of these warrant liabilities was $158,199 and the conversion
feature liability was $341,801. The change in fair value of derivative
liabilities of $95,925 was included in the consolidated statement of operations
for the nine months ended December 31, 2013.
The following table sets forth the fair value hierarchy within
our financial assets and liabilities by level that were accounted for at fair
value on a recurring basis as of November 7, 2013.
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at November 7,
2013 is as follows:
On November 7, 2013, the Company sold to certain institutional
investors an aggregate of 500 shares of our 10% Series B Convertible Preferred
Stock (“Series B Preferred Stock”) at a stated value of $1,000 per share of
Series B Preferred Stock for gross proceeds of $500,000. Additionally the
investors also received Series A, Series B and Series C common stock purchase
warrants. The Series A warrants will be exercisable into 1,162,791 shares of our
common stock at an exercise price of $0.55 per share, the Series B warrants will
be exercisable into 1,162,791 shares of our common stock at an exercise price of
$0.43 per share and the Series C warrants will be exercisable into 1,162,791
shares our common stock at an exercise price of $0.55 per share. Holders of the
Series B Preferred Stock will be entitled to receive cumulative dividends at the
rate per share (as a percentage of the stated value per share) of 10% per annum,
payable semi-annually. Each share of the Series B Preferred Stock will be
convertible at the option of the holder thereof into that number of shares of
common stock determined by dividing the stated value of such share of the Series
B Preferred Stock by the conversion price of $0.43, subject to later adjustment.
On November 4, 2013, we also entered into a registration rights agreement with
the investors pursuant to which we are obligated to file a registration
statement to register the resale of the shares of common stock issuable upon
conversion of the Series B Preferred Stock and upon exercise of the
Warrants.
Effective November 7, 2013, the Company issued Series A common
stock purchase warrants to the placement agent and its designees as compensation
for the services provided by the placement agent in connection with our private
placement of 500.00028 shares of our 10% Series B Convertible Preferred Stock,
which was completed on November 7, 2013. The Series A warrants issued to the
placement agent and its designees are exercisable into an aggregate of 116,279
shares of our common stock with an exercise price of $0.55 per share and have a
term of exercise of five years. The Company issued the Series A warrants to six
accredited investors and paid certain the transaction cost of $78,000. The
issuance of the Series A warrants was exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated
thereunder. The Company recorded a debt discount cost of $500,000 and will
amortize this cost over the mandatory redemption period. For the nine months
ended December 31, 2013 the Company recorded $48,578 of amortization of the debt
discount and deferred financing cost. The 10% Series B Preferred Stock included
down-round provisions which reduce the exercise price of a warrant and
convertible instrument as required by ASC 815 “Derivatives and Hedging”.
On October 7, 2013, the Company amended its 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.
Effective October 8, 2013, the Company issued a total of
20,000,000 shares of non-convertible Series A Preferred Stock to Steven A.
Nickolas and Richard A. Wright (10,000,000 shares to each), our directors and
executive officers, in consideration for the past services, at a deemed value of
$0.001 per share. The Company issued these shares to two U.S. Persons (as that
term is defined in Regulation S of the Securities Act of 1933) and in issuing
securities we relied on the registration exemption provided for in Section
4(a)(2) of the Securities Act of 1933. The company valued these shares based on
the cost considering the time and average billing rate of these individuals and
recorded a $20,000 stock compensation cost for nine months ended December 31,
2013.
We are authorized to issue 1,125,000,000 shares of $0.001 par
value common stock. On May 31, 2013, we effected a 15-for-1 forward stock split
of our $0.001 par value common stock. All shares and per share amounts have been
retroactively restated to reflect the split discussed above.
Prior to the acquisition of Alkaline Water Corp., we had
109,500,000 shares of common stock issued and outstanding.
On May 31, 2013, we issued 43,000,000 shares in exchange for a
100% interest in Alkaline Water Corp. For accounting purposes, the acquisition
of Alkaline Water Corp. by The Alkaline Water Company Inc. has been recorded as
a reverse acquisition of a company and recapitalization of Alkaline Water Corp.
based on the factors demonstrating that Alkaline Water Corp. represents the
accounting acquirer. Consequently, after the closing of this agreement we
adopted the business of Alkaline Water Corp.’s wholly-owned subsidiary, Alkaline
88, LLC.
As part of the acquisition, the former management of the
Company agreed to cancel 75,000,000 shares of common stock.
Effective October 8, 2013, the Company issued an aggregate of
1,250,000 shares of our common stock to three investors in a non-brokered
private placement, at a purchase price of $0.40 per share for gross proceeds of
$500,000. In addition, the Company issued 1,250,000 units to a finder in
connection with this private placement. Each unit consisted of one share
purchase warrant entitling the holder to purchase, for a period of two years
from issuance, one share of our common stock at an exercise price of $0.50 per
share and one-half of one share purchase warrant, with each whole share purchase
warrant entitling the holder to purchase, for a period of two years from
issuance, one share of our common stock at an exercise price of $0.60 per share.
On May 31, 2013, the Company sold 1,312,500 units at $0.40 per
share for total cash of $525,000. Each unit consisted of one share of common
stock, one warrant which entitles the holder to purchase one share of common
stock for a period of 2 years with an exercise price of $0.50 per share, and 1/2
warrant which entitles the holder to purchase 1/2 share of common stock for a
period of 2 years with an exercise price of $0.60 per share.
On May 31, 2013, the Company converted principal amount of
$225,000 and accrued interest of $4,870 into 574,675 units at $0.40 per share
for total debt converted of $229,870. Each unit consisted of one share of common
stock, one warrant which entitles the holder to purchase one share of common
stock for a period of 2 years with an exercise price of $0.50 per share, and 1/2
warrant which entitles the holder to purchase 1/2 share of common stock for a
period of 2 years with an exercise price of $0.60 per share.
Effective October 10, 2013, the Company issued 200,000 shares
of our common stock to one consultant in consideration for services rendered by
the consultant to our company.
On August 8, 2013, the Company entered into a service contract
that included the issuance of 250,000 common shares. These shares were valued at
fair value of $0.55 per share and have been charged as stock compensation to
general and administrative expense.
On December 20, 2013, the Company issued 65,000 common shares
to employees for services rendered. These shares were valued at fair value of
$0.327 per share and have been charged as stock compensation to general and
administrative expense.
Between December 13, 2013 and December 20, 2013, the Company
issued 170,000 common shares to consultants for services rendered. These shares
were valued at fair value of $59,300 and have been charged as stock compensation
to general and administrative expense.
Effective October 9, 2013, the Company granted a total of
6,000,000 stock options to Steven A. Nickolas and Richard A. Wright (3,000,000
stock options to each). The stock options are exercisable at the exercise price
of $0.605 per share for a period of ten years from the date of grant. The stock
options vest as follows: (i) 1,000,000 upon the date of grant; and (ii) 500,000
per quarter until fully vested.
The Company has recognized compensation expense of $1,669,302
on the stock options granted that vested during the current period for the nine
months ended December 31, 2013. The fair value of the unvested shares is
$3,338,604 as of December 31, 2013 with the total unrecognized compensation cost
related to non-vested stock options which is expected to be recognized over a
weighted-average period of approximately 1 year. The aggregate intrinsic value
of these options was $0 at December 31, 2013. Stock based compensation totaled
$1,669,302 for the nine months ended December 31, 2013.
Stock option activity summary covering options is presented in
the table below:
Warrants
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:
|
|
|
Number
|
|
|
Weighted-Average
|
|
|
|
|
of
|
|
|
Exercise Price
|
|
|
|
|
Warrants
|
|
|
|
|
|
Outstanding at April 1, 2013
|
|
-
|
|
$
|
0.00
|
|
|
Granted
|
|
8,310,415
|
|
$
|
0.52
|
|
|
Exercised
|
|
-
|
|
$
|
0.00
|
|
|
Cancelled
|
|
-
|
|
$
|
0.00
|
|
|
Outstanding at Decemberl 31, 2013
|
|
8,310,415
|
|
|
0.52
|
|
|
Warrants exercisable at Decemberl 31, 2013
|
|
7,147,624
|
|
|
0.52
|
|
50
The following table summarizes information about stock warrants
outstanding and exercisable at December 31, 2013:
|
|
|
STOCK WARRANTS OUTSTANDING AND
EXERCISABLE
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
Warrants
|
|
|
Contractual
|
|
|
Average
|
|
|
Exercise Price
|
|
Outstanding
|
|
|
Life in Years
|
|
|
Exercise Price
|
|
|
$ 0.50
|
|
1,887,175
|
|
|
1.92
|
|
|
$ 0.50
|
|
|
$ 0.60
|
|
943,588
|
|
|
1.92
|
|
|
$ 0.60
|
|
|
$ 0.50
|
|
3,604,652
|
|
|
3.86
|
|
|
$ 0.50
|
|
NOTE 10 – RELATED PARTY TRANSACTIONS
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.
NOTE 11 – SUBSEQUENT EVENTS
Common stock issued for services
Between January 2 2014 and January 14, 2014, the Company issued
280,000 shares of common stock to various consultants in consideration for
services rendered by the consultants to the company.
Lease with related party
On January 17, 2014 the Company entered into an equipment lease
with Water Engineering Solutions LLC, an entity that is controlled and owned by
an officer, director and shareholder, for specialized equipment totaling
$190,756. The Company made a down payment of $39,543 and agreed to a 60 month
term at $2,512 per month and a final payment of $28,585.
51
Management’s Discussion and Analysis of Financial
Condition
and Results of Operations
Our management’s discussion and analysis provides a narrative about our financial performance and condition that should be read in conjunction with the audited and unaudited consolidated financial statements and related notes thereto included in this prospectus. This discussion contains forward looking statements reflecting our current expectations and estimates and assumptions about events and trends that may affect our future operating results or financial position. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements due to a number of factors, including, but not limited to, those set forth in the sections of this prospectus titled “Risk Factors” beginning at page 5 above and “Forward-Looking Statements” beginning at page 13 above.
Overview
We were incorporated under the laws of the State of Nevada on
June 6, 2011. 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 at the time prior to the entry into the share exchange agreement with
Alkaline Water Corp., 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 May 31 2013, we completed the acquisition of Alkaline Water
Corp. pursuant to the share exchange agreement with Alkaline Water Corp. and its
stockholders. As a result, Alkaline Water Corp. became our wholly-owned
subsidiary. Consequently, after the closing of this agreement we adopted the
business of Alkaline Water Corp.’s wholly-owned subsidiary, Alkaline 88, LLC
(formerly Alkaline 84, LLC), which is the business of the production and sale of
bottled alkaline water, with a specific focus on bulk bottled alkaline water.
