The accompanying notes are an integral part of these condensed
consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(unaudited)
|
|
|
For the Six Months
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(2,879,482
|
)
|
$
|
(2,289,307
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
|
|
|
|
|
|
|
Depreciation expense
|
|
192,559
|
|
|
180,397
|
|
Stock compensation expense
|
|
1,670,294
|
|
|
319,125
|
|
Amortization of debt
discount and accretion
|
|
295,000
|
|
|
137,369
|
|
Interest expense converted to equity
|
|
14,583
|
|
|
|
|
Interest expense relating
to amortization of capital lease discount
|
|
51,505
|
|
|
51,504
|
|
Change in derivative liabilities
|
|
-
|
|
|
(6,357
|
)
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(429,564
|
)
|
|
(168,448
|
)
|
Inventory
|
|
185,641
|
|
|
(112,901
|
)
|
Prepaid expenses and other
current assets
|
|
(32,914
|
)
|
|
(10,294
|
)
|
Accounts
payable
|
|
107,956
|
|
|
110,383
|
|
Accrued expenses
|
|
155,917
|
|
|
138,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING
ACTIVITIES
|
|
(668,505
|
)
|
|
(1,650,263
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
(226,446
|
)
|
|
(79,696
|
)
|
Equipment Deposits -
related party
|
|
-
|
|
|
(104,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
(226,446
|
)
|
|
(184,315
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from notes
payable
|
|
-
|
|
|
510,000
|
|
Proceeds from convertible note payable
|
|
500,000
|
|
|
-
|
|
Proceeds from revolving
financing
|
|
409,943
|
|
|
87,918
|
|
Proceeds from sale of common stock, net
|
|
-
|
|
|
425,000
|
|
Proceeds from the exercise of warrants, net
|
|
-
|
|
|
300,000
|
|
Repayment of notes payable
|
|
-
|
|
|
(373,727
|
)
|
Repayment of capital lease
|
|
(136,966
|
)
|
|
(117,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY FINANCING
ACTIVITIES
|
|
772,977
|
|
|
832,170
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
(121,974
|
)
|
|
(1,002,408
|
)
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
603,805
|
|
|
1,192,119
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
481,831
|
|
$
|
189,711
|
|
|
|
|
|
|
|
|
INTEREST PAID
|
$
|
154,497
|
|
$
|
36,023
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(unaudited)
|
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The 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. The interim financial statements are condensed and
should be read in conjunction with the Company's latest annual financial
statements and that interim disclosures generally do not repeat those in the
annual statements.
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.
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.
On May 3, 2017, we designated 3,000,000 shares of the
authorized and unissued preferred stock of our company as Series D Preferred
Stock by filing a Certificate of Designation with the Secretary of State of the
State of Nevada. On November 2, 2017, we increased the number of authorized
shares of Series D Preferred Stock in our company to 5,000,000 shares by filing
an Amendment to the foregoing Certificate of Designation with the Secretary of
State of the State of Nevada. Each share of the Series D 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) we achieve the consolidated revenue of
our company and all of its subsidiaries equal to or greater than $40,000,000 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 D Preferred Stock will be convertible as may be agreed by our company
and the holder in writing from time to time.
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
$481,831 and $603,805 in cash and cash equivalents at September 30, 2017 and
March 31, 2017, 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 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 September 30, 2017 and March, 31 2017, inventory
consisted of the following:
|
|
September 30,
2017
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
453,858
|
|
$
|
587,689
|
|
Finished goods
|
|
180,489
|
|
|
232,300
|
|
Total inventory
|
$
|
634,347
|
|
$
|
819,989
|
|
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:
Equipment
|
|
5 years
|
|
Equipment under capital lease
|
|
5 years
|
|
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 has elected to account for forfeitures as they occur.
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.
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.
|
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.
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.
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.
On March 30, 2016, the FASB issued Accounting Standards Update
(ASU) 2O16-09) Improvements to Employee Share-based Accounting which amends ASC
718, Compensation Stock Compensation . The ASU includes provisions intended to
simplify various provisions related to how share-based payments are
accounted for and presented in the financial statements. Compensation cost is
ultimately only recognized for awards with performance and/or service conditions
that vest (or for awards with market conditions for which the requisite service
period is satisfied). Under the new guidance, entities are permitted to make an
accounting policy election related to how forfeitures will impact the
recognition of compensation cost. Currently entities are required to develop an
assumption regarding the forfeiture rate on the grant date, which impacts the
estimated amount of compensation cost recorded over the requisite service
period. The forfeiture estimates are updated throughout the service period so
that compensation cost is ultimately only recognized for awards that vest.
