UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2015
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to
__________________
Commission file number: 000-55096
THE ALKALINE WATER COMPANY
INC.
(Exact name of registrant as specified in its
charter)
Nevada |
99-0367049 |
State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization |
Identification No.) |
7730 E Greenway Road, Ste. 203, Scottsdale, AZ
85260
(Address of principal executive offices and Zip Code)
Registrants telephone number, including area code: (480)
656-2423
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class |
Name of each Exchange on which registered
|
Nil |
N/A |
Securities registered pursuant to Section 12(g) of the Act
Common stock with a par value of $0.001 per
share
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [ X ]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [
] No [ X ]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [
]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
Smaller reporting company [ X ] |
(Do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes [ ] No
[ X ]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrants most recently
completed second fiscal quarter.
73,131,026 shares of common stock at a price of $0.1081 per
share for an aggregate market value of $7,905,464.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable date:
As of July 13, 2015, there were 133,045,825 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980). Not Applicable
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This annual report contains forward-looking statements. All
statements other than statements of historical fact are forward-looking
statements for purposes of federal and state securities laws, including, but
not limited to, any projections of earnings, revenue or other financial items;
any statements of the plans, strategies and objections of management for future
operations; any statements concerning proposed new services or developments; any
statements regarding future economic conditions or performance; any statements
or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words may, could, estimate,
intend, continue, believe, expect or anticipate or other similar
words. These forward-looking statements present our estimates and assumptions
only as of the date of this report. Accordingly, readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
dates on which they are made. Except as required by applicable law, including
the securities laws of the United States, we do not intend, and undertake no
obligation, to update any forward-looking statement.
Although we believe the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to:
|
our current lack of working capital; |
|
inability to raise additional financing; |
|
the fact that our accounting policies and methods are
fundamental to how we report our financial condition and results of
operations, and they may require our management to make estimates about
matters that are inherently uncertain; |
|
deterioration in general or regional economic conditions;
|
|
adverse state or federal legislation or regulation that
increases the costs of compliance, or adverse findings by a regulator with
respect to existing operations; |
|
inability to efficiently manage our operations;
|
|
inability to achieve future sales levels or other
operating results; and |
|
the unavailability of funds for capital expenditures.
|
Our financial statements are stated in United States Dollars
(US$) unless otherwise stated and are prepared in accordance with United States
Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all
references to common shares refer to the common shares in our capital stock.
As used in this annual report on Form 10-K, the terms we,
us our, the Company and Alkaline refer to The Alkaline Water Company
Inc., a Nevada corporation, and its wholly-owned subsidiary, Alkaline Water
Corp., and Alkaline Water Corp.s wholly-owned subsidiary, Alkaline 88, LLC
(formerly Alkaline 84, LLC), unless otherwise specified.
Corporate Overview
Our company offers retail consumers bottled alkaline water in
500ml, 700ml, 1-liter, 3-liter and 1-gallon sizes under the trade name
Alkaline88. Our product is produced through an electrolysis process that uses
specialized electronic cells coated with a variety of rare earth minerals to
produce our 8.8 pH drinking water without the use of any chemicals. Our product
also incorporates 84 trace Himalayan salts. The main reason consumers drink our
product is for the perceived benefit that a proper pH balance helps fight
disease and boosts the immune system and the perception that alkaline water
helps to maintain a proper body pH and keeps cells young and hydrated.
4
Our company, The Alkaline Water Company Inc., was incorporated
under the laws of the State of Nevada on June 6, 2011 under the name Global
Lines Inc.. Our business model prior to the acquisition of Alkaline Water Corp.
on May 31, 2013 was to provide chauffeuring and transportation services to
residents within our local market, primarily providing transportation services
such as private school student transport, sightseeing trips, and elderly
transportation, and offering transportation to the airport and special events
such as proms and weddings. However, as we had not successfully developed our
service and had no source of revenue from our business plan, we determined to
seek out a new business opportunity to increase value for our stockholders.