Because we are the successor business to Alkaline Water Corp. and because the
operations and assets of Alkaline Water Corp. represent our entire business and
operations from the closing date of the share exchange agreement, our
management’s discussion and analysis for the period from inception on June 19,
2012 through March 31, 2013 is based on Alkaline Water Corp.’s audited
consolidated balance sheets as of March 31, 2013, and its consolidated
statements of operations, stockholders’ deficit, and cash flows for the period
since Alkaline 88, LLC’s inception on June 19, 2012 through March 31, 2013.
Inception under this section “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations” refers to the inception of Alkaline Water
Corp. as a result of Alkaline Water Corp.’s acquisition of Alkaline 88, LLC
prior to Alkaline Water Corp.’s entry into the share exchange agreement.
52
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.
In its report on the financial statements of Alkaline Water Corp., the predecessor of The Alkaline Water Company Inc., for the period from inception (June 19, 2012) to March 31, 2013, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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
Our results of operations for the three and nine months ended December 31, 2013, the three months ended December 31, 2012 and the period from Inception (June 19, 2012) to December 31, 2012 are as follows:
|
|
|
For the three
months ended
December 31,
2013
|
|
|
For the three
months ended
December 31,
2012
|
|
|
For the nine
months ended
December 31,
2013
|
|
|
Inception
(June 19, 2012)
to December 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
|
)
|
Our results of operations for the period from Inception on June
19, 2012 through March 31, 2013 are as follows:
|
|
|
From Inception
|
|
|
|
|
(June 19, 2012) to
|
|
|
|
|
March 31, 2013
|
|
|
Revenue
|
$
|
15,110
|
|
|
Cost of goods sold
|
|
8,026
|
|
|
Gross profit
|
|
7,084
|
|
|
Net loss (after operating
|
|
|
|
|
expenses and other expenses)
|
$
|
(283,388
|
)
|
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. We had $15,110 in revenue from inception on June 19, 2012 to March 31, 2013, generated by sales of our beverage products. Cost of goods sold is comprised of production costs, shipping and handling costs. For the three and nine months ended December 31, 2013, we had cost of goods sold of $102,609 and $193,566, respectively, as compared to $0 for the period from inception on June 19, 2012 to December 31, 2012. We had $8,026 in cost of goods sold from inception on June 19, 2012 to March 31, 2013.
53
Expenses
Our operating expenses for the three and nine months ended
December 31, 2013, the three months ended December 31, 2012 and the period from
Inception (June 19, 2012) to December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
For the three
|
|
|
For the three
|
|
|
For the nine
|
|
|
(June 19,
|
|
|
|
|
months ended
|
|
|
months ended
|
|
|
months ended
|
|
|
2012) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
Sales and marketing expenses
|
$
|
150,417
|
|
$
|
2,849
|
|
$
|
338,839
|
|
$
|
38,903
|
|
|
General and administrative expenses
|
|
2,335,964
|
|
|
3,344
|
|
|
2,812,196
|
|
|
99,504
|
|
|
General and administrative expenses –
related party
|
|
3,286
|
|
|
46,682
|
|
|
65,378
|
|
|
46,682
|
|
|
Depreciation expenses
|
|
16,534
|
|
|
-
|
|
|
25,872
|
|
|
-
|
|
|
Total operating expenses
|
$
|
2,506,201
|
|
$
|
52,875
|
|
$
|
3,242,285
|
|
$
|
185,089
|
|
Our operating expenses for the period from inception on June
19, 2012 to March 31, 2013 are as follows:
|
|
|
From Inception
|
|
|
|
|
(June 19, 2012) to
|
|
|
|
|
March 31, 2013
|
|
|
Sales and marketing expenses
|
$
|
88,229
|
|
|
General and administrative expenses
|
|
89,608
|
|
|
General and administrative expenses –
related party
|
|
104,929
|
|
|
Depreciation expenses
|
|
1,814
|
|
|
Total operating expenses
|
$
|
284,580
|
|
During the three months ended December 31, 2013, our total operating expenses were $2,506,201, as compared to $52,875 for the three months ended December 31, 2012. For the three month period ended December 31, 2013, the total included $150,417 of sales and marketing expenses and $2,335,964 of general and administrative expenses, consisting primarily of approximately $1,670,000 of stock option compensation expense, $213,000 in stock compensation expense and $193,000 of professional fees. Our stock and stock option compensation expense was incurred as a part of our issuance of certain stock options and stock grants to employees and key consultants to develop our business. Although a non-cash expense, the value of such issuances had a material impact on our general and administrative expenses for the three month period ended December 31, 2013. For the three month period ended December 31, 2012, (as it was prior to the acquisition of Alkaline Water Corp.) we had no revenue and nominal operations, and, as a result, our expenditures were only $52,875 to support our business at that time.
During the nine months ended December 31, 2013, our total operating expenses were $3,242,285, as compared to $185,089 for the period from inception, or June 19, 2012 to December 31, 2012. For the nine month period ended December 31, 2013, the total included $338,839 of sales and marketing expenses and $2,812,196 of general and administrative expenses, consisting primarily of approximately $1,670,000 of stock option compensation expense, $350,000 in stock compensation expense and $362,000 of professional fees. Our stock and stock option compensation expense was incurred as a part of our issuance of certain stock options and stock grants to employees and key consultants to develop our business. Although a non-cash expense, the value of such issuances had a material impact on our general and administrative expenses for the nine month period ended December 31, 2013. For the period from inception to December 31, 2012, (as it was prior to the acquisition of Alkaline Water Corp.) we had nominal operations and our expenditures, consisting mainly of professional fees and rent, were significantly less to support our business at that time.
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 our company, $0 and $12,000 was rent to
an entity that is controlled and owned by an officer, director and shareholder
of our 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 three month period and 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.
During the period from Inception on June 19, 2012 to March 31,
2013, we had a total of $104,929 in general and administrative expenses with
related parties. Of the total, $69,732 was consulting fees to an officer,
director and stockholder of our company, $32,322 was rent to an entity that is
controlled and owned by an officer, director and stockholder of our company, and
$2,875 was professional fees to an entity that is controlled and owned by an
officer, director and stockholder of our company.
54
Liquidity and Capital Resources
Working Capital
Our working capital as of December 31, 2013 and March 31, 2013
was as follows:
|
|
|
December 31, 2013
|
|
|
March
31, 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 to
$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.
Cash Flow
Our cash flow 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 nine months
|
|
|
Inception
|
|
|
|
|
ended
|
|
|
(June 19, 2012) to
|
|
|
|
|
December 31, 2013
|
|
|
December 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
|
)
|
$
|
-
|
|
Our cash flow from inception on June 19, 2012 to March 31, 2013
is as follow:
|
|
|
Inception
|
|
|
|
|
(June 19, 2012) to
|
|
|
|
|
March 31, 2013
|
|
|
Net cash used in operating activities
|
$
|
284,401
|
|
|
Net cash used in investing activities
|
|
54,897
|
|
|
Net cash provided by financing activities
|
|
403,905
|
|
|
Net increase in cash and cash equivalents
|
$
|
64,607
|
|
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.
Net cash used in operating activities from inception on June
19, 2012 to March 31, 2013 primarily related to the net loss of $283,388 from
operations and an increase in accounts receivable of $7,573.
55
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.
Net cash used in investing activities from inception on June
19, 2012 to March 31, 2013 primarily related to the purchase of fixed assets for
$39,897.
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.
Net cash provided by financing activities from inception on
June 19, 2012 to March 31, 2013 primarily related to $264,575 raised from
stockholder contributions and $150,000 raised from notes payable.
Revolving Accounts Receivable Funding Agreement with
Gibraltar Business Capital, LLC
On February 20, 2014, our company, The Alkaline Water Company
Inc., and our subsidiaries, Alkaline 88, LLC and Alkaline Water Corp., entered
into a revolving accounts receivable funding agreement with Gibraltar Business
Capital, LLC. (
“Gibraltar”
). Under the agreement, from time to time, we
agreed to tender to Gibraltar all of our Accounts (which is defined as our
rights to payment whether or not earned by performance, (i) for property that
has been or is to be sold, leased, licensed, assigned or otherwise disposed of,
or (ii) for services rendered or to be rendered, or (iii) as otherwise defined
in the Uniform Commercial Code of the State of Illinois). Gibraltar will have
the right, but will not be obligated, to purchase such Accounts tendered in its
sole discretion. If Gibraltar purchases such Accounts, Gibraltar will make cash
advances to us as the purchase price for the purchased Accounts.
We assumed full risk of non-payment and unconditionally
guaranteed the full and prompt payment of the full face amount of all purchased
Accounts. We also agreed to direct all parties obligated to pay the Accounts to
send all payments for all Accounts directly to Gibraltar. All collections from
Accounts will be applied to our Indebtedness (as defined below) unless Gibraltar
elects to hold any such collections to establish reserves to secure payment of
any purchased Accounts.
In consideration of Gibraltar’s purchase of the Accounts, we
agreed to pay Gibraltar interest on the Indebtedness (which is defined as the
amount owed by us to Gibraltar from time to time, i.e., all cash advances, plus
all charges, plus all other amounts owning from us to Gibraltar pursuant to the
agreement, less all collections retained by Gibraltar from either purchased
Accounts or from us which are applied to Indebtedness) outstanding at the rate
of 8% per annum plus the prime rate in effect at the end of each month with the
prime rate for these purposes never being less than 3.25% per annum, calculated
on a 360-day year and payable monthly. In addition, we agreed to pay to
Gibraltar a monthly collateral/management fee in the amount of 0.5% calculated
on the average daily borrowing amount for the given month and an unused line fee
of 0.25% monthly based on the difference between the actual line of credit and
the average daily borrowing amount for the given month. We also agreed to pay to
Gibraltar upon execution of the agreement and as of the commencement of each
renewal term, a closing cost of 1% of the Initial Indebtedness in addition to
the amount of any other credit accommodations granted from Gibraltar to us,
which amount will be deducted from the first cash advances.
The Initial Indebtedness is $500,000. We may request an
increase to the Initial Indebtedness in $500,000 increments up to $5,000,000,
subject to our financial performance and/or projections are satisfactory to
Gibraltar, and absent an event of default.
