The accompanying notes are an integral part of these condensed
consolidated financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
|
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
|
(unaudited)
|
|
|
For the Year Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(8,281,584
|
)
|
$
|
(7,139,449
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
|
|
|
|
|
|
|
Bad Debt Expense
|
|
-
|
|
|
6,225
|
|
Depreciation expense
|
|
318,328
|
|
|
175,036
|
|
Stock compensation expense
|
|
4,551,961
|
|
|
3,730,263
|
|
Amortization of debt discount and accretion
|
|
639,524
|
|
|
457,518
|
|
Interest expense relating to
amortization of capital lease discount
|
|
102,781
|
|
|
-
|
|
Change in derivative liabilities
|
|
(43,968
|
)
|
|
(326,095
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(495,017
|
)
|
|
(256,194
|
)
|
Inventory
|
|
(241,353
|
)
|
|
(135,390
|
)
|
Prepaid expenses and other
current assets
|
|
6,694
|
|
|
(17,500
|
)
|
Accounts payable
|
|
284,953
|
|
|
244,165
|
|
Accounts payable - related party
|
|
(43,036
|
)
|
|
24,633
|
|
Accrued expenses
|
|
91,176
|
|
|
103,836
|
|
Accrued interest
|
|
-
|
|
|
(19,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING
ACTIVITIES
|
|
(3,109,541
|
)
|
|
(3,152,781
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
(344,961
|
)
|
|
(352,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
(344,961
|
)
|
|
(352,169
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
2,075,000
|
|
|
-
|
|
Proceeds from convertible note
payable
|
|
435,000
|
|
|
-
|
|
Proceeds from revolving financing
|
|
232,398
|
|
|
159,527
|
|
Proceeds from sale of common
stock, net
|
|
3,751,200
|
|
|
2,361,999
|
|
Proceeds for the exercise of warrants, net
|
|
-
|
|
|
1,344,630
|
|
Repayment of notes payable
|
|
(1,729,821
|
)
|
|
-
|
|
Repayment of capital lease
|
|
(207,269
|
)
|
|
(26,588
|
)
|
Repayment of rdeemable preferred
shares
|
|
-
|
|
|
(247,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
4,556,508
|
|
|
3,592,398
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
1,102,006
|
|
|
87,448
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
90,113
|
|
|
2,665
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
1,192,119
|
|
$
|
90,113
|
|
|
|
|
|
|
|
|
INTEREST PAID
|
$
|
152,557
|
|
$
|
46,070
|
|
|
|
|
|
|
|
|
Preferred stock conversion to common stock
|
|
-
|
|
|
252,830
|
|
Deferred discount on conversion of preferred stock
|
|
-
|
|
|
56,098
|
|
Fair value of derivative liability at issuance of warrants
|
|
-
|
|
|
389,710
|
|
Fair value of derivative liability at exercise of
warrants
|
|
-
|
|
|
150,566
|
|
Exercise of stock options with accounts payable
|
|
-
|
|
|
1,820
|
|
Capitalized lease
|
|
-
|
|
|
735,781
|
|
Warrant issued for deferred financing cost
|
|
-
|
|
|
309,028
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-5
THE ALKALINE WATER COMPANY INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The audited 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,
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.
Principles of consolidation
The consolidated financial statements include the accounts of
The Alkaline Water Company Inc. (a Nevada Corporation), Alkaline Water Corp. (an
Arizona Corporation) and Alkaline 88, 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.
Reverse split
Effective December 30, 2015, the Company effected a fifty for
one reverse stock split of its authorized and issued and outstanding shares of
common stock. As a result, the authorized common stock has decreased from
1,125,000,000 shares of common stock, with a par value of $0.001 per share, to
22,500,000 shares of common stock, with a par value of $0.001 per share. All
shares and per share amounts have been retroactively restated to reflect such
split.
On January 21, 2016, stockholders of our company approved, by
written consents, an amendment to the articles of incorporation of our company
to increase the number of authorized shares of our common stock from 22,500,000
to 200,000,000.
The Company received written consents representing 20,776,000
votes from the holders of shares of its common stock and our Series A Preferred
Stock voting as a single class, representing approximately 61% of the voting
power of its outstanding common stock and its outstanding Series A Preferred
Stock voting as a single class as of the record date (January 12, 2016). On
January 21, 2016, there were no written consents received by the Company
representing a vote against, abstention or broker non-vote with respect to the
proposal.
Our authorized preferred stock was not affected by the reverse
stock split and continues to be 100,000,000 shares of preferred stock, with a
par value of $0.001 per share. In addition, the number of issued and outstanding
shares of Series A Preferred Stock continues to be 20,000,000. However, holders
of Series A Preferred Stock had 0.2 vote per share of Series A Preferred Stock,
instead of 10 votes per share of Series A Preferred Stock, as a result of the
reverse stock split.
On January 22, 2016, the Company amended the certificate of
designation for our Series A Preferred Stock by filing an amendment to
certificate of designation with the Secretary of State of the State of Nevada.
The Company amended the certificate of designation for our Series A Preferred
Stock by deleting Section 2.2 of the certificate of designation, which proportionately increases or decreases the
number of votes per share of Series A Preferred Stock in the event of any
dividend or other distribution on our common stock payable in its common stock
or a subdivision or consolidation of the outstanding shares of its common stock.
Accordingly, holders of Series A Preferred Stock will have 10 votes per share of
Series A Preferred Stock, instead of 0.2 votes per share of Series A Preferred
Stock.
F-6
Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
significantly from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments with an
original maturity of three months or less to be considered cash equivalents. The
carrying value of these investments approximates fair value. The Company had
$1,192,119 and $90,113 in cash and cash equivalents at March 31, 2016 and 2015,
respectively.
Accounts receivable and allowance for doubtful
accounts
The Company generally does not require collateral, and the
majority of its trade receivables are unsecured. The carrying amount for
accounts receivable approximates fair value.
Accounts receivable consisted of the following as of March 31,
2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Trade receivables
|
$
|
911,390
|
|
$
|
426,862
|
|
Less: Allowance for doubtful accounts
|
|
(-0-
|
)
|
|
(10,489
|
)
|
Net accounts receivable
|
$
|
911,390
|
|
$
|
416,373
|
|
Accounts receivable are periodically evaluated for
collectability based on past credit history with clients. Provisions for losses
on accounts receivable are determined on the basis of loss experience, known and
inherent risk in the account balance and current economic conditions.
Inventory
Inventory represents raw and blended chemicals and other items
valued at the lower of cost or market with cost determined using the weight
average method which approximates first-in first-out method, and with market
defined as the lower of replacement cost or realizable value.
As of March 31, 2016 and 2015, inventory consisted of the
following:
|
|
2016
|
|
|
2015
|
|
Raw materials
|
$
|
300,575
|
|
$
|
145,329
|
|
Finished goods
|
|
134,133
|
|
|
48,026
|
|
Total inventory
|
$
|
434,708
|
|
$
|
193,355
|
|
Property and equipment
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:
F-7
Equipment
|
5 years
|
Equipment under capital lease
|
3 years or term of the lease
|
Stock-based Compensation
The Company accounts for stock-based compensation to employees
in accordance with Accounting Standards Codification (ASC) 718. Stock-based
compensation to employees is measured at the grant date, based on the fair value
of the award, and is recognized as expense over the requisite employee service
period. The Company accounts for stock-based compensation to other than
employees in accordance with ASC 505-50. Equity instruments issued to other than
employees are valued at the earlier of a commitment date or upon completion of
the services, based on the fair value of the equity instruments and is
recognized as expense over the service period. The Company estimates the fair
value of stock-based payments using the Black-Scholes option-pricing model for
common stock options and warrants and the closing price of the Companys common
stock for common share issuances.
Advertising
Advertising costs are charged to operations when incurred.
Advertising expenses for the years ended March 31, 2016 and 2015 were $244,890
and $499,978, respectively.
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 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, the Company will provide credit to our
customers for damaged goods.
Fair value measurements
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 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,
the Company records 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:
Level 1
|
unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access as of the
measurement date.
|
|
|
Level 2
|
inputs other than quoted prices included within Level 1
that are directly observable for the asset or liability or indirectly
observable through corroboration with observable market data.
|
|
|
Level 3
|
unobservable inputs for the asset or liability only used
when there is little, if any, market activity for the asset or liability
at the measurement date.
|
F-8
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.
Concentration
The Company has 3 major customers that together account for 57%
(24%, 17%, and 15%, respectively) of accounts receivable at March 31, 2016, and
4 customers that together account for 60% (20%, 17%, 12%, and 11%, respectively)
of the total revenues earned for the year ended March 31, 2016.
The Company has 4 vendors that accounted for 74% (24%, 17%,
17%, and 16%, respectively) of purchases for the year ended March 31, 2016.
The Company has 4 major customers that together account for 64%
(23%, 18%, 12% and 11%, respectively) of accounts receivable at March 31, 2015,
and 3 customers that together account for 47% (14%, 12%, and 11%, respectively)
of the total revenues earned for the year ended March 31, 2015.
The Company has 5 vendors that accounted for 77% (19%, 16%,
16%, 15% and 11%, respectively) of purchases for the year ended March 31, 2015.
Income taxes
In accordance with ASC 740
Accounting for Income
Taxes
, the provision for income taxes is computed using the asset and
liability method. Under the asset and liability method, deferred income tax
assets and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the currently enacted tax rates and laws. A valuation allowance is
provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized.
Basic and diluted loss per share
Basic and diluted earnings or loss per share (EPS) amounts in
the consolidated financial statements are computed in accordance ASC 260 10
Earnings per Share
, which establishes the requirements for presenting
EPS. Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents. Basic EPS is computed
by dividing net income or loss available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Potentially dilutive securities were excluded from the calculation
of diluted loss per share, because their effect would be anti-dilutive.
Business segments
The Company operates on one segment in one geographic location
the United States of America and, therefore, segment information is not
presented.
Fair value of financial instruments
The carrying amounts of the companys financial instruments
including accounts payable, accrued expenses, and notes payable approximate fair
value due to the relative short period for maturity these instruments.
Environmental costs
F-9
Environmental expenditures that relate to current operations
are expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable, and the
cost can be reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or the Companys
commitments to a plan of action based on the then known facts.
The Company incurred no environmental expenses during the years
ended March 31, 2016 and 2015, respectively.