On February 20, 2013, The Alkaline Water Company Inc. (formerly
Global Lines Inc.) entered into a non-binding letter of intent with Alkaline 88,
LLC (formerly Alkaline 84, LLC), a wholly-owned subsidiary of Alkaline Water
Corp., for the acquisition of all of the issued and outstanding securities of
the capital of Alkaline 88, LLC. Further to this letter of intent, on May 31,
2013, The Alkaline Water Company Inc. entered into a share exchange agreement
with Alkaline Water Corp. and all of its stockholders, and as a result of the
closing of this agreement on the same date, Alkaline Water Corp. became a
wholly-owned subsidiary of The Alkaline Water Company Inc. Consequently, after
the closing of this agreement we adopted the business of Alkaline Water Corp.s
wholly-owned subsidiary, Alkaline 88, LLC.
Alkaline Water Corp. was incorporated in the State of Arizona
on March 7, 2013, and it is the sole stockholder of Alkaline 88, LLC. Alkaline
Water Corp. is the wholly-owned subsidiary of The Alkaline Water Company Inc.,
and Alkaline 88, LLC is Alkaline Water Corp.s wholly-owned subsidiary.
Prior to the closing of the share exchange agreement, on May
30, 2013, our company effected a name change by merging with its wholly-owned
Nevada subsidiary named The Alkaline Water Company Inc. with our company as
the surviving corporation under the new name The Alkaline Water Company Inc.
In addition, on May 30, 2013, our company effected a 15:1 forward stock split of
our authorized and issued and outstanding common stock.
On October 7, 2013, we amended our articles of incorporation to
create 100,000,000 shares of preferred stock by filing a Certificate of
Amendment to Articles of Incorporation with the Secretary of State of the State
of Nevada. The preferred stock may be divided into and issued in series, with
such designations, rights, qualifications, preferences, limitations and terms as
fixed and determined by our board of directors. As a result, the aggregate
number of shares that we have the authority to issue is 1,225,000,000, of which
1,125,000,000 shares are common stock, with a par value of $0.001 per share, and
100,000,000 shares are preferred stock, with a par value of $0.001 per share.
On October 8, 2013, we designated 20,000,000 shares of the
authorized and unissued preferred stock of our company as Series A Preferred
Stock by filing a Certificate of Designation with the Secretary of State of the
State of Nevada. The Series A Preferred Stock has 10 votes per share and is not
convertible into shares of our common stock.
On November 5, 2013, we designated 1,000 shares of the
authorized and unissued preferred stock of our company as 10% Series B
Convertible Preferred Stock by filing a Certificate of Designation with the
Secretary of State of the State of Nevada. The 10% Series B Convertible
Preferred Stock has, among other things, conversion rights, liquidation
preferences, dividend rights, redemption rights and conversion rights.
The principal offices of our company are located at 7730 E
Greenway Road, Ste. 203, Scottsdale, AZ 85260. Our telephone number is (480)
656-2423.
Operations
Alkaline 88, LLC, our operating subsidiary, operates primarily
as a marketing and distribution company. Alkaline 88, LLC has entered into
exclusive arrangements with Water Engineering Solutions LLC, an entity that is
controlled and owned by our President, Chief Executive Officer, Director and
major stockholder, Steven P. Nickolas, and our Vice-President, Secretary,
Treasurer and Director, Richard A. Wright, for the manufacture and production of
our alkaline generating electrolysis system machines. Alkaline 88, LLC has
entered into one-year agreement(s) with six different bottling companies in
Ohio, Georgia, California, Texas and Arizona to act as co-packers for our
product. Our current capacity at all plants exceeds $2,000,000 per month
wholesale. Our branding is being coordinated through 602 Design, LLC and our
component materials are readily available through multiple vendors. Our
principal suppliers are Plastipack Packaging, Polyplastics Co., West Coast
Manufacturing and Cactus Containers.
5
Our product is currently at the expansion phase of its
lifecycle. In March 2012 Alkaline 88, LLC did market research on the demand for
a bulk alkaline product at the Natural Product Expo West in Anaheim, California.