We also granted to Gibraltar a security interest in all of our
presently-owned and hereafter-acquired personal and fixture property, wherever
located.
56
The agreement will continue until the first to occur of (i) demand by Gibraltar; or (ii) 24 months from the first day of the month following the date that the first purchased Account is purchased and will be automatically renewed for successive
periods of 12 months thereafter unless, at least 30 days prior to the end of the term, we give Gibraltar notice of our intention to terminate the agreement. In addition, we will be able to exit the agreement at any time for a fee of 2% of the line
of credit in place at the time of prepayment.
On February 20, 2014, Gibraltar made the first cash advance in the amount of $32,645.48.
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 months 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.
Changes in and Disagreements with Accountants
on
Accounting and Financial Disclosure
In connection with the closing of the share exchange agreement
with Alkaline Water Corp. on May 31, 2013, we changed our independent registered
public accounting firm from Sadler, Gibb & Associates to Seale and Beers,
CPAs. The appointment of Seale and Beers, CPAs was approved by our board of
directors.
Sadler, Gibb & Associates’ report on our financial
statements for the fiscal year ended August 31, 2012 and for the period from
inception on June 6, 2011 through August 31, 2011 did not contain an adverse
opinion or disclaimer of opinion, or qualification or modification as to
uncertainty, audit scope, or accounting principles, except that such report on
our financial statements contained an explanatory paragraph in respect to the
substantial doubt about our ability to continue as a going concern.
During the fiscal year ended August 31, 2012 and the period
from inception on June 6, 2011 through August 31, 2011 and in the subsequent
interim period through the date of resignation, there were no disagreements,
resolved or not, with Sadler, Gibb & Associates on any matter of accounting
principles or practices, financial statement disclosure, or audit scope and procedures, which
disagreement(s), if not resolved to the satisfaction of Sadler, Gibb &
Associates, would have caused Sadler, Gibb & Associates to make reference to
the subject matter of the disagreement(s) in connection with its report.
57
During the fiscal year ended August 31, 2012 and the period
from inception on June 6, 2011 through August 31, 2011 and in the subsequent
interim period through the date of resignation, there were no reportable events
as described in Item 304(a)(1)(v) of Regulation S-K.
During the fiscal year ended August 31, 2012 and the period
from inception on June 6, 2011 through August 31, 2011 and in the subsequent
interim period through the date of appointment, we have not consulted with Seale
and Beers, CPAs regarding either the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, nor has Seale and
Beers, CPAs provided to us a written report or oral advice that Seale and Beers,
CPAs concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue. In addition, during
such periods, we have not consulted with Seale and Beers, CPAs regarding any
matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) and the related instructions) or a reportable event (as described
in Item 304(a)(1)(v) of Regulation S-K).
Directors and Executive Officers
Directors and Executive Officers
All directors of our company hold office until the next annual
meeting of our stockholders or until their successors have been elected and
qualified, or until their death, resignation or removal. The executive officers
of our company are appointed by our board of directors and hold office until
their death, resignation or removal from office.
Our directors and executive officers, their ages, positions
held, and duration of such are as follows:
|
Name
|
Position Held with Our
Company
|
Age
|
Date First Elected or Appointed
|
|
Steven P. Nickolas
|
Chairman, President, Chief
Executive Officer and Director
|
58
|
May 31, 2013
|
|
Richard A. Wright
|
Vice-President, Secretary,
Treasurer and Director
|
55
|
May 31, 2013
|
Business Experience
The following is a brief account of the education and business
experience of directors and executive officers during at least the past five
years, indicating their principal occupation during the period, and the name and
principal business of the organization by which they were employed.
58
Steven P. Nickolas
In 2008, Mr. Nickolas was appointed President of Nutripure
Beverages, Inc., a small cap pink sheet company that intended to launch a
beverage product that was developed by him, on a national basis. The company was
unsuccessful in raising the necessary capital, at which time Mr. Nickolas
resigned his position after three months with the company and proceeded to
investigate other financial opportunities. From May 2008 to July 2010, Mr.
Nickolas was a founder of and acted as the president, secretary, treasurer and a
director of Northsight Capital, Inc., a publicly-traded financial holding
company (OTCBB: NCAP), which was sold in order to support the ongoing research
and development of various beverage products. During this time Mr. Nickolas
founded Jayger International, LTD, which involved the sale of a variety of
healthy products in Japan and other Asian countries. Mr. Nickolas also engaged
in a number of consulting activities with both large and small companies and
continued to remain active in the food and beverage industry. During this same
period of time Mr. Nickolas founded The Healthy Food Project, Inc., a 501(c)(3)
non-profit organization dedicated to promoting the development of healthy foods
and beverages for the public use. Over the past two years Mr. Nickolas has
focused his attention on the commercial development of the water electrolysis
process utilized in Alkaline 88, LLC.
Effective as of May 31, 2013, Mr. Nickolas was appointed as
chairman, president, chief executive officer, secretary and a director of our
company. On August 7, 2013, our board of directors replaced Mr. Nickolas as
secretary of our company with Richard A. Wright.
Mr. Nickolas graduated from Claremont Men’s College (Now
Claremont-Mckenna College) in 1977 with a Bachelor of Science Degree in
Economics and Political Philosophy. He did post-graduate studies at Cal Poly
Pomona in Psychology in 1978. He also attended Claremont Graduate School in 1978
in Government studies.
We believe that Mr. Nickolas is qualified to serve on our board
of directors because of his knowledge of our current operations in addition to
his education and business experiences described above.
Richard A. Wright
Mr. Wright is a Certified Public Accountant. He graduated
Magnum Cum Laude in 1978 from Mount Union University in Alliance Ohio. He has
done graduate level MBA courses at Case Western Reserve College in Cleveland,
Ohio.
In 2008, Mr. Wright became the Chief Financial Officer for PCT
International. PCT is a leading worldwide developer and manufacturer of last
mile and access network solutions for broadband communication networks. PCT
focuses on innovative and cost-effective solutions that allow service providers
to improve system integrity and expand service offerings. It has manufacturing
plants in USA and China and sells their products in 42 countries.
In 2010 (through present), Mr. Wright began his own tax and
accounting CPA firm in Scottsdale, Arizona, Wright Tax Solutions PLC. Mr Wright
also began Wright Investment Group, LLC, a small equity participation firm that
helps provide seed capital through micro loans and financial expertise to
start-up enterprises.
Effective as of May 31, 2013, Mr. Wright was appointed as
vice-president, treasurer and a director of our company. On August 7, 2013, our
board of directors appointed Mr. Wright as secretary of our company.
We believe that Mr. Wright is qualified to serve on our board
of directors because of his knowledge of our current operations in addition to
his education and business experiences described above.
Family Relationships
There are no family relationships between any director or
executive officer.
Involvement in Certain Legal Proceedings
None of our directors and executive officers has been involved
in any of the following events during the past ten years:
59
|
|
(a)
|
any petition under the federal bankruptcy laws or any
state insolvency laws filed by or against, or an appointment of a
receiver, fiscal agent or similar officer by a court for the business or
property of such person, or any partnership in which such person was a
general partner at or within two years before the time of such filing, or
any corporation or business association of which such person was an
executive officer at or within two years before the time of such
filing;
|
|
|
|
|
|
|
(b)
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
|
|
|
|
(c)
|
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct
or practice in connection with such activity; engaging in any type of
business practice; or (iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in connection with
any violation of federal or state securities laws or federal commodities
laws;
|
|
|
|
|
|
|
(d)
|
being the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days
the right of such person to engage in any activity described in paragraph
(c)(i) above, or to be associated with persons engaged in any such
activity;
|
|
|
|
|
|
|
(e)
|
being found by a court of competent jurisdiction (in a
civil action), the Securities and Exchange Commission to have violated a
federal or state securities or commodities law, and the judgment in such
civil action or finding by the Securities and Exchange Commission has not
been reversed, suspended, or vacated;
|
|
|
|
|
|
|
(f)
|
Being found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such civil
action or finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
|
|
|
|
|
|
|
(g)
|
being the subject of, or a party to, any federal or state
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of: (i) any federal or state securities or commodities law or
regulation; or (ii) any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a
temporary or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease- and-desist order, or
removal or prohibition order; or (iii) any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity;
or
|
|
|
|
|
|
|
(h)
|
being the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member.
|
60
Executive Compensation
Summary Compensation
The particulars of compensation paid to the following persons:
|
|
(a)
|
all individuals serving as principal executive officers
of The Alkaline Water Company Inc. and Alkaline Water Corp. during the
year ended March 31, 2014;
|
|
|
|
|
|
|
(b)
|
each of two most highly compensated executive officers of
The Alkaline Water Company Inc. and Alkaline Water Corp. other than their
principal executive officer who were serving as executive officers at
March 31, 2014; and
|
|
|
|
|
|
|
(c)
|
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as executive officer at March 31,
2014,
|
who we will collectively refer to as the named executive
officers, for all services rendered in all capacities to us and our subsidiaries
for the period from inception on June 19, 2012 through March 31, 2013 and the year ended March 31, 2014 are set
out in the following summary compensation table:
61
Summary Compensation Table – Period from Inception on June 19, 2012 through March 31, 2013 and Year ended March 31, 2014
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
Steven P. Nickolas
President and CEO of The Alkaline Water Company Inc. and President of
Alkaline
Water Corp.
(5)
|
2014
2013
(1)
|
39,119
50,000
|
Nil
Nil
|
10,000
Nil
|
1,112,868
Nil
|
Nil
Nil
|
Nil
Nil
|
21,291
19,732
|
1,183,278
69,732
|
Richard A. Wright
Vice-President, Secretary and Treasurer of The Alkaline Water Company Inc. and CFO and
Treasurer of
Alkaline
Water Corp.