Reclassification
Certain accounts in the prior period were reclassified to
conform to the current period financial statements presentation.
Newly issued accounting pronouncements
In July 2015, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2015-11 (ASU 2015-11) "Simplifying the
Measurement of Inventory". According to ASU 2015-11 an entity should measure
inventory within the scope of this update at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion,
disposal, and transportation. Subsequent measurement is unchanged for inventory
measured using LIFO or the retail inventory method. The amendments in ASU
2015-11 more closely align the measurement of inventory in GAAP with the
measurement of inventory in International Financial Reporting Standards (IFRS).
The Board has amended some of the other guidance in Topic 330 to more clearly
articulate the requirements for the measurement and disclosure of inventory.
However, the Board does not intend for those clarifications to result in any
changes in practice. Other than the change in the subsequent measurement
guidance from the lower of cost or market to the lower of cost and net
realizable value for inventory within the scope of ASU 2015-11, there are no
other substantive changes to the guidance on measurement of inventory. For
public business entities, the amendments in ASU 2015-11 are effective for fiscal
years beginning after December 15, 2016, including interim periods within those
fiscal years. For all other entities, the amendments in ASU 2015-11 are
effective for fiscal years beginning after December 15, 2016, and interim
periods within fiscal years beginning after December 15, 2017. The amendments in
ASU 2015-11 should be applied prospectively with earlier application permitted
as of the beginning of an interim or annual reporting period.
The Board decided that the only disclosures required at
transition should be the nature of and reason for the change in accounting
principle. An entity should disclose that information in the first annual period
of adoption and in the interim periods within the first annual period if there
is a measurement-period adjustment during the first annual period in which the
changes are effective.
The Company has evaluated other recent accounting
pronouncements through June 2016 and believes that none of them will have a
material effect on our 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. Since its inception, the Company
has been engaged substantially in financing activities, developing its business
plan and building its initial customer and distribution base for its products.
As a result, the Company incurred accumulated net losses from Inception (June
19, 2012) through the period ended March 31, 2016 of ($19,933,934). In addition,
the Companys 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.
F-10
NOTE 3 PROPERTY AND EQUIPMENT
Fixed assets consisted of the following at:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Machinery and Equipment
|
$
|
970,728
|
|
$
|
625,766
|
|
Machinery under Capital Lease
|
|
735,781
|
|
|
735,781
|
|
Office Equipment
|
|
53,631
|
|
|
53,631
|
|
Leasehold Improvements
|
|
3,979
|
|
|
3,979
|
|
|
|
|
|
|
|
|
Less: Accumulated Depreciation
|
|
(537,555
|
)
|
|
(219,257
|
)
|
Fixed Assets, net
|
$
|
1,226,534
|
|
$
|
1,199,900
|
|
Depreciation expense for the years ended March 31, 2016 and
2015 was $318,328 and $175,036, respectively.
NOTE 4 EQUIPMENT DEPOSITS RELATED PARTY
The Company paid for equipment to Water Engineering Solutions,
LLC, a related party, $312,500 and $1,470,741 for the years ended March 31, 2016
and March 31, 2015. At March 31, 2016 and March 31, 2015, the Company owed $0.00
and $43,036 respectively to Water Engineering Solutions, LLC. The equipment is
being manufactured by and 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.
NOTE 5 REVOLVING FINANCING
On February 20, 2014, The Alkaline Water Company Inc., and
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, the Company 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.
The Company assumed full risk of non-payment and
unconditionally guaranteed the full and prompt payment of the full face amount
of all purchased accounts. The Company 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,
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,
unless Gibraltar elects to hold any such collections to establish reserves to
secure payment of any purchased accounts.
In consideration of Gibraltars purchase of the accounts, the
Company agreed to pay Gibraltar interest on the 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, the Company
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. The
Company 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, which amount will be deducted from the first cash
advances.
F-11
The initial indebtedness is $500,000 and the Company increased
the amount available under the revolving accounts receivable funding agreement
to $900,000 on May 12, 2016. The Company may request further increase(s) to the
in $100,000 increments up to $5,000,000, subject the Companys financial
performance and/or projections are satisfactory to Gibraltar, and absent an
event of default. The Company also granted to Gibraltar a security interest in
all of our presently-owned and hereafter-acquired personal and fixture property,
wherever located. 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, the Company gives Gibraltar notice of our
intention to terminate the agreement. In addition, the Company 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 March 31, 2016 the amount borrowed on this facility
was $475,273.
NOTE 6 DERIVATIVE LIABILITY
On November 7, 2013, the Company 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
investors will be entitled to down-round protection. 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 Companys own stock and
therefore a derivative instrument.
Between April 16, 2014 and April 24, 2014, the Company redeemed
247 shares of the 10% Series B Preferred Stock for $247,171 plus accrued
interest of $46,456 and a $10,212 penalty related to the delayed registration.
The effect of this redemption resulted in a reduction of $56,098 derivative
liability.
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 346,667 shares of our common stock and warrants to purchase an
aggregate of 173,333 shares of our common stock, for aggregate gross proceeds of
$2,599,999. Each share of common stock sold in the offering was accompanied by a
warrant to purchase one-half of a share of common stock at an exercise price of
$7.50 per share for a period of five years from the date of issuance. Each share
of common stock, together with each warrant was sold at a price of $7.50. The
warrants 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 investors will be
entitled to down-round protection. 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 were not
indexed to the Companys own stock and therefore a derivative instrument.
On August 20, 2014, the Company entered into a warrant
amendment agreement with certain holders of the Companys outstanding common
stock purchase warrants whereby the Company agreed to reduce the exercise price
of the Existing Warrants to $5.00 per share in consideration for the immediate
exercise of the Existing Warrants by the Holders and the Holders are to be
issued new common stock purchase warrants of the Company in the form of the
Existing Warrants to purchase up to a number of shares of our common stock equal
to the number of Existing Warrants exercised by the Holders, provided that the
exercise price of the New Warrants will be $6. 25 per share, subject to
adjustment in the New Warrants. Each New Warrant has a term of five years from
the date of issuance. Each share of common stock, together with each warrant was
sold at a price of $6.25. The warrants 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
investors will be entitled to down-round protection. 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 Companys own stock
and therefore a derivative instrument. The derivative liability was increased by
$167,384 as a result of the issued warrants.
F-12
On August 21, 2014, pursuant to the Warrant Amendment
Agreement, the Company issued an aggregate of 196,589 shares of the Companys
common stock upon exercise of the Existing Warrants at an exercise price of
$5.00 per share for aggregate gross proceeds of $982,945. An aggregate of
173,333shares of our common stock issued upon exercise of the Existing Warrants.
The derivative liability was reduced by $168,273 as a result of the warrants
exercised.
Pursuant to the engagement agreement dated March 12, 2014 with
H.C. Wainwright & Co., LLC (Wainwright), Wainwright agreed to act as our
exclusive placement agent in connection with the offering. Pursuant to the
engagement agreement, the Company, the Company issued warrants to purchase an
aggregate of 5.5% of the aggregate number of shares of our common stock sold in
the offering, or 19,067 to Wainwright and its designees. These warrants have an
exercise price of $9.38 per share and expire on April 16, 2019. The warrants
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 investors will be entitled to down-round
protection. 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
Companys 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 April 24,
2014 is as follows:
|
|
Conversion feature
|
|
Stock price
|
$
|
16 .3275
|
|
Term (Years)
|
|
Less than 1
|
|
Volatility
|
|
331%
|
|
Exercise prices
|
$
|
21.50
|
|
Dividend yield
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at May 1, 2014
is as follows:
|
|
|
|
|
Placement Agent
|
|
|
|
Issuance Warrants
|
|
|
Warrants
|
|
Stock price
|
$
|
7. 50
|
|
$
|
7. 50
|
|
Term (Years)
|
|
5
|
|
|
5
|
|
Volatility
|
|
306%
|
|
|
306%
|
|
Exercise prices
|
$
|
7. 50
|
|
$
|
9.375
|
|
Dividend yield
|
|
0%
|
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at August 20,
2014 is as follows:
|
|
New Warrants
|
|
Stock price
|
$
|
6.00
|
|
Term (Years)
|
|
5
|
|
Volatility
|
|
247%
|
|
Exercise prices
|
$
|
6. 50
|
|
Dividend yield
|
|
0%
|
|
F-13
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at August 21,
2014 is as follows:
|
|
Existing Warrants
|
|
Stock price
|
$
|
8.50
|
|
Term (Years)
|
|
5
|
|
Volatility
|
|
247%
|
|
Exercise prices
|
$
|
5.00
|
|
Dividend yield
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at March 31,
2015 is as follows:
|
|
Warrants
(including placement agent)
|
|
Stock price
|
$
|
5.40
|
|
Term (Years)
|
|
4 to 5
|
|
Volatility
|
|
148%
|
|
Exercise prices
|
$
|
27.50 to 6. 50
|
|
Dividend yield
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at March 31,
2016 is as follows:
|
|
Warrants
(including placement agent)
|
|
Stock price
|
$
|
1.950
|
|
Term (Years)
|
|
3 to 4
|
|
Volatility
|
|
126%
|
|
Exercise prices
|
$
|
27.50 to 0.33
|
|
Dividend yield
|
|
0%
|
|
During the year ended March 31, 2016, certain Warrant holders
from the August 21, 2014 Warrant Amendment Agreement exercised their warrants
via a cashless exercise where-in 54,154 warrants were tendered, the shareholders
received 26,976 shares and the shareholders forfeited 27,178 warrants. The
Company reduced the derivative liability $62,986.
During the year ended March 31, 2016, certain Warrant holders
from the August 21, 2014 Warrant Amendment Agreement and the Company agreed to
exchange 133,791 warrants for 133,791 shares of common stock and the Company
reduced the derivative liability by $76,843.
During the year ended March 31, 2016 the Company issued shares
of stock at $3.50 which reduced the exercise price of the Existing Warrants.