Under the new guidance, entities are permitted to make an
accounting policy to either estimate forfeitures each period, as required today
or to account for forfeitures as they occur. The Company elects to account for
forfeitures as they occur. ASU 2O16-O9 is effective for public business entities
for annual reporting periods beginning after December 15, 2O16 and interim
periods within that reporting period.
The Company has evaluated other recent accounting
pronouncements through September 2017 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 September 30, 2017 of ($26,269,516). 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.
NOTE 3 PROPERTY AND EQUIPMENT
Fixed assets consisted of the following at:
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
Machinery and Equipment
|
$
|
1,200,293
|
|
$
|
1,012,000
|
|
Machinery under Capital Lease
|
|
735,781
|
|
|
735,781
|
|
Machinery - Construction in Progress
|
|
224,662
|
|
|
185,848
|
|
Office Equipment
|
|
79,681
|
|
|
79,681
|
|
Leasehold Improvements
|
|
-
|
|
|
3,979
|
|
Less: Accumulated Depreciation
|
|
(1,086,382
|
)
|
|
(897,141
|
)
|
Fixed Assets, net
|
$
|
1,154,035
|
|
$
|
1,120,148
|
|
Depreciation expense for the six months ended September 30, 2017 and
September 30 2016 was $193,221and $180,397, respectively.
NOTE 4 REVOLVING FINANCING
On February 1, 2017, The Alkaline Water Company Inc. and its
subsidiaries (the Company) entered into a Credit and Security Agreement (the
Credit Agreement) with SCM Specialty Finance Opportunities Fund, L.P. (the
Lender).
The Credit Agreement provides the Company with a revolving
credit facility (the Revolving Facility), the proceeds of which are to be used
to repay existing indebtedness of the Company, transaction fees incurred in
connection with the Credit Agreement and for working capital needs of the
Company.
Under the terms of the Credit Agreement, the Lender has agreed
to make cash advances to the Company in an aggregate principal at any one time
outstanding not to exceed the lesser of (i) $3 million (the Revolving Loan
Commitment Amount) and (ii) the Borrowing Base (defined to mean, as of any date
of determination, 85% of net eligible billed receivables plus 65% of eligible
unbilled receivables, minus certain reserves).
The Credit Agreement has a term of three years, unless earlier
terminated by the parties in accordance with the terms of the Credit Agreement.
The principal amount of the Revolving Facility outstanding
bears interest at a rate per annum equal to (i) a fluctuating interest rate per
annum equal at all times to the rate of interest announced, from time to time,
within Wells Fargo Bank at its principal office in San Francisco as its prime
rate, plus (ii) 3.25%, payable monthly in arrears.
To secure the payment and performance of the obligations under
the Credit Agreement, the Company granted to the Lender a continuing security
interest in all of the Companys assets and agreed to a lockbox account
arrangement in respect of certain eligible receivables.
In connection with the Credit Agreement, the Company paid to
the Lender a $30,000 facility fee. The Company agreed to pay to Lender monthly
an unused line fee in amount equal to 0.083% per month of the difference derived
by subtracting (i) the average daily outstanding balance under the Revolving
Facility during the preceding month, from (ii) the Revolving Loan Commitment
Amount. The unused line fee will be payable monthly in arrears. The Company also
agreed to pay the Lender as additional interest a monthly collateral management
fee equal to 0.35% per month calculated on the basis of the average daily
balance under the Revolving Facility outstanding during the preceding month. The
collateral management fee will be payable monthly in arrears. Upon a termination
of the Revolving Facility, the Company agreed to pay the Lender a termination
fee in an amount equal to 2% of the Revolving Loan Commitment Amount if the
termination occurs before February 1, 2020. The Company must also pay certain
fees in the event that receivables are not properly deposited in the appropriate
lockbox account.
The interest rate will be increased by 5% in the event of a
default under the Credit Agreement. Events of default under the Credit
Agreement, some of which are subject to certain cure periods, include a failure
to pay obligations when due, the making of a material misrepresentation to the
Lender, the rendering of certain judgments or decrees against the Company and
the commencement of a proceeding for the appointment of a receiver, trustee,
liquidator or conservator or filing of a petition seeking reorganization or
liquidation or similar relief.
The Credit Agreement contains customary representations and
warranties and various affirmative and negative covenants including the right of
first refusal to provide financing for the Company and the financial and loan
covenants, such as the loan turnover rate, minimum EBTDA, fixed charge coverage
ratio and minimum liquidity requirements.
NOTE 5 DERIVATIVE LIABILITY
On May 1, 2014, the Company completed the offering and sale of
an aggregate of shares of our common stock and warrants. Each share of common
stock sold in the offering was accompanied by a warrant to purchase one-half of
a share of common stock. 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 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
The Company analyzed the warrants and conversion feature under
ASC 815 Derivatives and Hedging to determine the derivative liability as of
September 30, 2017 was $3,407.