(6)
|
2014
2013
|
24,948
Nil
|
Nil
Nil
|
10,000
Nil
|
1,112,868
Nil
|
Nil
Nil
|
Nil
Nil
|
3,385
2,875
|
1,151,201
2,875
|
Stephen Rolls
(3)
Former
President,
Secretary,
Treasurer,
CEO and
CFO of The
Alkaline
Water
Company Inc.
|
2014
2013
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Sergejs Belkovs
(4)
Former
President,
Secretary,
Treasurer,
CEO and
CFO of The
Alkaline
Water
Company Inc.
|
2014
2013
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
N/A
Nil
|
Notes
|
(1)
|
On May 31, 2013, we completed the acquisition of Alkaline
Water Corp. pursuant to the share exchange agreement with Alkaline Water
Corp. and its stockholders. The amounts in this table reflect compensation
paid by Alkaline Water Corp. to Mr. Nickolas during the period from
inception on June 19, 2012 through March 31, 2013.
|
|
|
|
|
(2)
|
On May 31, 2013, we completed the acquisition of Alkaline
Water Corp. pursuant to the share exchange agreement with Alkaline Water
Corp. and its stockholders. The amounts in this table reflect compensation
paid by Alkaline Water Corp. to Mr. Wright during the period from
inception on June 19, 2012 through March 31, 2013.
|
62
|
(3)
|
On March 18, 2013, we appointed Stephen Rolls, as our
president, secretary, treasurer, chief executive officer, chief financial
officer and as a director of our company. On May 31, 2013, Mr. Rolls
resigned as a director of our company and from all officer positions of
our company.
|
|
|
|
|
(4)
|
On March 18, 2013, Sergejs Belkovs resigned as the
president, secretary, treasurer, chief executive officer and chief
financial officer of our company. On April 19, 2013, Mr. Belkovs resigned
as a director of our company.
|
|
|
|
|
(5)
|
On May 31, 2013, Steven P. Nickolas was appointed as the chairman, president, chief executive officer and director of our company.
|
|
|
|
|
(6)
|
On May 31, 2013, Richard A. Wright was appointed as the vice-president, secretary, treasurer and director of our company.
|
For the period ended March 31, 2013 Steven P. Nickolas had an oral agreement with Alkaline 88, LLC
to provide executive level management through his company, Beverage Science
Laboratory, at the rate of $5,000 per month. In addition, Alkaline 88, LLC
provided health insurance, an auto allowance and other benefits totaling
$19,732.
For the year ended March 31, 2014 Steven P. Nickolas had an oral agreement with Alkaline 88, LLC to provide executive level management through his company, Beverage Science Laboratory, at the rate of $5,000 per month. In addition, Alkaline 88, LLC provided health insurance, an auto allowance and other benefits totaling $21,291
For the year ended March 31, 2014 Steven P. Nickolas was paid $30,000 though his Consulting firm Beverage Science Laboratory LLC services.
For the period ended March 31, 2013 Richard A. Wright was paid $2,875 though his CPA firm, Wright
Tax Solutions PLC, for CPA services.
For the year ended March 31, 2014 Richard A. Wright had an oral agreement with Alkaline 88, LLC to provide executive level management through his company, Beverage Science Laboratory, at the rate of $4,000 per month. In addition, Alkaline 88, LLC, an auto allowance and other benefits totaling $3,385.
For the year ended March 31, 2014 Richard A. Wright was paid $28,000 though his CPA firm, Wright Tax Solutions PLC, for CPA and consulting services.
Effective October 9, 2013, the Company granted a total of 6,000,000 stock options to Steven A. Nickolas and Richard A. Wright (3,000,000 stock options to each). The stock options are exercisable at the exercise price of $0.605 per share for a period of ten years from the date of grant. The stock options vest as follows: (i) 1,000,000 upon the date of grant; and (ii) 500,000 per quarter until fully vested. We estimated compensation expense of $2,225,736 on the stock options granted that vested during the year ended March 31, 2014, divided equally between Steven P. Nickolas and Richard A. Wright in the amount of $1,112,868 each. The aggregate intrinsic value of these options was $0 at March 31, 2014.
We have not entered into any written employment agreement or
consulting agreement with our directors or executive officers.
Effective October 7, 2013, our board of directors adopted and
approved the 2013 Equity Incentive Plan. The plan was approved by a majority of
our stockholders on October 7, 2013. The purpose of the plan is to (a) enable
our company and any of our affiliates to attract and retain the types of
employees, consultants and directors who will contribute to our company’s long
range success; (b) provide incentives that align the interests of employees,
consultants and directors with those of the stockholders of our company; and (c)
promote the success of our company’s business. The plan enables us to grant awards of a maximum of 20,000,000 shares of
our stock and awards
that may be granted under the plan includes incentive stock options,
non-qualified stock options, stock appreciation rights, restricted awards and
performance compensation awards.
Effective October 8, 2013, we issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven P.. Nickolas and
Richard A. Wright (10,000,000 shares to each) in consideration for the past
services, at a deemed value of $0.001 per share. We valued these shares based on the cost considering the time and average billing rate of these individuals and recorded a $20,000 stock compensation cost for year ended March 31, 2014, resulting in stock award compensation of $10,000 for Steven P. Nickolas and Richard A. Wright each.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide
retirement or similar benefits for our directors or executive officers.
Resignation, Retirement, Other Termination, or Change in
Control Arrangements
We have no contract, agreement, plan or arrangement, whether
written or unwritten, that provides for payments to our directors or executive
officers at, following, or in connection with the resignation, retirement or
other termination of our directors or executive officers, or a change in control
of our company or a change in our directors’ or executive officers’
responsibilities following a change in control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer
certain information concerning the outstanding equity awards as of March 31,
2014:
63
|
Name
|
Option awards
|
Stock
awards
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number
of
shares
or units
of stock
that
have
not
vested
(#)
|
Market
value
of
shares
of
units of
stock
that
have
not
vested
($)
|
Equity
incentive
plan
awards:
Number
of
unearned
shares,
units or
other
rights
that have
not
vested
(#)
|
Equity
incentive
plan
awards:
Market
or
payout
value
of
unearned
shares,
units
or other
rights
that
have not
vested
($)
|
|
Steven P. Nickolas
|
1,500,000
|
1,500,000
|
Nil
|
0.605
|
October 9, 2023
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Richard A. Wright
|
1,500,000
|
1,500,000
|
Nil
|
0.605
|
October 9, 2023
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Stephen Rolls
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Sergejs Belkovs
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Compensation of Directors
During the period from inception on June 19, 2012 through March
31, 2013 and the year ended March 31, 2014, The Alkaline Water Company Inc. and Alkaline Water Corp. had no
directors who were not the named executive officers of The Alkaline Water
Company Inc. and Alkaline Water Corp., respectively.
We have no formal plan for compensating our directors for their
services in their capacity as directors. Our directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of our board of directors. Our board of
directors may award special remuneration to any director undertaking any special
services on their behalf other than services ordinarily required of a director.
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of April 3, 2014,
certain information with respect to the beneficial ownership of our common stock
by each stockholder known by us to be the beneficial owner of more than 5% of
any class of our voting securities and by each of our current directors, our
named executive officers and our current executive officers and by our current
executive officers and directors as a group.
64
Name of Beneficial Owner
|
Title of Class
|
Amount and Nature of
Beneficial Ownership
(1)
|
Percentage of
Class
(2)
|
Steven P. Nickolas
14301 North
87 St., Suite 109
Scottsdale, AZ 85260
|
Common Stock
|
45,000,000
(4)
|
53.8%
|
Series A
Preferred Stock
(3)
|
|
|
|
10,000,000
|
50%
|
Richard A. Wright
14301 N.
87
th
Street, Suite 119
Scottsdale, AZ 85260
|
Common Stock
|
2,000,000
(5)
|
2.4%
|
Series A
Preferred Stock
(3)
|
10,000,000
|
50%
|
|
Stephen Rolls
|
Common Stock
|
Nil
|
Nil
|
|
Sergejs Belkovs
|
Common Stock
|
Nil
|
Nil
|
|
All executive officers and
directors as
a group (2 persons)
|
Common Stock
|
47,000,000
|
54.9%
|
Series A
Preferred Stock
(3)
|
20,000,000
|
100%
|
Notes
|
(1)
|
Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with
respect to securities. Common stock subject to options or warrants
currently exercisable or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such option or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other
person.
|
|
|
|
|
(2)
|
Percentage of common stock is based on 81,602,175 shares of our common stock issued and outstanding as of April 3, 2014. Percentage of Series A Preferred Stock is based on 20,000,000 shares of Series A Preferred Stock issued and outstanding as of April 3, 2014.
|
|
|
|
|
(3)
|
The Series A Preferred Stock has 10 votes per share and
is not convertible into shares of our common stock.
|
|
|
|
|
(4)
|
Consists of 2,000,000 stock options exercisable within 60
days, 21,500,000 shares of our common stock owned by WiN Investments, LLC
and 21,500,000 shares of our common stock owned by Lifewater Industries,
LLC. Steven P. Nickolas exercises voting and dispositive power with
respect to the shares of our common stock that are beneficially owned by
WiN Investments, LLC and Lifewater Industries, LLC.
|
|
|
|
|
(5)
|
Consists of 2,000,000 stock options exercisable within 60
days.
|
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change in control of our
company.
Transactions with Related Persons, Promoters and Certain
Control Persons and Corporate Governance
Other than as disclosed below, there has been no transaction, since April 1, 2011, or currently proposed transaction, in which our company was or is to be a participant and the amount involved exceeds $5,000, being the lesser of $120,000 or one percent of our total assets at March 31, 2014, and in which any of the following persons had or will have a direct or indirect material interest:
|
|
(a)
|
Any director or executive officer of our
company;
|
65
|
|
(b)
|
Any person who beneficially owns, directly or indirectly,
more than 5% of any class of our voting securities;
|
|
|
|
|
|
|
(c)
|
Any of our promoters and control persons; and
|
|
|
|
|
|
|
(d)
|
Any member of the immediate family (including spouse,
parents, children, siblings and in- laws) of any of the foregoing
persons.
|
During the period from June 19, 2012 to March 31, 2014, we purchased $219,000 in equipment from Water Engineering Solutions, LLC, an entity that is controlled and owned by Steven P. Nickolas and Richard A. Wright, officers and directors of our company.
During the period from June 19, 2012 to March 31, 2014, we had a total of $65,378 in general and administrative expenses with related parties. Of the total, $33,592 was to four different entities consisting of consulting fees to Beverage Science Laboratories ($25,000), Water Enhanced Technologies, Inc. ($3,000) and WiN Investments, LLC ($2,000), entities controlled and owned by Steven P. Nickolas, and Water Engineering Solutions, LLC ($3,592), an entity controlled and owned by Steven P. Nickolas and Richard A. Wright. In addition, $12,000 was rent to Steven P. Nickolas and $16,500 was professional fees to Wright Tax Solutions, LLC ($12,500) and Wright Investment Group ($4,000), entities controlled and owned by Richard A. Wright and $7,638 for health insurance for Steven P. Nickolas $9,000 auto allowance for Steve A Nickolas and $3,385 auto allowance for Richard A. Wright.