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 May 1, 2014.
|
|
|
|
|
Fair Value Measurement at May 1, 2014
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2014
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrant liability
|
$
|
216,236
|
|
$
|
-
|
|
$
|
-
|
|
$
|
216,236
|
|
Derivative placement agent warrant liability
|
$
|
23,787
|
|
$
|
-
|
|
$
|
-
|
|
$
|
23,787
|
|
Total derivative liability
|
$
|
240,023
|
|
$
|
-
|
|
$
|
-
|
|
$
|
240,023
|
|
F-14
The following table sets forth the fair value hierarchy added
to our financial liabilities by level that were accounted for at fair value on a
recurring basis as of August 21, 2014.
|
|
|
|
|
Fair Value Measurement at August 21, 2014
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
at
|
|
|
|
|
|
|
|
|
|
|
|
|
August 21, 2014
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrant liability
|
$
|
149,687
|
|
$
|
-
|
|
$
|
-
|
|
$
|
149,687
|
|
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 March 31, 2015.
|
|
|
|
|
Fair Value Measurement at March 31, 2015
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Derivative warrant liability convertible preferred stock
|
$
|
176,486
|
|
$
|
-
|
|
$
|
-
|
|
$
|
176,486
|
|
Derivative warrants liability on common
stock issuance including placement agent warrants
|
$
|
18,454
|
|
$
|
-
|
|
$
|
-
|
|
$
|
18,454
|
|
Total derivative liability
|
$
|
194,940
|
|
$
|
-
|
|
$
|
-
|
|
$
|
194,940
|
|
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 March 31, 2016.
|
|
|
|
|
Fair Value Measurement at March 31, 2016
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Derivative warrant liability convertible preferred stock
|
$
|
8,291
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,291
|
|
Derivative warrants liability on common
stock issuance including placement agent warrants
|
$
|
2,852
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,852
|
|
Total derivative liability
|
$
|
11,143
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,143
|
|
The Company analyzed the warrants and conversion feature under
ASC 815 Derivatives and Hedging 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 March 31, 2015 was $194,940 and the conversion feature liability
was $0. At March 31, 2016 the fair value of these warrant liabilities was
$11,143 and the conversion feature liability was $0. Changes in the derivative
liability for the period ended March 31 , 2016 consist of:
F-15
|
|
Year
Ended
|
|
|
|
March 31, 2016
|
|
Derivative liability at March 31, 2015
|
$
|
194,940
|
|
Warrants Exercised
|
|
(139,829
|
)
|
Change in derivative liability mark to
market
|
|
(43,968
|
)
|
Derivative liability at March 31, 2016
|
$
|
11,143
|
|
NOTE 7 PREFERRED SHARES SUBJECT TO MANDATORY
REDEMPTION
Convertible preferred shares
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, the Company also entered into a registration rights
agreement with the investors pursuant to which the Company was 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.
Between April 16, 2014 and April 22, 2014, the holders of our
Series B Preferred Stock exercised their right to have the Company redeem their
shares whereby the Company redeemed 247.17 shares of Series B Preferred Stock
for $303,839, which included accrued interest of $46,456 and a penalty for late
registration of $10,212. The remaining portion of the Series B Preferred Stock,
or 252.83 shares, was converted into 796,566 of our common shares at a
conversion price of $0.3174 per share.
Effective November 7, 2013, the Company issued 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 Series B Preferred Stock, which was completed on
November 7, 2013. The 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 warrants to six accredited investors and paid certain
transactional costs of $78,000. For the period ended December 31, 2014 the
Company recorded $54,288 of amortization of the debt discount and deferred
financing cost.
The Series B Preferred Stock included down-round provisions
that reduce the exercise price of a warrant and convertible instrument as
required by ASC 815 Derivatives and Hedging. The aggregate of the derivative
liability at issuance was $955,927, which was recorded as amortization of debt
discount at issuance and amortized $360,082 cost over the redemption period.
NOTE 8 STOCKHOLDERS EQUITY
Preferred shares
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 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. The Series A Preferred
Stock had 10 votes per share (reduced to 0.2 votes per share as a result of the
fifty for one reverse stock split, which became effective as of December 30,
2015) and are not convertible into shares of our common stock. The Series B
Convertible Preferred shares have 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, of which none were issued at March 31, 2016.
F-16
Grant of series A preferred stock
On 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 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 the year ended March 31, 2014.
Our authorized preferred stock was not affected by the reverse
stock split and continues to be 100,000,000 shares of preferred stock, with a
par value of $0.001 per share. In addition, the number of issued and outstanding
shares of Series A Preferred Stock continues to be 20,000,000. However, holders
of Series A Preferred Stock had 0.2 vote per share of Series A Preferred Stock,
instead of 10 votes per share of Series A Preferred Stock, as a result of the
reverse-stock split.
On January 22, 2016, the Company amended the certificate of
designation for our Series A Preferred Stock by filing an amendment to
certificate of designation with the Secretary of State of the State of Nevada.
The Company amended the certificate of designation for our Series A Preferred
Stock by deleting Section 2.2 of the certificate of designation, which
proportionately increases or decreases the number of votes per share of Series A
Preferred Stock in the event of any dividend or other distribution on our common
stock payable in its common stock or a subdivision or consolidation of the
outstanding shares of its common stock. Accordingly, holders of Series A
Preferred Stock will have 10 votes per share of Series A Preferred Stock,
instead of 0.2 votes per share of Series A Preferred Stock.
Grant of series C Convertible preferred stock
On March 30, 2016, the Company designated 3,000,000 shares of
the authorized and unissued preferred stock of our company as Series C
Preferred Stock by filing a Certificate of Designation with the Secretary of
State of the State of Nevada. Each share of the Series C Preferred Stock will be
convertible, without the payment of any additional consideration by the holder
and at the option of the holder, into one fully paid and non-assessable share of
our common stock at any time after (i) the Company achieves consolidated revenue
equal to or greater than $15,000,000 in any 12 month period, ending on the last
day of any quarterly period of our fiscal year; or (ii) a Negotiated Trigger
Event, defined as an event upon which the Series C Preferred Stock will be
convertible as may be agreed by our company and the holder in writing from time
to time.
Effective March 31, 2016, the Company issued a total of
3,000,000 shares of our Series C Preferred Stock to Steven P. Nickolas and
Richard A. Wright (1,500,000 shares to each), our directors and executive
officers, pursuant to their employment agreements dated effective March 1,
2016.
Common stock
The Company is authorized to issue 1,125,000,000 shares of
$0.001 par value common stock. On May 31, 2013, the Company 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 such split. Prior to
the acquisition of Alkaline Water Corp., the Company had 109,500,000 shares of
common stock issued and outstanding. On May 31, 2013, the Company 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 the Company 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.
F-17
On December 30, 2015, the Company effected a fifty for one
reverse stock split of its authorized and issued and outstanding shares of
common stock. As a result, the authorized common stock has decreased from
1,125,000,000 shares of common stock, with a par value of $0.001 per share, to
22,500,000 shares of common stock, with a par value of $0.001 per share. All
shares and per share amounts have been retroactively restated to reflect such
split.
On January 21, 2016, stockholders of our company approved, by
written consents, an amendment to the articles of incorporation of our company
to increase the number of authorized shares of our common stock from 22,500,000
to 200,000,000.
The Company received written consents representing 20,776,000
votes from the holders of shares of its common stock and our Series A Preferred
Stock voting as a single class, representing approximately 61% of the voting
power of its outstanding common stock and its outstanding Series A Preferred
Stock voting as a single class as of the record date (January 12, 2016). On
January 21, 2016, there were no written consents received by the Company
representing a vote against, abstention or broker non-vote with respect to the
proposal.
Sale of restricted shares
During the period from May 7, 2015 through December 31, 2015,
the Company sold units of our securities at a price of $3.50 per unit. Each unit
consists of one share of our common stock and one non-transferable common stock
purchase warrant, with each common stock purchase warrant entitling the holder
to acquire one additional share of our common stock at a price of $5.00 per
share for a period of two years. The Company sold 223,200 units during the
period ended December 31, 2015 consisting of 223,200 shares of common stock and
223,200 warrants for gross proceeds of $781,200.
The evaluated these transaction using ASC 480-10
Distinguishing liabilities from equity and ASC 505 -10 Equity. The Company
sold 223,200 units and issued 223,200 shares of common stock and issued 223,200
warrants. The warrants were valued using the Black-Scholes option pricing model
with the following assumptions:
Market value of stock on purchase date
|
$
|
3.75
|
|
|
to
|
|
$
|
7.10
|
|
Risk-free interest rate
|
|
.26%
|
|
|
to
|
|
|
1.42%
|
|
Dividend yield
|
|
|
|
|
0.00%
|
|
|
|
|
Volatility factor
|
|
116%
|
|
|
to
|
|
|
161%
|
|
Weighted average expected life (years)
|
|
|
|
|
2
|
|
|
|
|
The proceeds were allocated as follows:
Common stock
|
$
|
414,036
|
|
Warrant
|
|
367,164
|
|
Total proceeds
|
$
|
781,200
|
|
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 346,667 shares of our common stock and warrants to purchase an
aggregate of 173,333 shares of our common stock, for aggregate gross proceeds of
$2,599,999. Each share of common stock the Company sold in the offering was
accompanied by a warrant to purchase one-half of a share of common stock at an
exercise price of $7. 50 per share for a period of five years from the date of
issuance. Each share of common stock, together with each warrant was sold at a
price of $7. 50.
Pursuant to the engagement agreement dated March 12, 2014 with
H.C. Wainwright & Co., LLC (Wainwright), Wainwright agreed to act as our
exclusive placement agent in connection with the offering. Pursuant to the
engagement agreement, the Company paid Wainwright a cash placement fee equal to
8% of the aggregate gross proceeds from the offering, or $208,000, and a
non-accountable expense allowance equal to 1% of the aggregate gross proceeds
from the offering, or $26,000. In addition, the Company issued warrants to
purchase an aggregate of 5.5% of the aggregate number of shares of our common
stock sold in the offering, or 19,067, to Wainwright and its designees. These
warrants have an exercise price of $9.38 per share and expire on April 16, 2019.
F-18
On March 4, 2016, the Company completed the offering and sale
of an aggregate of 9,000,000 shares of our common stock and warrants to purchase
an aggregate of 4,500,000 shares of our common stock, for aggregate gross
proceeds of $2,970,000. Each share of common stock the Company sold in the
offering was accompanied by one-half of a warrant to purchase one share of
common stock at an exercise price of $0.50 per share for a period of two years
from the date of issuance. Each share of common stock and accompanying one-half
of one warrant was sold at a price of $0.33.
These securities have been registered under the Securities Act
of 1933 pursuant to our registration statement on Form S-1, as amended (No.
333-209124), which was declared effective by the Securities and Exchange
Commission on February 11, 2016.