NOTE 6 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.
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 P. 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), pursuant to their employment
agreements dated effective March 1, 2016. On August 17, 2017, Steven P. Nickolas
converted his 1,500,000 shares of Series C Preferred Stock to 1,500,000 shares
of Common Stock.
Grant of Series D Convertible Preferred Stock
On May 3, 2017, the Company designated 3,000,000 shares of the
authorized and unissued preferred stock of our company as Series D Preferred
Stock by filing a Certificate of Designation with the Secretary of State of the
State of Nevada. On November 2, 2017, we increased the number of authorized
shares of Series D Preferred Stock in our company to 5,000,000 shares by filing
an Amendment to the foregoing Certificate of Designation with the Secretary of
State of the State of Nevada. Each share of the Series D 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) we achieve the consolidated revenue of
our company and all of its subsidiaries equal to or greater than $40,000,000 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 D
Preferred Stock will be convertible as may be agreed by our company and the
holder in writing from time to time. The company then issued a total of
3,000,000 shares of our Series D Preferred Stock to our directors, officers,
consultants and employees. We issued these shares relying on the registration
exemption provided for in Section 4(a)(2) of the Securities Act of 1933.
Common Stock
The Company was 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.
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.
Common Stock Issued for Services
Effective April 28, 2017, we issued 610,000 shares of common
stock to six persons, one of whom is a director and officer of our company. Of
these shares, 560,000 are restricted from transfer for a period of two years.
In consideration for services rendered and to be rendered to
our company pursuant to a services agreement dated July 26, 2016, we issued
consultant 262,596 shares of our common stock on August 23, 2017.
NOTE 7 OPTIONS AND WARRANTS
Stock Option Awards
Effective April 28, 2017, we granted a total of 1,790,000 stock
options to our directors, officers, consultants employees. The stock options are
exercisable at the exercise price of $1.29 per share for a period of six and
one-half years from the date of grant. 360,000 of the stock options vest as
follows: (i) 120,000 upon the date of grant; and (ii) 120,000 on each
anniversary date of grant. 1,430,000 of the stock options vest as follows: (i)
357,500 upon the date of grant; and (ii) 357,500 on each anniversary date of
grant. We granted the stock options to 12 U.S. Persons and 3 non U.S. Persons
(as that term is defined in Regulation S of the Securities Act of 1933) and in
issuing securities we relied on the registration exemption provided for in Regulation
S and/or Section 4(a)(2) of the Securities Act of 1933.
In June 2017, two option holders elected to exercise their
stock options. A total of 181,000 stock options were surrendered in exchange for
121,288 common stock shares.
NOTE 8 RELATED PARTY TRANSACTIONS
On November 18, 2016, our company provided notice to Steven P.
Nickolas, our then-president and chief executive officer, of our board of
directors finding that there was just cause for termination of Mr. Nickolass
employment and of our companys intent to terminate the employment of Mr.
Nickolas for just cause pursuant to the provision of the Employment Agreement
with Mr. Nickolas dated March 1, 2016. Under the Employment Agreement, Mr.
Nickolas had 30 days to cure the failures and breaches creating just cause for
termination. Mr. Nickolas failed to cure such failure and breaches and, on April
7, 2017, our company terminated the employment of Mr. Nickolas for cause. In
addition, our company removed Mr. Nickolas as the president and chief executive
officer of our company.
On April 7, 2017, our board of directors appointed Richard A.
Wright as president of our company. On April 28, 2017, Mr. Wright resigned as
the secretary and treasurer of our company and he was appointed as the chief
executive officer of our company.
On April 28, 2017, our board of directors appointed David
Guarino as chief financial officer, treasurer, secretary president of our
company.
On May 3, 2017, the Company designated 3,000,000 shares of the
authorized and unissued preferred stock of our company as Series D Preferred
Stock by filing a Certificate of Designation with the Secretary of State of the
State of Nevada. Mr. Wright and Mr. Guarino were each issued 1,000,000 shares
each of the Series D Preferred Stock.
On September 14, 2017, Wright Investment Group LLC, an entity
controlled by Richard A. Wright, chief executive officer, president and
director, advanced $200,000 to the Company.
NOTE 9 CAPITAL LEASE
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 former president and chief executive
officer, Steven P. Nickolas, and our current president and chief executive
officer, 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 former president and chief executive officer, Steven P. Nickolas, and our
current president and chief executive officer, 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 previously issued warrant certificate for
72,000 warrants and issue a warrant certificate for warrants 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.
During the year ended March 31, 2015 the Company agreed to
lease 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 the lease is a
capital asset. As of September 30, 2017 the balance owed to Veterans Capital
Fund, LLC under the lease is $112,752.