Alkaline Water Corp. has a month-to-month sub-rental
arrangement with Beverage Science Laboratories for $1,914 per month.
On January 17, 2014, we entered into an equipment lease agreement with Water Engineering Solutions, LLC to lease alkaline generating electrolysis machinery and equipment for the manufacture of our alkaline water product line. The term of the lease is 60 months. The total cost for the unit is $190,576. We agreed that there will be a down payment of $38,113.40 plus an origination fee of $1,420.25. In addition, we agreed that the amount due at the signing of the agreement is $39,542.69 with the balance of $123,868.60 at a rate of 8% per annum for the term of the agreement and the residual amount of $28,585.05. For the term of the agreement, we agreed to deliver to Water Engineering Solutions, LLC lease payments in the amount of $2,511.61 per month.
Compensation for Executive Officers and Directors
For information regarding compensation for our executive
officers and directors, see “Executive Compensation”.
Director Independence
We currently act with two directors consisting of Steven P.
Nickolas and Richard A. Wright. Our common stock is quoted on the OTC Bulletin
Board operated by FINRA (the Financial Industry Regulatory Authority), which
does not impose any director independence requirements. Under NASDAQ rule
5605(a)(2), a director is not independent if he or she is also an executive
officer or employee of the corporation or was, at any time during the past three
years, employed by the corporation. Using this definition of independent
director, we do not have any independent director.
Where You Can Find More Information
We are not required to deliver an annual report to our
stockholders unless our directors are elected at a meeting of our stockholders
or by written consents of our stockholders. If our directors are not elected in
such manner, we are not required to deliver an annual report to our stockholders
and will not voluntarily send an annual report.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Such filings
are available to the public over the Internet at the Securities and Exchange
Commission’s website at
http://www.sec.gov
.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933 with respect
to the securities offered under this prospectus. This prospectus, which forms a
part of that registration statement, does not contain all information included
in the registration statement. Certain information is omitted and you should
refer to the registration statement and its exhibits.
66
You may review a copy of the registration statement at the
Securities and Exchange Commission’s public reference room at 100 F Street, N.E.
Washington, D.C. 20549 on official business days during the hours of 10 a.m. to
3 p.m. You may obtain information on the operation of the public
reference room by calling the Securities and Exchange Commission at
1-800-SEC-0330. You may also read and copy any materials we file with the
Securities and Exchange Commission at the Securities and Exchange Commission’s
public reference room. Our filings and the registration statement can also be
reviewed by accessing the Securities and Exchange Commission’s website at
http://www.sec.gov.
67
|
|
|
The Alkaline Water Company Inc.
|
|
|
|
Prospectus
|
|
|
|
35,000,000
Shares of Common Stock
|
|
Warrants to Purchase up to 17,500,000 Shares of
Common Stock
|
|
17,500,000 Shares of Common Stock Underlying the
Warrants
|
|
|
|
_____________, 2014
|
|
|
|
|
68
[ALTERNATE SECTIONS]
|
The information in this prospectus is not complete and
may be changed. The selling stockholders may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
|
|
Subject to Completion, Dated April 3, 2014
|
|
Prospectus
|
|
5,488,375 Shares
|
|
|
|
The Alkaline Water Company Inc.
|
|
|
|
Common Stock
|
|
_____________________________________
|
The selling stockholders identified in this prospectus may
offer and sell up to 2,000,002 shares of our common stock that may be issued
upon conversion of shares of 10% Series B Convertible Preferred Stock and up to
3,488,373 shares of our common stock that may be issued upon exercise of
warrants. The shares of 10% Series B Convertible Preferred Stock and warrants
were acquired by the selling stockholders directly from us in a private
placement pursuant to the Securities Purchase Agreement dated November 4, 2013
between our company and the selling stockholders.
The selling stockholders may sell all or a portion of the
shares being offered pursuant to this prospectus at fixed prices, at prevailing
market prices at the time of sale, at varying prices or at negotiated
prices.
Our common stock is quoted on the OTC Bulletin Board under the
symbol “WTER”. On April 2, 2014, the closing price of our common stock
on the OTC Bulletin Board was $0.2844 per share.
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders. We will pay for expenses of this offering,
except that the selling stockholders will pay any broker discounts or
commissions or equivalent expenses and expenses of their legal counsels
applicable to the sale of their shares.
Investing in our common stock involves risks. See “Risk
Factors” beginning on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is _____________, 2014.
69
[ALTERNATE SECTIONS]
Table of Contents
70
[ALTERNATE SECTIONS]
Prospectus Summary
The Offering
The selling stockholders identified in this prospectus may
offer and sell up to 2,000,002 shares of our common stock that may be issued
upon conversion of shares of 10% Series B Convertible Preferred Stock and up to
3,488,373 shares of our common stock that may be issued upon exercise of
warrants. The shares of 10% Series B Convertible Preferred Stock and warrants
were acquired by the selling stockholders directly from us in a private
placement pursuant to the Securities Purchase Agreement dated November 4, 2013
between our company and the selling stockholders.
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders. We will pay for expenses
of this offering, except that the selling stockholders will pay any broker
discounts or commissions or equivalent expenses and expenses of their legal
counsels applicable to the sale of their shares.
Our common stock is quoted on the OTC Bulletin Board under the
symbol “WTER”.
Use of Proceeds
We will not receive any proceeds from the sale of the shares of
our common stock by the selling stockholders. We may, however, receive proceeds
upon exercise of the warrants by the selling stockholders.
If we receive proceeds upon exercise of warrants, we will use these proceeds for
working capital purposes.
We will pay for expenses of this offering, except that the
selling stockholders will pay any broker discounts or commissions or equivalent
expenses and expenses of their legal counsels applicable to the sale of their
shares.
Private Placement
The selling stockholders identified in this prospectus may
offer and sell up to 2,000,002 shares of our common stock that may be issued
upon conversion of shares of 10% Series B Convertible Preferred Stock and up to
3,488,373 shares of our common stock that may be issued upon exercise of
warrants. The shares of 10% Series B Convertible Preferred Stock and warrants
were acquired by the selling stockholders directly from us in a private
placement which was consummated on November 7, 2013.
On November 7, 2013, we issued an aggregate of 500.00028 shares
of our 10% Series B Convertible Preferred Stock (
“Series B Preferred
Stock”
) at a stated value of $1,000 per share of Series B Preferred Stock
for gross proceeds of $500,000.28 (the “
Offering
”). On the same date, we
also issued Series A, Series B and Series C common stock purchase warrants. The
Series A warrants are exercisable into 1,162,791 shares of our common stock with
an exercise price of $0.55 per share and have a term of exercise of five years.
The Series B warrants are exercisable into 1,162,791 shares of the Common Stock
with an exercise price of $0.43 per share and have a term of exercise of 54
weeks. The Series C warrants are exercisable into 1,162,179 shares of the Common
Stock with an exercise price of $0.55 per share and have a term of exercise of
five years, provided that such Series C warrants only become exercisable ratably
upon exercise of the Series B Warrants. We issued the Series B Preferred Stock
and the Series A, Series B and Series C common stock purchase warrants to
accredited institutional investors. The issuance and sale of securities is
exempt from registration pursuant to Section 4(a)(2) of the Securities Act of
1933 and Rule 506 promulgated thereunder.
Holders of the Series B Preferred Stock will be entitled to
receive cumulative dividends at the rate per share (as a percentage of the
stated value per share) of 10% per annum, payable semi-annually on April 30 and
October 31 and on each conversion date (with respect only to Series B Preferred
Stock being converted) and on each Mandatory Redemption Date and One Year
Redemption Date (with respect only to Series B Preferred Stock being redeemed).
Upon any liquidation, dissolution or winding-up of our company, holders of the
Series B Preferred Stock will be entitled to receive out of the assets of our company an amount
equal to the stated value, plus any accrued and unpaid dividends thereon and any
other fees or liquidated damages then due and owing thereon for each share of
the Series B Preferred Stock before any distribution or payment is made to the
holders of any junior securities.
71
[ALTERNATE SECTIONS]
Each share of the Series B Preferred Stock is convertible at
the option of the holder thereof into that number of shares of Common Stock
determined by dividing the stated value of such share of the Series B Preferred
Stock by the conversion price of $0.43, subject to adjustment pursuant to the
terms therein. In addition, on the earlier (the
“Trigger Date”
) of (a)
the date that a registration statement that registers the resale of the shares
of Common Stock issuable upon conversion of the shares of the Series B Preferred
Stock (the
“Registration Statement”
) is first declared effective by the
Securities and Exchange Commission and (b) the 180
th
calendar day
following the date of the closing of the Offering (November 7, 2013), the
conversion price will be reduced to the lesser of (i) the then conversion price
or (ii) 85% of the average of the volume weighted average price for the five
trading dates immediately prior to such Trigger Date, subject to a floor price
of $0.25. The conversion right is subject to the beneficial ownership
limitation, which will be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock held by the
applicable holder. The holder may increase or decrease the beneficial ownership
limitation upon not less than 61 days’ prior notice to our company, but in no
event will such beneficial ownership exceed 9.99% .
Within three trading days from the closing of any subsequent
financing (each, a
“Mandatory Redemption Date”
), we must use 25% of the
proceeds from each such financing to redeem the Series B Preferred Stock on a
pro rata basis, until such time that all of the Series B Preferred Stock then
outstanding are redeemed in full (each, a
“Mandatory Redemption”
). If any
portion of the cash payment for a Mandatory Redemption has not been paid by us
on the Mandatory Redemption Date, interest will accrue until such amount is paid
in full at a rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law. In addition, on the first anniversary of the
earliest date on which any shares of the Series B Preferred Stock were issued
(the
“One Year Redemption Date”
), we must redeem all of the then
outstanding Series B Preferred Stock, for an amount in cash equal to the sum of
100% of the aggregate stated value then outstanding, the accrued but unpaid
dividends and all the liquidated damages and other amounts due in respect of the
Series B Preferred Stock. In addition, upon the occurrence of a triggering
event, each holder will have the right to require us to redeem all of the Series
B Preferred Stock then held by such holder for a redemption price, in cash,
equal to the sum of (a) the greater of (i) 130% of the stated value and (ii) the
product of (y) the volume weighted average price on the trading day immediately
preceding the date of the triggering event and (z) the stated value divided by
the then conversion price, (b) all accrued but unpaid dividends thereon, (c) the
make-whole amount (being an amount in cash equal to all of the dividends that,
but for the applicable conversion, redemption or default payment, would have
accrued with respect to the applicable stated value being so converted or
redeemed for the period commencing on the applicable redemption date or
conversion date or default payment date and ending on November 8, 2014) and (d)
all liquidated damages and other costs, expenses or amounts due in respect of
the Series B Preferred Stock. The triggering events include, among other things,
the failure of the Registration Statement to be declared effective by the
Securities and Exchange Commission on or prior to the 180
th
day after
the date of the closing of the private placement.