Also on March 4, 2016, the Company used the proceeds of the
Offering to repay loans in the aggregate principal amounts of $1,500,000 In
connection with the repayment of loans in the aggregate principal amounts of
$1,500,000 on March 4, 2016, 526,316 shares of our common stock issued to Neil
Rogers and held in escrow and 1,500,000 shares of our common stock issued to
Turnstone Capital Inc. and held in escrow were cancelled effective as of March
31, 2016.
Common stock issued for services
On May 15, 2014, the Company issued 2,000 restricted common
shares to consultant for services rendered and that were valued at the market
value on that date of $7. 50 per share.
On June 2, 2014, the Company issued 2,000 restricted common
shares to consultant for services rendered and that were valued at the market
value on that date of $6.50 per share.
On June 6, 2014, the Company issued 20,000 restricted common
shares to consultant for services rendered and that were valued at the market
value on that date of $6.50 per share.
On June 11, 2014, the Company issued 5,000 restricted common
shares to consultant for services rendered and that were valued at the market
value on that date of $6.05 per share.
On July 3, 2014, the Company entered into an agreement with a
third-party to provide consulting services. The compensation in the agreement
was $25,000 in cash upon execution of the agreement and the issuance of 7,000 of
the Companys common shares as follows: 3,500 common shares upon execution of
the agreement, 1,400 common shares on or before July 15, 2014, 1,400 common
shares on or before August 15, 2014 and 700 common shares on or before September
15, 2014.
On August 1, 2014, the Company issued 20,000 common shares to a
consultant for services rendered that were valued at the market value on that
date of $875 per share.
On August 7, 2014, the Company entered into an agreement with a
third-party to provide consulting services. The compensation in the agreement
was for 40,000 of the Companys common shares to be issued as follows: 10,000
common shares on the date of the execution of the agreement, 10,000 common
shares on the date that is 45 days from the execution date, 10,000 common shares
on the date that is 90 days from the execution date, and 10,000 common shares on
the date that is 135 days from the execution date.
On September 2, 2014, the Company issued 1,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $6. 75 per share.
On September 30, 2014, the Company issued6,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $5.00 per share.
On October 1, 2014, the Company issued 800 common shares to
consultant for services rendered that were valued at the market value on that
date of $5.65 per share.
F-19
On February 18, 2015, the Company issued1,000 common shares to consultant for services rendered that were valued at the market value on that date of $3.50 per share.
On February 18, 2015, the Company issued 24,500 common shares to consultants for services rendered that were valued at the market value on that date of $5. 00 per share.
On February 18, 2015, the Company issued71,000 common shares to employees for services rendered that were valued at the market value on that date of $5.00 per share.
On April 7, 2015, the Company issued 40,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $3.50 per share.
On April 10, 2015, the Company issued 30,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $4.85 per share.
On April 27, 2015, the Company issued 40,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $4.00 per share.
On May 1, 2015, the Company issued 5,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $4.00 per share.
On May 6, 2015, the Company issued 6,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $4.85 per share.
On June 15, 2015 the Company issued 30,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $4.70 per share.
On August 1, 2015 the Company issued 5,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $6.75 per share.
On August 25, 2015 the Company issued 30,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $5.45 per share.
On August 27, 2015 the Company issued 6,000 restricted common shares to consultant for services rendered that were valued at the market value on that date of $5.05 per share.
On August 28, 2015 the Company issued 4,000 common shares to consultant for services rendered that were valued at the market value on that date of $5.00 per share.
On September 30, 2015 the Company issued 10,000 common shares to consultant for services rendered that were valued at the market value on that date of $4.90 per share.
On December 11, 2015 the Company issued 24,000 common shares to consultants for services rendered that were valued at the market value on that date of $2.15 per share.
On December 11, 2015, the Company issued 44,000 common shares to employees for services rendered that were valued at the market value on that date of $2.15 per share.
On January 19, 2016, the Company reached an agreement with a contractor and agreed to issue 60,000 shares of restricted common stock for services rendered that were valued at the market value on that date of $0.90 per share.
On January 28, 2016, the company issued 10,000 shares of common stock forpastservicesperformedbyaformeremployeeofourcompany.
F-20
On January 29, 2016, the Company issued 400,000 common shares to a consultant for services rendered that were valued at the market value on that date of $0.52 per share.
On February 5, 2016, the Company reached an agreement with a contractor and agreed to issue 10,000 shares of restricted common stock for services that were valued at the market value on that date of $0.85 per share.
On March 1 2016, the Company reached an agreement with a contractor and agreed to issue 945,000 shares of common stock for services that were valued at the market value on that date of $0.99 per share.
On March 1, 2016, the company issued 30,000 shares of common stock forpastservicesperformedbyaformeremployeeofourcompany.
Common stock issued in conjunction with notes
On May 22, 2015, the Company issued 20,000 restricted common shares in conjunction with a $250,000 note payable that were valued at the market value on that date of $3.95 per share.
On August, 20, 2015, the Company issued 20,000 restricted common shares in conjunction with a $240,000 note payable that were valued at the market value on that date of $5.75 per share.
On October 28, 2015, the Company issued 10,000 restricted common shares in conjunction with a $62,000 note payable that were valued at the market value on that date of $4.25 per share.
On March 30, 2016 pursuant to a convertible note issued September 28, 2015 the $89,100 of principal balance was converted to 270,000 common shares of the Company Stock.
On March 31, 2016, the Company entered into a promissory note and warrant exchange agreement (the “March Exchange Agreement”) with six holders of our promissory notes (each, a “Note”) in the aggregate principal amount of
$310,000 and warrants (each, a “March Warrant”) to purchase an aggregate of 88,563 shares of our common stock, whereby we exchanged the holders’ Notes and March Warrants, for no additional consideration, for an aggregate of
551,246 shares of our common stock (the “March Exchange”), and following the March Exchange, the Notes and March Warrants were automatically cancelled and terminated and the holders have no further rights pursuant to the Notes, March
Warrants and any agreement or instrument pursuant to which such Notes or March Warrants were issued. Pursuant to the March Exchange Agreement, the Company issued an aggregate of 551,246 shares of our common stock upon exchange of the above mentioned
Notes and March Warrants.
NOTE 9 – OPTIONS AND WARRANTS
Stock option awards
On October 9, 2013, the Company granted a total of 120,000 stock options to Steven A. Nickolas and Richard A. Wright (60,000 stock options to each). The stock options are exercisable at the exercise price of $30.25 per share for a period of ten
years from the date of grant. The stock options vest as follows: (i) 20,000 upon the date of grant; and (ii) 10,000 per quarter until fully vested.
On May 12, 2014, the Company granted a total of 16,400 stock options to employees and consultants. The stock options are exercisable at the exercise price of $7.50 per share for a period of ten years from the date of grant. 10,050 stock options
vested upon the date of grant, 2,325 stock options vest on December 31, 2014, 2,325 stock options vest on December 31, 2014 and 1,700 stock options vest on December 31, 2014.
F-21
On May 12, 2014, the Company granted a total of 24,000 stock
options Steven A. Nickolas and Richard A. Wright (12,000 stock options to each).
The stock options are exercisable at the exercise price of $8.25 per share for a
period of ten years from the date of grant. 24,000 stock options vested upon the
date of grant.
On May 16, 2014, the Company granted a total of 5,000 stock
options to a consultant. The stock options are exercisable at the exercise price
of $7.15 per share for a period of ten years from the date of grant. 1,250 stock
options vested upon the date of grant, 1,250 stock options vest on December 31,
2014, 1,250 stock options vest on December 31, 2014 and 1,250 stock options vest
on December 31, 2014.
On May 21, 2014, the Company granted a total of 120,000 stock
options Steven A. Nickolas and Richard A. Wright (60,000 stock options to each).
The stock options are exercisable at the exercise price of $7.275 per share for
a period of ten years from the date of grant. 60,000 stock options vested upon
the date of grant and the 60,000 stock options will vest on November 21, 2014.
On October 31, 2014, the Company amended the 2013 Equity
Incentive Plan to, among other things, increase the number of shares of stock of
the company available for the grant of awards under the plan from 400,000 shares
to 700,000 shares.
On October 31, 2014, the Company reduced the exercise price of
an aggregate of 120,000 stock options granted on October 9, 2013 to Steven P.
Nickolas and Richard A. Wright, our directors and executive officers, to $7.50
per share and extended the exercise date to October 9, 2023.
On February 18, 2015, the Company reduced the exercise price of
an aggregate of 32,000 stock options granted on to Steven P. Nickolas and
Richard A. Wright, our directors and executive officers, to $5.75 per share an
exercise date to February 18, 2020, with vested immediately.
On February 18, 2015, the Company granted a total of 26,000
stock options to employees and consultants. The stock options are exercisable at
the exercise price of $5.00 per share for a period of ten years from the date of
grant. 17,750 stock options vested by March 31, 2015, 2,750 stock options vested
on June 30, 2015, 2,750 stock options vested on September 30, 2015 and 2,750
stock options vested on December 31, 2015.
On January 29, 2016, the Company granted a total of 1,310,000
stock options to certain employees. The stock options are exercisable at the
exercise price of $0.52 per share for a period of 7.6 years from the date of
grant and vested upon the date of grant.
On January 29, 2016, the Company granted a total of 3,000,000
stock options Steven A. Nickolas and Richard A. Wright (1,500,000 stock options
to each). The stock options are exercisable at the exercise price of $0.52 per
share for a period of 7.6 years from the date of grant and vested upon the date
of grant.
On March 4, 2016, the Company completed the offering and sale
of an aggregate of 9,000,000 shares of our common stock the offering included
warrants to purchase an aggregate of 4,500,000 shares of our common stock, at an
exercise price of $0.50 per share for a period of two years from the date of
issuance.