In January 2013, we began the formal launching of our product in Southern
California and Arizona. Since then, we have begun to deliver product through
approximately 16,000 retail outlets throughout the United States. We are
presently in all 50 States and the District of Columbia, although over 50% of
our current sales are concentrated in the Southwest and Texas. We have
distribution agreements with large national distributors (UNFI, KeHe, Tree of
Life and Natures Best, CoreMark and C&S), representing over 150,000 retail
establishments. Our current stores include convenience stores, natural food
products stores, large ethnic markets and national retailers. Currently, we sell
all of our products to our retailers through brokers and distributors. Our
larger retail clients bring the water in through their own warehouse
distribution network. Our current retail clients are made up of a variety of the
following; convenience stores, including 7-11s; large national retailers,
including Albertsons/Safeway, Kroger companies, and regional grocery chains
such as Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas, Bristol
Farms, Vallarta, Superior Foods, Brookshires, HEB and other companies
throughout the United States. In total we are now in 34 of the top 75 (by sales)
grocery retailers in the United States.
In April 2014 we entered into an exclusive territorial
distribution agreement with Kalil Bottling Co. on a new single serve 700ml
Bottle with a sport cap. This exclusivity is in Arizona and other areas in the
Southwestern United States. Kalil Bottling Co. is a direct to store distributor
(DSD). In the past fiscal year we have added a number of additional DSDs in the
Southwest and have expanded our product offering to include 500ml and 1 liter
bottles.
In order to continue our expansion, we anticipate that we will
be required, in most cases, to continue to give promotional deals throughout
2015 and in subsequent years on a quarterly basis ranging from a 5%-15% discount
similar to all other beverage company promotional programs. It has been our
experience that most of the retailers have requested some type of promotional
introductory program which has included either a $0.25 -$0.50 per unit discount
on an initial order; a buy one get one free program; or a free-fill program
which includes 1-2 cases of free product per store location. Slotting has only
been presented and negotiated in the larger national grocery chains and, in most
cases, is offset by product sales. Our slotting fees with our current national
retailers do not exceed $400,000 in the aggregate and are offset through product
sales. In addition we participate in promotional activities of our distributors,
but these fees are not in excess of $500,000 and are offset through product
sales.
Plan of Operations
In order for us to implement our business plan over the next
twelve-month period, we have identified the following milestones that we expect
to achieve:
|
|
Expansion of Broker Network - We expect to continue to
develop our working relationship with our national broker network known as
Beacon United. We continually meet train and go on sales call with the
Beacon United Network in order to take advantage of the momentum currently
being created by their efforts. We anticipate a considerable amount of
travel and ongoing for both internal staff and Beacon United at an
estimated cost during that time of $100,000. |
|
|
Increase Manufacturing Capacity We expect to add one or
two new co-packer facilities, strategically located to reduce freight
costs and meet future growth objectives. |
|
|
Expand Retail Distribution - We are currently in
negotiations or have received the new item paperwork from retailers that
will introduce our Alkaline 88 product line to retailers representing
approximately 35,000 store locations throughout North America. We believe
that by year end we will be in over 25,000 stores. The cost of this retail
expansion is expected to be $300,000 during that time. |
|
|
Addition of Support Staff - In order to support expansion
efforts and to continue the training and support of our broker network, we
will need to hire approximately two more people on the corporate level,
which will be hired for the specific purpose of supporting the broker,
distributor and retailers and their logistical requirements. We continue
to seek and interview candidates to fill our growing need for additional
staffing. The additional cost of these new hires is expected to be
approximately $150,000 in salary and benefits over the next twelve months.
|
6
|
|
Capital Considerations Our business plan can be
adjusted based on the available capital to the business. We anticipate
that approximately $500,000 is necessary in the near term in order to
build-out a national presence for our product and to allow for the
purchase of the necessary equipment and facilities over the next twelve
months. To fund our expansion in the longer term, we anticipate that we
need at least $1,000,000 to $3,000,000 during fiscal year 2016.