In connection with the private placement, we also entered into
a Registration Rights Agreement with the investors pursuant to which we are
obligated to file a Registration Statement to register the resale of the shares
of Common Stock issuable upon conversion of the Series B Preferred Stock and
upon exercise of the warrants on or prior to the 30
th
calendar day
following November 4, 2013. We also agreed to use our best efforts to cause the
registration statement to be declared effective as promptly as possible after
the filing thereof, but in any event no later than the 60
th
calendar
day following November 4, 2013 (or, in the event of a “full review” by the
Securities and Exchange Commission, the 120
th
calendar day following
November 4, 2013).
Selling Stockholders
The selling stockholders may offer and sell, from time to time,
any or all of shares of our common stock that may be issued upon conversion of
shares of the 10% Series B Convertible Preferred Stock and upon exercise of the
warrants. The shares of 10% Series B Convertible Preferred
Stock and warrants were acquired by the selling stockholders directly from our
company pursuant to the Securities Purchase Agreement dated November 4, 2013
between our company and the selling stockholders.
72
[ALTERNATE SECTIONS]
The following table sets forth certain information regarding
the beneficial ownership of shares of common stock by the selling stockholders
as of April 3, 2014 and the number of shares of our common stock being
offered pursuant to this prospectus. Except as otherwise described below, we
believe that the selling stockholders have sole voting and investment powers
over their shares.
Because the selling stockholders may offer and sell all or only
some portion of the 5,488,375 shares of our common stock being offered pursuant
to this prospectus, the numbers in the table below representing the amount and
percentage of these shares of our common stock that will be held by the selling
stockholders upon termination of the offering are only estimates based on the
assumption that each selling stockholder will sell all of its shares of our
common stock being offered in the offering.
None of the selling stockholders had or have any position or
office, or other material relationship with us or any of our affiliates over the
past three years.
To our knowledge, none of the selling stockholders is a
broker-dealer or an affiliate of a broker-dealer. We may require the selling
stockholders to suspend the sales of the shares of our common stock being
offered pursuant to this prospectus upon the occurrence of any event that makes
any statement in this prospectus or the related registration statement untrue in
any material respect or that requires the changing of statements in those
documents in order to make statements in those documents not misleading.
Name of Selling
Stockholder
|
Shares Owned
by
the Selling
Stockholder
before the
Offering
(1)
|
Total Shares
Offered in the
Offering
(2)
|
Number of Shares to Be Owned
by
Selling Stockholder After the
Offering and Percent of Total
Issued and Outstanding Shares
(1)
|
# of
Shares
(3)
|
% of
Class
(3),(4)
|
|
Anson Investments Master Fund LP
(5)
|
2,325,580
(6)
|
2,744,185
(7)
|
Nil
|
*
|
|
Cranshire Capital Master Fund, Ltd.
(8)
|
1,860,468
(9)
|
2,195,353
(10)
|
Nil
|
*
|
|
Equitec Specialists, LLC
(11)
|
465,116
(12)
|
548,837
(13)
|
Nil
|
*
|
|
Totals
|
4,651,165
|
5,488,375
|
Nil
|
*
|
Notes
* Less than 1%.
|
|
(1)
|
Beneficial ownership is determined in accordance with
Securities and Exchange Commission rules and generally includes voting or
investment power with respect to shares of common stock. Shares of common
stock subject to options, warrants and convertible preferred stock
currently exercisable or convertible, or exercisable or convertible within
60 days, are counted as outstanding for computing the percentage of the
person holding such options or warrants but are not counted as outstanding
for computing the percentage of any other person.
|
|
|
|
|
|
|
(2)
|
The above table has different numbers for the shares owned by the selling stockholders before the offering and the shares offered in the offering. This is due to the fact that the selling stockholders are not currently deemed to own all of the shares that can be issued upon conversion of the shares of the 10% Series B Convertible Preferred Stock because the conversion price will change later and thus not all of the shares offered in the offering are convertible within 60 days, as mentioned in the footnote 1. The numbers of the shares owned by the selling stockholders before the offering are calculated based on the current conversion price and the numbers of the shares offered in the offering are calculated based on the floor price for the conversion of the 10% Series B Convertible Preferred Stock.
|
|
|
|
|
|
|
(3)
|
We have assumed that the selling stockholders will sell
all of the shares being offered in this offering.
|
|
|
|
|
|
|
(4)
|
Based on 81,602,175 shares of our common stock issued and outstanding as of April 3, 2014. Shares of our common stock being offered pursuant to this prospectus by a selling stockholder are counted as outstanding for computing the percentage of that particular selling stockholder but are not counted as outstanding for computing the percentage of any other person.
|
73
[ALTERNATE SECTIONS]
|
|
(5)
|
Moez Kassam exercises voting and dispositive power with
respect to the shares of our common stock that are beneficially owned by
Anson Investments Master Fund LP.
|
|
|
|
|
|
|
(6)
|
Consists of 581,395 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 1,744,185 shares of our common stock issuable upon exercise of
warrants.
|
|
|
|
|
|
|
(7)
|
Consists of 1,000,000 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 1,744,185 shares of our common stock issuable upon exercise of
warrants.
|
|
|
|
|
|
|
(8)
|
Cranshire Capital Advisors, LLC (“CCA”) is the investment
manager of Cranshire Capital Master Fund, Ltd. (“Cranshire Master Fund”)
and has voting control and investment discretion over securities held by
Cranshire Master Fund. Mitchell P. Kopin (“Mr. Kopin”), the present, the
sole member and the sole member of the Board of Managers of CCA, has
voting control over CCA. As a result, each of Mr. Kopin and CCA may be
deemed to have beneficial ownership (as determined under Section 13(d) of
the Securities Exchange Act of 1934, as amended) of the securities held by
Cranshire Master Fund.
|
|
|
|
|
|
|
(9)
|
Consists of 465,117 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 1,395,351 shares of our common stock issuable upon exercise of
warrants.
|
|
|
|
|
|
|
(10)
|
Consists of 800,002 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 1,395,351 shares of our common stock issuable upon exercise of
warrants.
|
|
|
|
|
|
|
(11)
|
CCA (as defined in note 7 above) is the investment
manager of Equitec Specialists, LLC (“Equitec”) and has voting control and
investment discretion over securities held in the managed accounts by
Equitec. Mr. Kopin (as defined in note 7 above), the present, the sole
member and the sole member of the Board of Managers of CCA, has voting
control over CCA. As a result, each of Mr. Kopin and CCA may be deemed to
have beneficial ownership (as determined under Section 13(d) of the
Securities Exchange Act of 1934, as amended) of the securities held in the
managed accounts by Equitec.
|
|
|
|
|
|
|
(12)
|
Consists of 116,279 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 348,837 shares of our common stock issuable upon exercise of
warrants.
|
|
|
|
|
|
|
(13)
|
Consists of 200,000 shares of our common stock issuable
upon conversion of shares of the 10% Series B Convertible Preferred Stock
and 348,837 shares of our common stock issuable upon exercise of
warrants.
|
Plan of Distribution
Each selling stockholder of the securities and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their securities covered hereby on the Financial Industry Regulatory
Authority’s OTC Bulletin Board or any other stock exchange, market or trading
facility on which the securities are traded or in private transactions. A
selling stockholder may sell all or a portion of the shares being offered
pursuant to this prospectus at fixed prices, at prevailing market prices at the
time of sale, at varying prices or at negotiated prices. A selling stockholder
may use any one or more of the following methods when selling securities:
74
[ALTERNATE SECTIONS]
-
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
-
block trades in which the broker-dealer will attempt to sell the securities
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;
-
purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
-
an exchange distribution in accordance with the rules of the applicable
exchange;
-
privately negotiated transactions;
-
settlement of short sales;
-
in transactions through broker-dealers that agree with the selling
stockholders to sell a specified number of such securities at a stipulated
price per security;
-
through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
-
a combination of any such methods of sale; or
-
any other method permitted pursuant to applicable law.
The selling stockholders may also sell securities under Rule
144 under the Securities Act of 1933 (the
“Securities Act”
), if
available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange
for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of securities, from the purchaser) in amounts to
be negotiated, but, except as set forth in a supplement to this prospectus, in
the case of an agency transaction not in excess of a customary brokerage
commission in compliance with FINRA Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests
therein, the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the securities in the course of hedging the positions they
assume. The selling stockholders may also sell securities short and deliver
these securities to close out their short positions, or loan or pledge the
securities to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or create one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of securities offered by this prospectus, which securities such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that
are involved in selling the securities may be deemed to be “underwriters” within
the meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholder has
informed us that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the
securities.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the securities. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because selling stockholders may be deemed to be “underwriters”
within the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act including Rule 172 thereunder. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. The selling stockholders have advised us that there is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale securities by the selling
stockholders.
75
[ALTERNATE SECTIONS]
We agreed to keep this prospectus effective until the earlier
of (i) the date on which the securities may be resold by the selling
stockholders without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the requirement for us
to be in compliance with the current public information under Rule 144 under the
Securities Act or any other rule of similar effect or (ii) all of the securities
have been sold pursuant to this prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale securities will be sold only
through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the resale securities
covered hereby may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities
Exchange Act of 1934, any person engaged in the distribution of the resale
securities may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution. In addition, the
selling stockholders will be subject to applicable provisions of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of securities of
the common stock by the selling stockholders or any other person. We will make
copies of this prospectus available to the selling stockholders and have
informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale (including by compliance with Rule 172 under
the Securities Act).