For the years ended March 31, 2016 and March 31, 2015 the
Company has recognized compensation expense of $2,425,495 and $4,039,291
respectively, on the stock options granted that vested. The fair value of the
unvested shares is $0 as of March, 2016. The aggregate intrinsic value of these
options was $0 at March 31, 2016. Stock option activity summary covering options
is presented in the table below:
F-22
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (years)
|
|
Outstanding at March 31, 2014
|
|
120,000
|
|
$
|
30.50
|
|
|
8.5
|
|
Granted
|
|
347,040
|
|
$
|
7.00
|
|
|
8.9
|
|
Exercised
|
|
(3,640
|
)
|
$
|
0.50
|
|
|
9.2
|
|
Expired/Forfeited
|
|
(120,000
|
)
|
$
|
-
|
|
|
8.2
|
|
Outstanding at March 31, 2015
|
|
343,400
|
|
$
|
7.00
|
|
|
8.2
|
|
Granted
|
|
4,310,000
|
|
|
0.52
|
|
|
7.8
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
-
|
|
Expired/Forfeited
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
4,653,400
|
|
|
0.92
|
|
|
7.7
|
|
Exercisable at March 31, 2016
|
|
4,653,400
|
|
|
0.92
|
|
|
7.7
|
|
Warrants
The following is a summary of the status of all of our warrants
as of March 31, 2016 and changes during the period ended on that date:
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of Warrants
|
|
|
Exercise Price
|
|
Outstanding at March 31, 2014
|
|
166,208
|
|
$
|
26.00
|
|
Granted
|
|
584,985
|
|
|
6.50
|
|
Exercised
|
|
(290,585
|
)
|
|
(15.50
|
)
|
Cancelled
|
|
-
|
|
|
(15.50
|
)
|
Outstanding at March 31, 2015
|
|
460,608
|
|
|
7.00
|
|
Granted
|
|
4,858,057
|
|
|
1.22
|
|
Exercised
|
|
(254,763
|
)
|
|
8.00
|
|
Cancelled or Expired
|
|
(75,786
|
)
|
|
6.00
|
|
Outstanding at March 31, 2016
|
|
4,988,116
|
|
|
1.39
|
|
Warrants exercisable at March 31, 2016
|
|
4,988,116
|
|
$
|
1.39
|
|
The following table summarizes information about stock warrants
outstanding and exercisable at March 31, 2016:
|
STOCK WARRANTS OUTSTANDING AND
|
|
EXERCISABLE
|
|
|
Weighted-
|
|
|
Average
|
|
Number of
|
Remaining
|
|
Warrants
|
Contractual
|
Exercise Price
|
Outstanding
|
Life in Years
|
$ 5.00
|
428,629
|
2.02
|
$ 6.25
|
6,667
|
3.05
|
$ 9.375
|
19,067
|
3.55
|
$ 27.50
|
2,326
|
2.07
|
$0.50
|
4,500,000
|
1.91
|
The Company agreed to reduce the exercise price of certain
existing warrants to $5.00 per share in consideration for the immediate exercise
of the existing warrants by the holders. As consideration, the holders were
issued new common stock purchase warrants of the Company to purchase up to a
number of shares of our common stock equal to the number of existing warrants
exercised by the holders, provided that the exercise price of the new warrants
will be $6. 25 per share.
On August 21, 2014, pursuant to a Warrant Amendment Agreement,
the Company issued an aggregate of 196,589 shares of the Companys common stock
upon the exercise of Existing Warrants at an exercise price of $5.00 per share for aggregate gross proceeds of $982,945. Simultaneously,
the Company issued new warrants to purchase an aggregate of 196,589 shares of
our common stock with a term of 5 years and exercise price of $6.25 per warrant
share. The Company recorded this issuance in additional paid-in capital.
F-23
On October 7, 2014, pursuant to a Warrant Amendment Agreement,
the Company issued an aggregate of 93,996 shares of the Companys common stock
upon exercise of the Existing Warrants at an exercise price of $5.00 per share
for aggregate gross proceeds of $469,980. Simultaneously, the Company issued new
warrants to purchase an aggregate of 93,996 shares of our common stock with a
term of 5 years and exercise price of $6.25 per warrant share. The Company
recorded this issuance in additional paid-in capital.
On October 22, 2014, the Company entered into a master lease
agreement with Veterans Capital Fund, LLC (the Lessor) for the secured lease
line of credit financing in an amount not to exceed $600,000. The lease is
expected to be secured by three new alkaline generating electrolysis system
machines. Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering
Solutions, LLC acted as co-lessees. Water Engineering Solutions, LLC is an
entity that is controlled and owned by our President, Chief Executive Officer,
director and major stockholder, Steven P. Nickolas, and our Vice-President,
Secretary, Treasurer and director, Richard A. Wright. Pursuant to the master
lease agreement, the Lessor agreed to lease to us the equipment described in any
equipment schedule signed by us and approved by the Lessor. It is expected that
any lease under the master lease agreement will be structured for a three-year
lease term with fixed monthly lease rental payments based on a monthly lease
rate factor of 3.4667% of the Lessors capital cost. In connection with the
entering into the master lease agreement, the Company also entered into a
warrant agreement with the Lessor, pursuant to which the Company agreed to issue
a warrant to purchase 72,000 shares of our common stock to the Lessor and/or its
affiliates at an exercise price of $6.25 per share for a period of five years.
18,000 shares vested.
On February 25, 2015, the Company amended the master lease
agreement with Veterans Capital Fund, LLC for the increase in the secured lease
line of credit financing to an amount not to exceed $800,000. The lease was
secured by new alkaline generating electrolysis system machines by our
wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC.
Water Engineering Solutions, LLC is an entity that is controlled and owned by
our President, Chief Executive Officer, director and major stockholder, Steven
P. Nickolas, and our Vice-President, Secretary, Treasurer and director, Richard
A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to
us the equipment described in any equipment schedule signed by us and approved
by the Lessor. It is expected that any lease under the master lease agreement
will be structured for a three-year lease term with fixed monthly lease rental
payments based on a monthly lease rate factor of 3.4667% of the Lessors capital
cost. In connection with the entering into the master lease agreement, the
Company entered into a warrant agreement with the Lessor, pursuant to which the
Company agreed to cancel the previous issued warrant for 72,000 and issue a
warrant to purchase 102,000 shares of our common stock to the Lessor and/or its
affiliates at an exercise price of $5.00 per share for a period of five years.
18,000 shares vested on October 22, 2014, 13,316 shares on October 28, 2014,
13,606 shares on December 22, 2014, 6,945 shares on February 3, 2015 and 15,799
shares on March 5, 2015. The remaining 18,105 shares will vest on a pro rata
basis according to any mounts the Lessor funds pursuant to any lease schedules
under the master lease agreement, provided that if we draw on 90% or more of the
total lease line under the master lease agreement, then all such shares will be
deemed to be vested. The Company recorded the bifurcated value of $309,028 of
the warrants issued as additional paid in capital, the value was determine using
a Black-Scholes, a level 3 valuation measure.
On June 29, 2015 the Company entered into a $50,000 Convertible
promissory note was convertible into Common stock at $3.50 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 14,286 warrants with a two year term an exercise price of $5.00 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $50,000 was
provided and will be amortized over the 1-year term of the note. As of March 31,
2016 $50,000 was converted into 88,912 shares of common stock and the discount
was fully amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $3.50 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 7,143 warrants with a two year term an exercise price of $5.00 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was provided and will be amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
F-24
On July 1, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 7, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 13, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 17, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On September 28, 2015 the Company entered into a $75,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had a 15% annual interest rate, 7-month term and rights to 32,000
warrants with a two year term an exercise price of $5.00 per share and 10,000 shares of restricted stock. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a
discount of $75,000 was provided and will be amortized over the 7-month term of the note. As of March 31, 2016 $75,000 was converted into 270,000 shares of common stock and the discount was fully amortized.
On October 2, 2015 the Company entered into a convertible promissory note for $10,000 that was convertible into common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143
warrants with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will
be amortized over the 1-year term of the note. As of March 31, 2016 $10,000 was converted into 17,782 shares of common stock and the discount was fully amortized.
On October 2, 2015 the Company entered into a convertible promissory note for $25,000 that was convertible into common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143
warrants with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 Debt with Conversion and Other
Options and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was
converted into 44,455 shares of common stock and the discount was fully
amortized.
F-25
On October 5, 2015 the Company entered into a convertible
promissory note for $25,000 that was convertible into common stock at $3.50 per
share. The Convertible promissory note had an 8% annual interest rate, 1-year
term and rights to 7,143 warrants with a two year term an exercise price of
$5.00 per share. The Company evaluated this transaction under ASC 470-20 Debt
with Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1-year term of the note. As of March 31,
2016 $25,000 was converted into 44,455 shares of common stock and the discount
was fully amortized.
On November 13, 2015 the Company entered into a convertible
promissory note for $50,000 that was convertible into common stock at $3.50 per
share. The convertible promissory note had an 8% annual interest rate, 1-year
term and rights to 14,286 warrants with a two year term an exercise price of
$5.00 per share. The Company evaluated this transaction under ASC 470-20 Debt
with Conversion and Other Options and determined that a discount of $50,000 was
provided and will be amortized over the 1-year term of the note. On December 16,
2015 the note was paid in full and the Company paid a $5,000 pre-payment penalty
which the Company changed to interest expense and fully amortized the $50,000
discount.
The fair value of the warrants granted during the year ended
March 31, 2016 was estimated at the date of agreement using the Black-Scholes
option-pricing model and a level 3 valuation measure, with the following
assumptions:
Market value of stock on purchase date
|
$
|
3.75
|
|
|
to
|
|
$
|
7.10
|
|
Risk-free interest rate
|
|
.26%
|
|
|
to
|
|
|
1.42%
|
|
Dividend yield
|
|
|
|
|
0.00%
|
|
|
|
|
Volatility factor
|
|
116%
|
|
|
to
|
|
|
161%
|
|
Weighted average expected life (years)
|
|
|
|
|
2
|
|
|
|
|
NOTE 10 RELATED PARTY TRANSACTIONS
On October 31, 2014, the Company amended the 2013 Equity
Incentive Plan to, among other things, to increase the number of shares of stock
of the Company available for the grant of awards under the plan from 20,000,000
shares to 35,000,000 shares.
On October 31, 2014, the Company reduced the exercise price of
an aggregate of 120,000 stock options granted to Steven P. Nickolas and Richard
A. Wright, our directors and executive officers, to $7.50 per share as noted
below:
|
|
|
New Exercise
|
|
|
|
|
Old Exercise
|
Price per
|
|
Number of Stock
|
Name of
Optionee
|
Grant Date
|
Price per Share
|
Share
|
Expiration Date
|
Options
|
Steven P. Nickolas
|
October 9, 2013
|
$30.25
|
$7.50
|
October 9, 2023
|
60,000
|
Richard A. Wright
|
October 9, 2013
|
$30.25
|
$7.50
|
October 9, 2023
|
60,000
|
On May 21, 2014, the Company granted a total of 120,000 stock
options Steven A. Nickolas and Richard A. Wright (60,000 stock options to each).