NOTE 10 NOTES PAYABLE
On September 20, 2016, we entered into a loan facility
agreement (the Loan Agreement) with Turnstone Capital Inc., whereby Turnstone
Capital Inc. agreed to make available to our company a loan in the aggregate
principal amount of $1,500,000 (the Loan Amount). In June, 2017, the Loan
Agreement was amended to increase the Loan amount to $1,700,000. Pursuant to the
Loan Agreement, Turnstone Capital Inc. agreed to make one or more advances of
the Loan Amount to our company as requested from time to time by our company in
an amount to be agreed upon by our company and the Lender (each, an Advance).
During the year ended March 31, 2017, Turnstone Capital Inc.
made advances totaling $1,000,000. This amount together with accrued interest of
$30,000 was converted to 1,030,000 shares of our common stock on March 31, 2017.
In June, 2017, Turnstone Capital Inc. advanced an additional
$500,000 under the Loan Agreement. The Company evaluated this transaction under
ASC 470-20-30 Debt liability and equity component
and determined that
a debt discount of $295,000 was provided and will be amortized over the
remaining term of the Loan Agreement.
On September 29, 2017, Turnstone Capital Inc. converted the
$500,000 plus accrued interest of 14,583 to 514,583 common shares.
NOTE 11 SUBSEQUENT EVENTS
On October 17, 2017, Wright Investment Group LLC, an entity
controlled by Richard A. Wright, advanced $400,000 to the Company.
On October 25, 2017, Richard A. Wright forfeited stock options
to purchase a total of 148,000 shares of the Companys common stock at prices
ranging between $5.75 and $7.50.
On October 31, 2017, our company and its subsidiaries entered
into a Settlement Agreement and Mutual Release of Claims (the
Settlement
Agreement
) with Steven P. Nickolas, the Nickolas Family Trust, Water
Engineering Solutions, LLC and Enhanced Beverages, LLC, companies and trust that
are controlled or owned by Mr. Nickolas, (collectively, the
Nickolas
Parties
) and McDowell 78, LLC and Wright Investments Group, LLC, a
company controlled or owned by Richard A. Wright, (collectively,
Wright/McDowell). The Settlement Agreement provides, among other things, the
following: a) simultaneous with the full execution of the Settlement Agreement,
we agreed to pay Mr. Nickolas $110,000 in one lump sum (paid); b) in exchange of
700,000 shares of our common stock and 300,000 shares of our Series D Preferred
Stock described above, Mr. Nickolas forfeited his 10,000,000 shares of our
Series A Preferred Stock, to be cancelled for no further consideration; c) upon
the full execution of the
Settlement Agreement, Mr. Nickolas and our company agreed to file the stipulations to dismiss the complaints and counterclaim filed by each of them with prejudice, with each side to bear its own costs and attorney’s fees. In addition, our
company and Wright/McDowell agreed that they will effectuate the dismissal of an arbitration proceeding against the Nickolas Parties with prejudice, with each side to bear its own attorneys’ fees and costs; e) Mr. Nickolas acknowledged and
agreed that the employment agreement between Mr. Nickolas and our company was terminated as of April 7, 2017 and no further amounts are owed to Mr. Nickolas under the employment agreement and we agreed to waive restrictive covenants set out in the
employment agreement; f) we agreed to assume financial responsibility for certain obligations owed by Mr. Nickolas; g) Mr. Nickolas acknowledged and agreed that 1,500,000 stock options with an exercise price of $0.52 issued to Mr. Nickolas on or
about March 1, 2016 has expired and a total of 148,000 stock options issued to Mr. Mr. Nickolas before 2016 will automatically expire 90 days from October 6, 2017, the date Mr. Nickolas ceased being a director of our company; and h) the parties also
agreed to mutual release of claims.
On November 8, 2017, Richard A. Wright and the Company entered in to an Exchange Agreement and Mutual Release of Claims (the “Exchange Agreement”). The Exchange Agreement provided, among other things, for the following: a) in exchange
for the issuance of 700,000 shares of our common stock and 300,000 shares of our Series D Preferred Stock described above, Richard A. Wright forfeited his 10,000,000 shares of our Series A Preferred Stock, to be cancelled for no further
consideration; and b) Richard A. Wright also agreed to a release of claims against the Company. Also on November 8, 2017, Richard A. Wright forfeited stock options to purchase 1,500,000 shares of our company’s common stock at an exercise price
of $0.52 per share in exchange for the Company agreeing to issue Richard A. Wright an additional 200,000 shares of Series D Preferred Stock.
On November 14, 2017, we withdrew the Certificate of Designation establishing Series A Preferred Stock. There were no shares of Series A Preferred Stock outstanding immediately prior to the withdrawal.