76
[ALTERNATE SECTIONS]
|
|
|
5,488,375 Shares
|
|
The Alkaline Water Company Inc.
|
|
Common Stock
|
|
Prospectus
|
|
_____________, 2014
|
|
|
|
|
77
Information Not Required in Prospectus
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable
by us in connection with the issuance and distribution of the securities being
registered hereunder. All of the amounts shown are estimates, except for the
Securities and Exchange Commission registration fees.
|
Securities and Exchange Commission
registration fees
|
$
|
2,523
|
|
|
|
|
|
|
|
Accounting fees and expenses
|
$
|
45,000
|
|
|
|
|
|
|
|
Legal fees and expenses
|
$
|
100,000
|
|
|
|
|
|
|
|
Miscellaneous fees and expenses
|
$
|
2,477
|
|
|
|
|
|
|
|
Total
|
$
|
150,000
|
|
Indemnification of Directors and Officers
The Nevada Revised Statutes provide that:
-
a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys’ fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful;
-
a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys’ fees actually
and reasonably incurred by him or her in connection with the defense or
settlement of the action or suit if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court
deems proper; and
-
to the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding, or in defense of any claim, issue or matter therein, the
corporation must indemnify him or her against expenses, including attorneys’
fees, actually and reasonably incurred by him or her in connection with the
defense.
78
The Nevada Revised Statutes provide that we may make any
discretionary indemnification only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. The determination must be made:
-
by our stockholders;
-
by our board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
-
if a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel in a
written opinion;
-
if a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion; or
-
by court order.
Our bylaws provide for the mandatory indemnification of our
directors and officers to the fullest extent legally permissible under the
Nevada Revised Statutes from time to time against all expenses, liability and
loss reasonably incurred or suffered by such person in connection with he or she
having been or being a party to, threatening to be made a party to, or involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or an
officer of the company. Advance payment of expenses by the company to such
director or officer, as these expenses are incurred in defending a civil or
criminal action, suit or proceeding, are subject to an undertaking by or on
behalf of the director or officer to repay the amount of such payment if it is
ultimately determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by our company. The right of indemnification under
our bylaws is not exclusive of any other right to indemnification a director or
an officer may have.
Our bylaws allow us to purchase and maintain insurance on
behalf of any person who is or was a director or officer of our company against
any liability asserted against such person and incurred in any such capacity or
arising out of such status, whether or not we would have the power to indemnify
such person. We have not purchased such insurance.
Recent Sales of Unregistered Securities
On August 29, 2011, we sold 4,500,000 pre-split share
(67,500,000 post-split shares) of common stock to our former president, Sergejs
Belkovs, for a purchase price of $0.001 per pre-split share, for aggregate
offering proceeds of $4,500. On September 12, 2011, we sold 500,000 pre-split
share (7,500,000 post-split shares) of common stock to our former secretary,
Vladislav Novichenko, for a purchase price of $0.001 per pre-split share, for
aggregate offering proceeds of $500. We made the offer and sale in reliance on
the exemption from registration afforded by Section 4(2) to the Securities Act
of 1933, on the basis that the securities were offered and sold in a non-public
offering to a “sophisticated investor” who had access to registration-type
information about our company. No commission was paid in connection with the
sale of any securities and no general solicitations were made to any person. In
connection with the closing of the share exchange agreement described below,
Sergejs Belkovs returned 4,500,000 pre-split share (67,500,000 post-split
shares) of our common stock to the treasury of our company for cancellation
without consideration and Vladislav Novichenko returned 500,000 pre-split share
(7,500,000 post-split shares) of our common stock to the treasury of our company
for cancellation without consideration. The share cancellations went effective
on May 30, 2013.
Pursuant to a share exchange agreement dated May 31, 2013
between our company, Alkaline Water Corp. and all of the stockholders of
Alkaline Water Corp., we closed the share exchange agreement and completed the
acquisition of all of the issued and outstanding shares of Alkaline Water Corp.
on May 31, 2013. Pursuant to the terms of the share exchange agreement, and on the closing date thereof, two
stockholders of Alkaline Water Corp. sold all 100,000 issued and outstanding
shares of common stock in the capital of Alkaline Water Corp. to our company in
consideration for the issuance of 43,000,000 shares of our common stock
(21,500,000 shares each) in the capital of our company. The securities were
issued to two U.S. persons (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section
4(a)(2) of the Securities Act of 1933.
79
In connection with the closing of the share exchange agreement,
on May 31, 2013, we completed a non-brokered private placement with Bank
Gutenberg AG of 1,312,500 units of our company at a price $0.40 per unit for
gross proceeds of $525,000, with each unit consisting of one share of our
company, one share purchase warrant (each, a “First Warrant”) and one-half of
one share purchase warrant (each whole warrant, a “Second Warrant”). The First
Warrant entitles the holder to purchase, for a period of two years from
issuance, one additional share of our common stock at an exercise price of $0.50
per share and each whole Second Warrant entitles the holder to purchase, for a
period of two years from issuance, one additional share of our common stock at
an exercise price of $0.60 per share.
Also in connection with the closing of the share exchange
agreement, on May 31, 2013, we converted three secured convertible notes issued
by Alkaline 88, LLC to Bank Gutenberg AG into 574,675 units of our company at a
price of $0.40 per unit. The convertible notes had an aggregate principal amount
of $225,000
and bore interest at 10% per annum ($4,869.86) . The units
had the same terms as the units issued in connection with the private placement
described above.
Pursuant to the private placement and loan conversions, we
issued 1,887,175 shares, 1,887,175 First Warrants, and 943,588 Second Warrants.
The securities were issued to one non-U.S. person (as that term is defined in
Regulation S of the Securities Act of 1933) in an offshore transaction relying
on Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.
Effective August 14, 2013, we issued 250,000 shares of our
common stock to one consultant in consideration for services rendered by the
consultant to our company. The consultant is a U.S. Person (as that term is
defined in Regulation S of the Securities Act of 1933) and in issuing securities
to the consultant we relied on the exemption from the registration requirements
of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated
thereunder and/or Section 4(a)(2) of the Securities Act of 1933.
Effective October 8, 2013, we issued an aggregate of 1,250,000
shares of our common stock to three investors in a non-brokered private
placement, at a purchase price of $0.40 per share for gross proceeds of
$500,000. In addition, we issued 1,250,000 units to a finder in connection with
this private placement. Each unit consisted of one share purchase warrant
entitling the holder to purchase, for a period of two years from issuance, one
share of our common stock at an exercise price of $0.50 per share and one-half
of one share purchase warrant, with each whole share purchase warrant entitling
the holder to purchase, for a period of two years from issuance, one share of
our common stock at an exercise price of $0.60 per share. These investors and
finder were not U.S. Persons (as that term is defined in Regulation S of the
Securities Act of 1933) and all of these investors and finder acquired the
securities in transactions outside of the United States. In issuing these
securities to these investors and finder, we relied on the registration
exemption provided for in Regulation S and/or Section 4(a)(2) of the Securities
Act of 1933.
Effective October 8, 2013, we issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven A. Nickolas and
Richard A. Wright (10,000,000 shares to each), our directors and executive
officers, in consideration for the past services, at a deemed value of $0.001
per share. We issued these shares to two U.S. Persons (as that term is defined
in Regulation S of the Securities Act of 1933) and in issuing securities we
relied on the registration exemption provided for in Section 4(a)(2) of the
Securities Act of 1933.
Effective October 9, 2013, we granted a total of 6,000,000
stock options Steven A. Nickolas and Richard A. Wright (3,000,000 stock options
to each). The stock options are exercisable at the exercise price of $0.605 per
share for a period of ten years from the date of grant. The stock options vest
as follows: (i) 1,000,000 upon the date of grant; and (ii) 500,000 per quarter
until fully vested. We granted the stock options to two U.S. Persons (as that
term is defined in Regulation S of the Securities Act of 1933) and in issuing
securities we relied on the registration exemption provided for in Section
4(a)(2) of the Securities Act of 1933.
80
Effective October 10, 2013, we issued 200,000 shares of our
common stock to one consultant in consideration for services rendered by the
consultant to our company. The consultant is a U.S. Person (as that term is
defined in Regulation S of the Securities Act of 1933) and in issuing securities
to the consultant we relied on the exemption from the registration requirements
of the Securities Act of 1933 provided in Section 4(a)(2) of the Securities Act
of 1933.
On November 7, 2013, we issued an aggregate of 500.00028 shares
of our 10% Series B Convertible Preferred Stock (
“Series B Preferred
Stock”
) at a stated value of $1,000 per share of Series B Preferred Stock
for gross proceeds of $500,000.28 (the “
Offering
”). On the same date, we
also issued Series A, Series B and Series C common stock purchase warrants. The
Series A warrants are exercisable into 1,162,791 shares of our common stock
(
“Common Stock”
) with an exercise price of $0.55 per share and have a
term of exercise of five years. The Series B warrants are exercisable into
1,162,791 shares of the Common Stock with an exercise price of $0.43 per share
and have a term of exercise of 54 weeks. The Series C warrants are exercisable
into 1,162,179 shares of the Common Stock with an exercise price of $0.55 per
share and have a term of exercise of five years; provided that such Series C
warrants only become exercisable ratably upon exercise of the Series B Warrants.
We issued the Series B Preferred Stock and the Series A, Series B and Series C
common stock purchase warrants to three accredited investors. The issuance and
sale of securities is exempt from registration pursuant to Section 4(a)(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder.
Holders of the Series B Preferred Stock will be entitled to
receive cumulative dividends at the rate per share (as a percentage of the
stated value per share) of 10% per annum, payable semi-annually on April 30 and
October 31 and on each conversion date (with respect only to Series B Preferred
Stock being converted) and on each Mandatory Redemption Date and One Year
Redemption Date (with respect only to Series B Preferred Stock being redeemed).
Upon any liquidation, dissolution or winding-up of our company, holders of the
Series B Preferred Stock will be entitled to receive out of the assets of our
company an amount equal to the stated value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages then due and owing
thereon for each share of the Series B Preferred Stock before any distribution
or payment is made to the holders of any junior securities.