The stock options are exercisable at the exercise price of $7.275 per share for
a period of ten years from the date of grant. 60,000 stock options vested upon
the date of grant and 60,000 stock options will vest on November 21, 2014.
On October 9, 2013, the Company granted a total of 120,000
stock options to Steven A. Nickolas and Richard A. Wright (60,000 stock options
to each). The stock options are exercisable at the exercise price of $30.25 per
share for a period of ten years from the date of grant. For each individual, the stock options vest as follows: (i) 20,000 upon the date of grant; and (ii) 10,000 per quarter until fully vested.
F-26
On 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. 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 the year ended March 31,
2014.
On January 29, 2016, the Company granted a total of 3,000,000 stock options Steven A. Nickolas and Richard A. Wright (1,500,000 stock options to each). The stock options are exercisable at the exercise price of $0.52 per share for a period of
7.6 years from the date of grant and vested upon the date of grant.
Effective March 31, 2016, the Company issued a total of 3,000,000 shares of our Series C Preferred Stock to Steven P. Nickolas and Richard A. Wright (1,500,000 shares to each), our directors and executive officers, pursuant to their employment
agreements dated effective March 1, 2016.
On April 2, 2014, the Company entered into a sale-leaseback transaction with Water Engineering Solutions LLC, an entity that is controlled and owned by an officer, director and shareholder, for specialized equipment with an original cost of
$208,773 and that was acquired in August 2013. The Company received proceeds of $188,000 in April 2014. The lease terms are 60 monthly payments of $3,812, payable 30 days after installation of the equipment and a purchase option of
$1.00. The Company recorded a loss on sales leaseback of $20,773.
As of March 31, 2014, the Company had $0 in equipment deposits with an entity that is controlled and owned by an officer, director and shareholder of the Company. During the year ended March 31, 2014, the Company provided $201,900 of
deposits on equipment used to produce our alkaline water to an entity that is controlled and owned by an officer, director and shareholder of the Company. During the month of March 2014, these funds were returned to the Company.
During the year ended March 31, 2014 the Company acquired equipment of $208,773 and $10,287 from an entity that is controlled and majority-owned by an officer, director and shareholder of the Company.
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 used to make our alkaline water totaling
$190,756 and agreed to a 60-month term at $2,512 per month and a final payment of $28,585. On February 12, 2014 the Company amended this lease, as noted above, with equipment deposits of $201,900 being returned to the Company. In
addition, the lease terms were amended to 60 monthly payments of $3,864, payable 30 days after installation of the equipment and a purchase option of $1.00.
On August 1, 2013, the Company entered into a 3-year sub-lease agreement requiring a monthly payment of $2,085 for office space in Scottsdale, Arizona, with a basic monthly lease increase of 8% and 7% on each anniversary date. The Company or the
landlord can cancel the lease with 30 days’ notice. The sub-lessor is an entity owned by the Company’s Chief Executive Officer and President.
Under the terms of the exclusive manufacturing agreement entered into on April 15, 2013 between the Company and Water Engineering Solutions LLC, a related party, the Company paid $690,000 on May 1 2014 for specialized equipment used in the
production of our alkaline water. Under this agreement, the Company paid deposits on equipment as follows: May 1, 2014 $690,000, June 27, 2014 $21,500, July 1, 2014 $115,000, August 7, 2014 $10,000, August 5, 2014 $5,000, August
19, 2014 $2,000, August 22, 2014 $100,000, October 14, 2014 $70,000, November 4, 2014 $7,676 and November 7, 2014 $5,002. The Company received equipment valued at $278,769 and reduced the deposit on equipment. During the
year ended March 31, 2016 the company made purchased equipment of $312,500 to Water Engineering Solutions. Water Engineering Solutions, LLC is an entity that is controlled and majority owned by Steven P. Nickolas and Richard A. Wright for the
production of our alkaline water.
Employment Agreement with Steven P. Nickolas
F-27
On March 30, 2016, the Company entered into an employment agreement dated effective March 1, 2016 with Steven P. Nickolas, our president, chief executive officer and director, pursuant to which Mr. Nickolas agreed to perform such duties as are
regularly and customarily performed by the president and chief executive officer of a corporation, and any other duties consistent with Mr. Nickolas’s position in our company. Pursuant to the terms of the employment agreement, the Company have
agreed to (i) pay Mr. Nickolas $15,000 per month or such other amount as may be determined by our board of directors from time to time; and (ii) issue to Mr. Nickolas 1,500,000 shares of our Series C Preferred Stock (issued effective as of March
31, 2016). The Company also agreed that each of the following events constitute a “Negotiated Trigger Event” as defined in the Certificate of Designation for the Series C Preferred Stock: (i) the occurrence of a change of control event;
(ii) the death of Mr. Nickolas; and (iii) the termination of the employment agreement for any reason.
In addition, the Company may (i) grant awards under our 2013 equity incentive plan to Mr. Nickolas from time to time and (ii) pay to Mr. Nickolas an annual discretionary performance bonus in an amount to be determined by our board of directors in
its sole discretion. Mr. Nickolas will also be eligible to participate in other bonus programs offered by our company to our senior staff from time to time.
In addition, Mr. Nickolas will be entitled to participate in all of our employee benefit plans provided by our company to our senior officers. If the Company does not provide such plans at any time, the Company agreed to reimburse Mr. Nickolas for
the reasonable cost of any such plans obtained privately. The Company also agreed to (i) provide Mr. Nickolas with vehicle leased in our company’s name, with lease payments not exceeding $700/month or such other amount as may be determined
by our board of directors; (ii) pay Mr. Nickolas an allowance of $5,000 per month or such other amount as may be determined by our board of directors, which may be used by Mr. Nickolas as he sees fit, including without limitation, the funding of
non-qualified retirement plans; (iii) reimburse Mr. Nickolas for any expenses that he incurs in connection with his duties under his employment agreement. Mr. Nickolas will be entitled in each year to five weeks’ paid vacation, in addition to
weekends and statutory holidays, to be taken in installments of no more than three consecutive weeks of paid time off.
The initial term of the employment agreement is three years and, on the third anniversary of the effective date of the employment and on each annual anniversary date thereafter, the term of the employment agreement will automatically be extended by
one additional year unless either party gives 90 days’ written notice to the other of its intention not to renew the employment agreement.
If, within 90 days of the occurrence of a change of control event, Mr. Nickolas resigns from his employment relationship with our company or our company terminates his employment agreement for any reason other than for just cause, then the Company
agreed to pay Mr. Nickolas severance in an amount equal to the following: 36 months’ salary plus an amount, if any, equal to the following: one month’s salary multiplied by the number of calendar years, starting on the effective date of
the employment agreement, that Mr. Nickolas is employed by our company under his employment agreement.
The Company may terminate Mr. Nickolas’s employment at any time for other than just cause by delivering to Mr. Nickolas written notice of termination. In such a case, the Company agreed to pay Mr. Nickolas severance in an amount equal to the
following: 36 months’ salary plus an amount, if any, equal to the following: one month’s salary multiplied by the number of calendar years, starting on the effective date of the employment, that Mr. Nickolas is employed by our company
under his employment agreement.
Subject to applicable employment laws or similar legislation, the Company may terminate Mr. Nickolas’s employment in the event he has been unable to perform his duties for a period of eight consecutive months or a cumulative period of 12
months in any consecutive 24 month period, because of a physical or mental disability. Mr. Nickolas’s employment will automatically terminate on his death. In the event Mr. Nickolas’s employment with our company terminates by reason of
Mr. Nickolas’s death or disability, then upon and immediately effective on the date of termination the Company agreed to promptly pay and provide Mr. Nickolas (or in the event of Mr. Nickolas’s death, Mr. Nickolas’s estate); any
unpaid salary and any outstanding and accrued regular and special vacation pay through the date of termination; reimbursement for any unreimbursed expenses incurred through to the date of termination; and any outstanding amounts due under any awards
which will be dealt with in accordance with our 2013 equity incentive plan and award agreement. In the event Mr. Nickolas’s employment is terminated due to a disability, the Company agreed to pay to Mr. Nickolas the severance referred to
above.
F-28
The Company may terminate Mr. Nickolas’s employment for just cause at any time by delivering to Mr. Nickolas written notice of termination. In the event that Mr. Nickolas’s employment with our company is terminated by our company for
just cause, Mr. Nickolas will not be entitled to any additional payments or benefits (except as otherwise provided in his employment agreement), other than for amounts due and owing to Mr. Nickolas by our company as of the date of termination,
except for any awards under our 2013 equity incentive plan will be dealt with in accordance with the plan and award agreement.
Provided that Mr. Nickolas has acted within the scope of his authority, the Company agreed to indemnify and save harmless Mr. Nickolas (including his heirs and legal representatives) against any and all costs, claims and expenses (including any
amounts paid to settle any actions or satisfy any judgments) which: he may suffer or incur by reason of any matter or thing which he may in good faith do or have done or caused to be done as an employee, officer or director of our company, any of
its subsidiaries or of any of their respective affiliates; or was reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been an employee, officer
or director of our company, any of its subsidiaries or of any of their respective affiliates; provided that, the foregoing indemnification will apply only if: he acted honestly and in good faith with a view to the best interests of our company, any
of its subsidiaries or any of their respective affiliates; and in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
Mr. Nickolas agreed to indemnify and save harmless our company against, and agree to hold it harmless from, any and all damages, injuries, claims, demands, actions, liability, costs and expenses (including reasonable legal fees) incurred or made
against our company arising from or connected with the performance or non-performance of his employment by him or the beach of any warranty, representation or covenant herein by him, other than claims by him pursuant to his employment agreement.
If and to the extent the Company maintain directors’ and officers’ liability insurance for the protection of our executives in connection with acts and omissions occurring during their employment with our company, the Company agreed that
Mr. Nickolas will be included as an officer and director who is covered by such policy on a basis no less favorable than made available to other executives of our company.