Each share of the Series B Preferred Stock is convertible at
the option of the holder thereof into that number of shares of Common Stock
determined by dividing the stated value of such share of the Series B Preferred
Stock by the conversion price of $0.43, subject to later adjustment. In
addition, on the earlier (the
“Trigger Date”
) of (a) the date that a
registration statement that registers the resale of the shares of Common Stock
issuable upon conversion of the shares of the Series B Preferred Stock (the
“Registration Statement”
) is first declared effective by the Securities
and Exchange Commission and (b) the 180
th
calendar day following the
date of the closing of the Offering (November 7, 2013), the conversion price
will be reduced to the lesser of (i) the then conversion price or (ii) 85% of
the average of the volume weighted average price for the five trading dates
immediately prior to such Trigger Date, subject to a floor price of $0.25. The
conversion right is subject to the beneficial ownership limitation, which will
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock held by the applicable holder. The
holder may increase or decrease the beneficial ownership limitation upon not
less than 61 days’ prior notice to our company, but in no event will such
beneficial ownership exceed 9.99% .
Within three trading days from the closing of any subsequent
financing (each, a
“Mandatory Redemption Date”
), we must use 25% of the
proceeds from each such financing to redeem the Series B Preferred Stock on a
pro rata basis, until such time that all of the Series B Preferred Stock then
outstanding are redeemed in full (each, a
“Mandatory Redemption”
). If any
portion of the cash payment for a Mandatory Redemption has not been paid by us
on the Mandatory Redemption Date, interest will accrue until such amount is paid
in full at a rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law. In addition, on the first anniversary of the
earliest date on which any shares of the Series B Preferred Stock were issued
(the
“One Year Redemption Date”
), we must redeem all of the then
outstanding Series B Preferred Stock, for an amount in cash equal to the sum of
100% of the aggregate stated value then outstanding, the accrued but unpaid
dividends and all the liquidated damages and other amounts due in respect of the
Series B Preferred Stock. In addition, upon the occurrence of a triggering
event, each holder will have the right to require us to redeem all of the Series
B Preferred Stock then held by such holder for a redemption price, in cash,
equal to the sum of (a) the greater of (i) 130% of the stated value and (ii) the
product of (y) the volume weighted average price on the trading day immediately
preceding the date of the triggering event and (z) the stated value divided by
the then conversion price, (b) all accrued but unpaid dividends thereon, (c) the
make-whole amount (being an amount in cash equal to all of the dividends that,
but for the applicable conversion, redemption or default payment, would
have accrued with respect to the applicable stated value being so converted or
redeemed for the period commencing on the applicable redemption date or
conversion date or default payment date and ending on November 8, 2014) and (d)
all liquidated damages and other costs, expenses or amounts due in respect of
the Series B Preferred Stock. The triggering events include, among other things,
the failure of the Registration Statement to be declared effective by the
Securities and Exchange Commission on or prior to the 180
th
day after
the date of the closing of the Offering (November 7, 2013).
81
On November 4, 2013, we also entered into a Registration Rights
Agreement with the investors pursuant to which we are obligated to file a
Registration Statement to register the resale of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and upon exercise of
the warrants on or prior to the 30
th
calendar day following November
4, 2013. We also agreed to use our best efforts to cause the registration
statement to be declared effective as promptly as possible after the filing
thereof, but in any event no later than the 60
th
calendar day
following November 4, 2013 (or, in the event of a “full review” by the
Securities and Exchange Commission, the 120
th
calendar day following
November 4, 2013).
Effective November 7, 2013, we issued Series A common stock
purchase warrants to the placement agent and its designees as compensation for
the services provided by the placement agent in connection with our private
placement of 500.00028 shares of our 10% Series B Convertible Preferred Stock,
which was completed on November 7, 2013. The Series A warrants issued to the
placement agent and its designees are exercisable into an aggregate of 116,279
shares of our common stock with an exercise price of $0.55 per share and have a
term of exercise of five years. We issued the Series A warrants to six
accredited investors. The issuance the Series A warrants was exempt from
registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule
506 promulgated thereunder.
Exhibits
|
Exhibit
|
|
|
Number
|
Description
|
|
|
|
|
(1)
|
Underwriting
Agreement
|
|
1.1
|
Engagement Agreement dated October 7, 2013 with H.C. Wainwright & Co., LLC (incorporated by reference from our Registration Statement on Form S-1, filed on November 27, 2013)
|
|
1.2
|
Amendment Agreement to Engagement Agreement dated November 1, 2013 with H.C. Wainwright & Co., LLC (incorporated by reference from our Registration Statement on Form S-1/A, filed on January 9, 2014)
|
|
1.3
|
Amendment Agreement to Engagement Agreement dated November 25, 2013 with H.C. Wainwright & Co., LLC (incorporated by reference from our Registration Statement on Form S-1, filed on November 27, 2013)
|
|
1.4
|
Termination Agreement for Engagement Agreement dated March 12, 2014 with H.C. Wainwright & Co., LLC (incorporated by reference from our Registration Statement on Form S-1, filed on March 12, 2014)
|
|
1.5
|
Engagement Agreement dated March 12, 2014 with H.C. Wainwright & Co., LLC (incorporated by reference from our Registration Statement on Form S-1, filed on March 12, 2014)
|
|
(2)
|
Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
|
|
2.1
|
Share Exchange Agreement dated May 31, 2013 with Alkaline
Water Corp. and its shareholders (incorporated by reference from our
Current Report on Form 8-K, filed on June 5, 2013)
|
|
(3)
|
Articles of Incorporation and Bylaws
|
|
3.1
|
Articles of Incorporation (incorporated by reference from
our Form S-1 Registration Statement, filed on October 28, 2011)
|
|
3.2
|
Certificate of Change (incorporated by reference from our
Quarterly Report on Form 10-Q, filed on August 13, 2013)
|
|
3.3
|
Articles of Merger (incorporated by reference from our
Quarterly Report on Form 10-Q, filed on August 13, 2013)
|
|
3.4
|
Certificate of Amendment (incorporated by reference from
our Current Report on Form 8-K, filed on October 11, 2013)
|
|
3.5
|
Certificate of Designation (incorporated by reference
from our Current Report on Form 8-K, filed on October 11, 2013)
|
|
3.6
|
Certificate of Designation (incorporated by reference
from our Current Report on Form 8-K, filed on November 12, 2013)
|
|
3.7
|
Amended and Restated Bylaws (incorporated by reference
from our Current Report on Form 8-K, filed on March 15, 2013)
|
|
(4)
|
Instruments Defining the Rights of Security Holders,
including Indentures
|
|
4.1*
|
Form of Common Stock Purchase Warrant
|
|
(5)
|
Opinion regarding Legality
|
|
5.1*
|
Opinion of Clark Wilson LLP regarding the legality of the
securities being registered
|
82
|
(10)
|
Material
Contracts
|
|
10.1
|
Contract Packer Agreement dated November 14, 2012 between
Alkaline 84, LLC and AZ Bottled Water, LLC (incorporated by reference from
our Current Report on Form 8-K, filed on June 5, 2013)
|
|
10.2
|
Private Placement Subscription Agreement dated February
21, 2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on May 17, 2013)
|
|
10.3
|
Private Placement Subscription Agreement dated April 17,
2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on May 17, 2013)
|
|
10.4
|
Private Placement Subscription Agreement dated May 17,
2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Current Report on Form 8-K, filed on June 5, 2013)
|
|
10.5
|
Private Placement Subscription Agreement dated May 29,
2013 with Bank Gutenberg AG (incorporated by reference from our Current
Report on Form 8-K, filed on June 5, 2013)
|
|
10.6
|
2013 Equity Incentive Plan (incorporated by reference
from our Current Report on Form 8-K, filed on October 11, 2013)
|
|
10.7
|
Form of Securities Purchase Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013)
|
|
10.8
|
Form of Registration Rights Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013)
|
|
10.9
|
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on November 5, 2013)
|
|
10.11
|
Stock Option Agreement dated October 9, 2013 with Steven
P. Nickolas (incorporated by reference from our Quarterly Report on Form
10-Q, filed on November 13, 2013)
|
|
10.12
|
Stock Option Agreement dated October 9, 2013 with Richard
A. Wright (incorporated by reference from our Quarterly Report on Form
10-Q, filed on November 13, 2013)
|
|
10.13
|
Contract Packer Agreement dated October 7, 2013 with
White Water, LLC (incorporated by reference from our Quarterly Report on
Form 10-Q, filed on November 13, 2013)
|
|
10.14
|
Manufacturing Agreement dated August 15, 2013 with Water Engineering Solutions, LLC (incorporated by reference from our Registration Statement on Form S-1, filed on November 27, 2013)
|
|
10.15
|
Equipment Lease Agreement dated January 17, 2014 (incorporated by reference from our Current Report on Form 8-K, filed on January 27, 2014)
|
|
10.16
|
Revolving Accounts Receivable Funding Agreement dated February 20, 2014 (incorporated by reference from our Current Report on Form 8-K, filed on February 25, 2014)
|
|
10.17*
|
Form of Securities Purchase Agreement
|
|
(16)
|
Letter re Change in Certifying Accountant
|
|
16.1
|
Letter from Sadler, Gibb & Associates dated June 14,
2013 (incorporated by reference from our Current Report on Form 8-K/A,
filed on June 14, 2013)
|
|
(21)
|
Subsidiaries
|
|
21.1
|
Subsidiaries of The Alkaline Water Company Inc.
|
|
|
Alkaline Water Corp., Arizona corporation
|
|
|
Alkaline 88, LLC, Arizona limited liability company
|
|
(23)
|
Consents of Experts and Counsel
|
|
23.1*
|
Consent of Seale and Beers, CPAs
|
|
23.2*
|
Consent of Clark Wilson LLP (included in Exhibit 5.1)
|
|
(101)
|
Interactive Data File
|
|
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
83
*Filed herewith.
Undertakings
The undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
iii. To include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering; and
4. That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, if the undersigned registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
5. That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
i. Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
84
ii. Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
iii. The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned REGISTRANT or its securities provided
by or on behalf of the undersigned registrant; and
iv. Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser;
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
1. For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
85
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Scottsdale,
State of Arizona, on April 3, 2014.
The Alkaline Water Company Inc.
By:
/s/ Steven P.
Nickolas
Steven P.
Nickolas
President, Chief Executive Officer and Director
(Principal
Executive Officer)
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
/s/ Steven P.
Nickolas
Steven P.
Nickolas
President, Chief Executive Officer and Director
(Principal
Executive Officer)
Date: April 3, 2014
/s/ Richard A.
Wright
Richard A.
Wright
Vice-President, Secretary, Treasurer and Director
(Principal
Financial Officer and Principal Accounting Officer)
Date: April 3, 2014
86
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