Employment Agreement with Richard A. Wright
On March 30, 2016, the Company entered into an employment agreement dated effective March 1, 2016 with Richard A. Wright, our vice-president, secretary, treasurer and director, pursuant to which Mr. Wright agreed to perform such duties as are
regularly and customarily performed by the vice president, secretary and treasurer of a corporation, and any other duties consistent with Mr. Wright’s position in our company. Pursuant to the terms of the employment agreement, the Company have
agreed to (i) pay Mr. Wright $14,000 per month or such other amount as may be determined by our board of directors from time to time; and (ii) issue to Mr. Wright 1,500,000 shares of our Series C Preferred Stock (issued effective as of March 31,
2016). The Company also agreed that each of the following events constitute a “Negotiated Trigger Event” as defined in the Certificate of Designation for the Series C Preferred Stock: (i) the occurrence of a change of control event;
(ii) the death of Mr. Wright; and (iii) the termination of the employment agreement for any reason.
In addition, the Company may (i) grant awards under our 2013 equity incentive plan to Mr. Wright from time to time and (ii) pay to Mr. Wright an annual discretionary performance bonus in an amount to be determined by our board of directors in its
sole discretion. Mr. Wright will also be eligible to participate in other bonus programs offered by our company to our senior staff from time to time.
In addition, Mr. Wright will be entitled to participate in all of our employee benefit plans provided by our company to our senior officers. If the Company do not provide such plans at any time, the Company agreed to reimburse Mr. Wright for the
reasonable cost of any such plans obtained privately. The Company also agreed to (i) provide Mr. Wright with vehicle leased in our company’s name, with lease payments not exceeding $700/month or such other amount as may be determined by
our board of directors; (ii) pay Mr. Wright an allowance of $5,000 per month or such other amount as may be determined by our board of directors, which may be used by Mr. Wright as he sees fit, including without limitation, the funding of non-qualified retirement plans; (iii) reimburse Mr. Wright for any expenses that he incurs in connection with his duties under his employment agreement. Mr. Wright will be entitled in each year to five
weeks’ paid vacation, in addition to weekends and statutory holidays, to be taken in installments of no more than three consecutive weeks of paid time off.
F-29
The initial term of the employment agreement is three years and, on the third anniversary of the effective date of the employment and on each annual anniversary date thereafter, the term of the employment agreement will automatically be extended by
one additional year unless either party gives 90 days’ written notice to the other of its intention not to renew the employment agreement.
If, within 90 days of the occurrence of a change of control event, Mr. Wright resigns from his employment relationship with our company or our company terminates his employment agreement for any reason other than for just cause, then the Company
agreed to pay Mr. Wright severance in an amount equal to the following: 36 months’ salary plus an amount, if any, equal to the following: one month’s salary multiplied by the number of calendar years, starting on the effective date of
the employment agreement, that Mr. Wright is employed by our company under his employment agreement.
The Company may terminate Mr. Wright’s employment at any time for other than just cause by delivering to Mr. Wright written notice of termination. In such a case, the Company agreed to pay Mr. Wright severance in an amount equal to the
following: 36 months’ salary plus an amount, if any, equal to the following: one month’s salary multiplied by the number of calendar years, starting on the effective date of the employment, that Mr. Wright is employed by our company
under his employment agreement.
Subject to applicable employment laws or similar legislation, the Company may terminate Mr. Wright’s employment in the event he has been unable to perform his duties for a period of eight consecutive months or a cumulative period of 12 months
in any consecutive 24 month period, because of a physical or mental disability. Mr. Wright’s employment will automatically terminate on his death. In the event Mr. Wright’s employment with our company terminates by reason of Mr.
Wright’s death or disability, then upon and immediately effective on the date of termination the Company agreed to promptly pay and provide Mr. Wright (or in the event of Mr. Wright’s death, Mr. Wright’s estate); any unpaid salary
and any outstanding and accrued regular and special vacation pay through the date of termination; reimbursement for any unreimbursed expenses incurred through to the date of termination; and any outstanding amounts due under any awards which will be
dealt with in accordance with our 2013 equity incentive plan and the award agreement. In the event Mr. Wright’s employment is terminated due to a disability, the Company agreed to pay to Mr. Wright the severance referred to above.
The Company may terminate Mr. Wright’s employment for just cause at any time by delivering to Mr. Wright written notice of termination. In the event that Mr. Wright’s employment with our company is terminated by our company for just
cause, Mr. Wright will not be entitled to any additional payments or benefits (except as otherwise provided in his employment agreement), other than for amounts due and owing to Mr. Wright by our company as of the date of termination, except for any
awards under our 2013 equity incentive plan will be dealt with in accordance with the plan and award agreement.
Provided that Mr. Wright has acted within the scope of his authority, the Company agreed to indemnify and save harmless Mr. Wright (including his heirs and legal representatives) against any and all costs, claims and expenses (including any amounts
paid to settle any actions or satisfy any judgments) which: he may suffer or incur by reason of any matter or thing which he may in good faith do or have done or caused to be done as an employee, officer or director of our company, any of its
subsidiaries or of any of their respective affiliates; or was reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been an employee, officer or
director of our company, any of its subsidiaries or of any of their respective affiliates; provided that, the foregoing indemnification will apply only if: he acted honestly and in good faith with a view to the best interests of our company, any of
its subsidiaries or any of their respective affiliates; and in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
Mr. Wright agreed to indemnify and save harmless our company against, and agree to hold it harmless from, any and all damages, injuries, claims, demands, actions, liability, costs and expenses (including reasonable legal fees) incurred or made against our company arising from or connected
with the performance or non-performance of his employment by him or the beach of
any warranty, representation or covenant herein by him, other than claims by him
pursuant to his employment agreement.
F-30
If and to the extent the Company maintain directors and
officers liability insurance for the protection of our executives in connection
with acts and omissions occurring during their employment with our company, the
Company agreed that Mr. Wright will be included as an officer and director who
is covered by such policy on a basis no less favorable than made available to
other executives of our company.
NOTE 11 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company
recorded the valuation allowance due to the uncertainty of future realization of
federal and state net operating loss carryforwards. The deferred income tax
assets are comprised of the following at March 31:
|
|
2016
|
|
|
2015
|
|
Deferred income tax assets:
|
$
|
2,100,000
|
|
$
|
1,270,000
|
|
Valuation allowance
|
|
(2,100,000
|
)
|
|
(1,270,000
|
)
|
Net total
|
$
|
-
|
|
$
|
-
|
|
At March 31, 2016, the Company had net operating loss
carryforwards of approximately $7,790,000 and net operating loss carryforwards
expire in 2023 through 2034.
The valuation allowance was increased by $830,000 during the
year ended March 31, 2016. The current income tax benefit of $830,000 and
$1,270,000 generated for the years ended March 31, 2016 and 2015, respectively,
was offset by an equal increase in the valuation allowance. The valuation
allowance was increased due to uncertainties as to the Companys ability to
generate sufficient taxable income to utilize the net operating loss
carryforwards and other deferred income tax items.
The Company recognizes interest and penalties related to
uncertain tax positions in general and administrative expense. As of March 31,
2016, the Company has no unrecognized uncertain tax positions, including
interest and penalties
NOTE 12 COMMITMENTS AND CONTINGENCIES
Leases
The Company has long-term leases for its offices under
cancelable operating leases from August 1, 2013 through September 30, 2017. At
March 31, 2016, future minimum contractual obligations were as follows:
|
|
Facilities
|
|
|
Equipment
|
|
Year ending March 31, 2017
|
$
|
87,648
|
|
$
|
10,436
|
|
Year ending March 31, 2018
|
|
42,000
|
|
|
4,348
|
|
Total Minimum Lease Payments:
|
$
|
129,648
|
|
$
|
14,784
|
|
On October 3, 2014, the Company entered into a 3-year sub-lease
agreement requiring a monthly payment of $5,000 for office space in Scottsdale,
Arizona, with a basic monthly lease increase to $6,000 per month in second year
of the lease and to $7,000 per month in the third year of the lease. The Company
shall have the option to extend this lease for one (1) additional three (3) year
term for increased monthly rent.
F-31
On August 1, 2013 the Company entered into a 3-year sub-lease
agreement requiring a monthly payment of $2,085 for office space in Scottsdale,
Arizona, with a basic monthly lease increase of 8% and 7% on each anniversary
date. The Company or the landlord can cancel the lease with 30 days notice. The
sub-lessor is an entity owned by the Companys Chief Executive Officer and
President.
On August 2, 2013 the Company entered into a 4-year lease
agreement for certain office equipment requiring a monthly payment of $870.
NOTE 13 CAPITAL LEASE
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 used to
make our alkaline water with a stated value of $190,756 and agreed to a 60 month
term at $3,864 per month and a purchase option of $1 which commenced on May 1,
2014.
On April 2, 2014, the Company entered into a capital lease
agreement with Water Engineering Solutions LLC, an entity that is controlled and
owned by an officer, director and shareholder, for specialized equipment used to
make our alkaline water with a stated value of $188,000, terms of 60 monthly
payments of $3,812, payable 30 days after installation of the equipment and a
purchase option of $1.00 which commenced on July 1, 2014.
On October 22, 2014 the Company agreed to purchase the
specialized equipment use to make our alkaline water that were previously
reflected as capital lease on January 17, 2014 and April 2, 2014. During the
quarter ended December 31, 2014, the Company purchased these capital leases of
specialized equipment for $347,161, the lease liability on the date of
purchase.
On October 22, 2014, the Company entered into a master lease
agreement with Veterans Capital Fund, LLC (the Lessor) for the secured lease
line of credit financing in an amount not to exceed $600,000. The lease is
expected to be secured by three new alkaline generating electrolysis system
machines. Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering
Solutions, LLC acted as co-lessees. Water Engineering Solutions, LLC is an
entity that is controlled and owned by our President, Chief Executive Officer,
director and major stockholder, Steven P. Nickolas, and our Vice-President,
Secretary, Treasurer and director, Richard A. Wright. Pursuant to the master
lease agreement, the Lessor agreed to lease to us the equipment described in any
equipment schedule signed by us and approved by the Lessor. It is expected that
any lease under the master lease agreement will be structured for a three year
lease term with fixed monthly lease rental payments based on a monthly lease
rate factor of 3.4667% of the Lessors capital cost. In connection with the
entering into the master lease agreement, the Company also entered into a
warrant agreement with the Lessor, pursuant to which the Company agreed to issue
a warrant to purchase72,000 shares of our common stock to the Lessor and/or its
affiliates at an exercise price of $6. 25 per share for a period of five years,
18,000 shares vested.
On February 25, 2015, the Company amended the master lease
agreement with Veterans Capital Fund, LLC for the increase in the secured lease
line of credit financing to an amount not to exceed $800,000. The lease was
secured by new alkaline generating electrolysis system machines by our
wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC.
Water Engineering Solutions, LLC is an entity that is controlled and owned by
our President, Chief Executive Officer, director and major stockholder, Steven
P. Nickolas, and our Vice-President, Secretary, Treasurer and director, Richard
A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to
us the equipment described in any equipment schedule signed by us and approved
by the Lessor. It is expected that any lease under the master lease agreement
will be structured for a three year lease term with fixed monthly lease rental
payments based on a monthly lease rate factor of 3.4667% of the Lessors capital
cost. In connection with the entering into the master lease agreement, the
Company entered into a warrant agreement with the Lessor, pursuant to which the
Company agreed to cancel the previous issued warrant for72,000 and issue a
warrant to purchase 102,000 shares of our common stock to the Lessor and/or its
affiliates at an exercise price of $5.00 per share for a period of five years.
18,000 shares vested on October 22, 2014, 13,316 shares on October 28, 2014,
13,606 shares on December 22, 2014, 6,945 shares on February 3, 2015 and 15,799
shares on March 5, 2015. The remaining 18,105 shares will vest on a pro rata
basis according to any mounts the Lessor funds pursuant to any lease schedules
under the master lease agreement, provided that if the Company draws on 90% or
more of the total lease line under the master lease agreement, then all such
shares will be deemed to be vested. The Company recorded the bifurcated value of
$309,028 of the warrants issued as additional paid in capital, the value was
determine using a Black-Scholes, a level 3 valuation measure.
F-32
During the year ended March 31, 2015 the Company agreed to
lease the specialized equipment used to make our alkaline water with a value of
$735,781 under the above Master Lease agreement. The Company evaluated this
lease under ASC 840-30 Leases- Capital Leases and concluded that these lease
where a capital asset.
NOTE 14 NOTES PAYABLE
On May 11, 2015, the Company entered into a securities purchase
agreement with Assurance Funding Solutions LLC, pursuant to which the Company
issued a secured term note of our company in the aggregate principal amount of
$250,000, together with 20,000 shares of our common stock, in consideration for
$250,000. The secured term note bears interest at the rate of 15% per annum and
matures on May 11, 2016. The Company may prepay the note by paying the holder
110% of the principal amount outstanding together with accrued but unpaid
interest thereon, provided that the Company provide written notice to the holder
at least 30 days prior to the date of prepayment. Pursuant to the securities
purchase agreement, the Company paid Assurance Funding Solutions LLC $10,000 for
legal fees incurred by it and granted it piggyback registration rights. In
connection with the securities purchase agreement, the Company also entered into
a general security agreement dated May 11, 2015 with Assurance Funding Solutions
LLC. The Company evaluated this transaction under ASC 470-20-30
Debt
liability and equity component
determine that a Debt Discount of $79,000
was provided and will be amortized over the 1-year term of the note. As of March
31, 2016, $13.167 was unamortized and amortization of debt discount for the year
was $65,833.
On August 19, 2015, the Company entered into a securities
purchase agreement pursuant to which the Company issued a secured term note of
our company in the aggregate principal amount of $240,000, together with 20,000
shares of our common stock, in consideration for $200,000. The secured term note
bears requires monthly payments of $20,000 per month, along with a final payment
due on August 20, 2016.
On November 30, 2015, the Company entered into a loan agreement
with a lender, whereby the lender loaned $750,000 to the company in exchange for
a non-negotiable promissory note in the principal amount of $750,000 which bears
interest at the rate of 15% per annum and matures on the date that is 60 days
after November 30, 2015. On January 25, 2016 the note term was extended to March
31, 2016. This loan was repaid on March 4, 2016.
The loan agreement provides that the Companys obligations to
the lender will be secured by an escrow agreement, pursuant to which the Company
deposited into escrow a certificate representing $1.5 million worth of shares of
its common stock. Pursuant to the escrow agreement, the Company deposited a
share certificate representing 526,316 shares of the Company common stock valued
at $1.5 million. Pursuant to the escrow agreement, (i) in the event that there
is any event of default that is not cured in accordance with the loan agreement,
the escrow agent is to deliver the certificate to the lender and (ii) in the
event that the company repays the loan pursuant to the loan agreement and there
is no event of default that is not cured in accordance with the loan agreement
at the time of repayment, the escrow agent is to deliver the certificate to the
transfer agent of our company and request the transfer agent to cancel the
escrowed shares.
Pursuant to the loan agreement, the Company also granted
piggyback registration rights to the lender with respect to the escrowed shares.
As of January 25, 2016, the Company entered into a loan
agreement with a lender, whereby the Lender loaned $750,000 to our company in
exchange for a non-negotiable promissory note in the principal amount of
$750,000. The Note bears interest at the rate of 15% per annum and matures on
March 31, 2016. This loan was repaid on March 4, 2016.
The loan agreement provides that our obligations to the Lender
will be secured by an escrow agreement, pursuant to which the Company will
deposit into escrow a certificate representing 1,500,000 shares of our common
stock. As of January 25, 2016, the Company entered into an escrow agreement with
the Lender and an escrow agent. Pursuant to the escrow agreement, the Company
deposited a share certificate representing the escrowed shares with the escrow agent. Pursuant to the escrow agreement, (i) in the event that there is any event of default that is not cured in accordance with the loan agreement, the escrow agent is to deliver the certificate to the Lender and (ii) in the event that our
company repays the loan pursuant to the Loan Agreement and there is no event of default that is not cured in accordance with the loan agreement at the time of repayment, the escrow agent is to deliver the Certificate to the transfer agent of our
company and request the transfer agent to cancel the escrowed shares.
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Pursuant to the loan agreement, the Company also granted piggyback registration rights to the Lender with respect to the escrowed shares.
NOTE 15 – CONVERTIBLE NOTES PAYABLE
On June 29, 2015 the Company entered into a $50,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 14,286 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $50,000 was provided and will be
amortized over the 1-year term of the note. As of March 31, 2016 $50,000 was converted into 88,912 shares of common stock and the discount was fully amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015 $12,500 was amortized. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015 $12,500 was amortized. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015, 12,500 was amortized. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 7, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015 $12,500 was amortized. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 13, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015 $12,500 was amortized.
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As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On July 17, 2015 the Company entered into a $25,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143 warrants
with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will be
amortized over the 1-year term of the note. As of December 31, 2015 $12,500 was amortized. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On September 28, 2015 the Company entered into a $75,000 Convertible promissory note was convertible into Common stock at $3.50 per share. The Convertible promissory note had a 15% annual interest rate, 7-month term and rights to 32,000
warrants with a two year term an exercise price of $5.00 per share and 10,000 shares of restricted stock. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a
discount of $75,000 was provided and will be amortized over the 7-month term of the note. As of December 31, 2015 $18,750 was amortized. As of March 31, 2016 $75,000 was converted into 270,000 shares of common stock and the discount was
fully amortized.
On October 5, 2015 the Company entered into a convertible promissory note for $25,000 that was convertible into common stock at $3.50 per share. The Convertible promissory note had an 8% annual interest rate, 1-year term and rights to 7,143
warrants with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $25,000 was provided and will
be amortized over the 1-year term of the note. As of March 31, 2016 $25,000 was converted into 44,455 shares of common stock and the discount was fully amortized.
On November 13, 2015 the Company entered into a convertible promissory note for $50,000 that was convertible into common stock at $3.50 per share. The convertible promissory note had an 8% annual interest rate, 1-year term and rights to
14,286 warrants with a two year term an exercise price of $5.00 per share. The Company evaluated this transaction under ASC 470-20 “Debt with Conversion and Other Options” and determined that a discount of $50,000 was provided
and will be amortized over the 1-year term of the note. On December 16, 2015 the note was paid in full and the Company paid a $5,000 pre-payment penalty which the Company changed to interest expense and fully amortized the $50,000 discount.
On March 31, 2016, the Company entered into a promissory note and warrant exchange agreement (the
“
March Exchange Agreement”) with six holders of our promissory notes (each, a “Note”) in the aggregate principal amount
of $310,000 and warrants (each, a “March Warrant”) to purchase an aggregate of 88,563 shares of our common stock, whereby the Company exchanged the holders’ Notes and March Warrants, for no additional consideration, for an
aggregate of 551,246 shares of our common stock (the “March Exchange”), and following the March Exchange, the Notes and March Warrants were automatically cancelled and terminated and the holders have no further rights pursuant to the
Notes, March Warrants and any agreement or instrument pursuant to which such Notes or March Warrants were issued.
NOTE 16 – SUBSEQUENT EVENTS
On April 1, 2016, the Company issued 5,000 common shares to consultant for services rendered that were valued at the market value on that date of $1.65 per share.
On April 1, 201, the Company issued 12,500 common shares to consultant for services rendered that were valued at the market value on that date of $1.65 per share.
On of May 16, 2016, the Company entered into a warrant exchange agreement (the “May Exchange Agreement”) with six holders of our warrants (each, a “May Warrant”) to purchase an aggregate of 163,202 shares of our common stock,
whereby the Company exchanged the holders’ May Warrants, for no additional consideration, for an aggregate of 163,202 shares of our common stock (the “May Exchange”), and following the May Exchange, the May Warrants were automatically cancelled and terminated and the holders have no further rights pursuant to the May Warrants and any agreement or instrument pursuant to which such May Warrants were issued.
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On June 1, 2016, the Company issued 65,000 common shares to consultant for services rendered that were valued at the market value on that date of $1.75 per share.
On June 10, 2016, the Company entered into loan agreements with five lenders, pursuant to which the Company issued promissory notes in the aggregate principal amount of $260,000 in exchange for the loan in the amount of $260,000. The
promissory notes bear interest at the rate of 10% per annum, payable quarterly. Payment of the principal and interest is due and payable on or before June 10, 2017. The lenders have the option to convert the amount due under the promissory notes
into shares of our common stock at a conversion price of $1.00 per share.
On June 14, 2016, pursuant to the May Exchange Agreement, the Company issued an aggregate of 163,202 shares of our common stock upon exchange of the above mentioned May Warrants valued at the market value on that date of $1.98 per share.
On July 6, 2016, the Company issued an aggregate of 425,000 shares of our common stock to three investors in a private placement, at a purchase price of $1.00 per share for gross proceeds of $425,000.
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