|
We believe that cash flow from operations will not meet our
present and near-term cash needs and thus we will require additional cash
resources, including the sale of equity or debt securities, to meet our planned
capital expenditures and working capital requirements for the next 12 months. We
estimate that our capital needs over the next 12-month will be $1,000,000 to
$3,000,000. We will require additional cash resources to achieve the milestones
indicated above. If our own financial resources and future current cash-flows
from operations are insufficient to satisfy our capital requirements, we may
seek to sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity securities will result in dilution to
our stockholders. The incurrence of indebtedness will result in increased debt
service obligations and could require us to agree to operating and financial
covenants that could restrict our operations or modify our plans to grow the
business. Financing may not be available in amounts or on terms acceptable to
us, if at all. Any failure by us to raise additional funds on terms favorable to
us, or at all, will limit our ability to expand our business operations and
could harm our overall business prospects.
Distribution Method for Our Product
Our distribution network is a broker-distributor-retailer
network, whereby brokers represent our products to distributors and retailers.
Our target retail markets are: (a) chain and independent health food stores; (b)
grocery stores; (c) convenience stores; (d) drug stores; and (e) the mass retail
market.
Currently we have gained broker representation through the
Beacon United Group of brokers, which extend throughout the United States.
Across the country and in all categories of retail trade, we are aggressively
utilizing both DSD (direct to store deliveries) and warehouse opportunities in
the distribution of our products throughout the country.
We have distribution agreements with large national
distributors (UNFI, KeHe, Tree of Life and Natures Best, CoreMark and C&S),
representing over 150,000 retail establishments. Our current stores include
convenience stores, natural food products stores, large ethnic markets and
national retailers. Currently, we sell all of our products to our retailers
through brokers and distributors. Our larger retail clients bring the water in
through their own warehouse distribution network. Our current retail clients are
made up of a variety of the following; convenience stores, including 7-11s;
large national retailers, including Albertsons/Safeway, Kroger companies, and
regional grocery chains such as Schnucks, Smart & Final, Jewel-Osco,
Sprouts, Bashas, Bristol Farms, Vallarta, Superior Foods, Brookshires, HEB and
other companies throughout the United States. In total we are now in 34 of the
top 75 grocery retailers in the United States.
Dependence on Few Customers
We have 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.
There can be no assurance that such customers will continue to
order our products in the same level or at all. A reduction or delay in orders
from such customers, including reductions or delays due to market, economic or
competitive conditions, could have a material adverse effect on our business,
operating results and financial condition.
Marketing
We intend to market our product through our broker network and
to avail ourselves to the promotional activities of other companies and
competitors regarding the benefits of alkaline water. We anticipate that our
initial marketing thrust will be to support the retailers and distribution
network with point of sales displays and other marketing materials,
strategically adding an extensive public relations program and other marketing
as the markets dictate.
7
Competition
The beverage industry is extremely competitive. The principal
areas of competition include pricing, packaging, development of new
products and flavors, and marketing campaigns. Our product will be
competing directly with a wide range of drinks produced by a relatively
large number of manufacturers. Most of these brands have enjoyed broad,
well-established national recognition for years, through well-funded ad
and other marketing campaigns. In addition, companies manufacturing these
products generally have far greater financial, marketing, and
distribution resources than we have.
Important factors that will affect our ability to compete
successfully include the continued public perception of the benefits of alkaline
water, taste and flavor of our product, trade and consumer promotions, the
development of new, unique and cutting edge products, attractive and unique
packaging, branded product advertising, pricing, and the success of our
distribution network.
We will also be competing to secure distributors who will agree
to market our product over those of our competitors, provide stable and reliable
distribution, and secure adequate shelf space in retail outlets. The extremely
competitive pressures within the beverage categories could result in our product
never even being introduced beyond what they can market locally themselves.
Our product will compete generally with all liquid
refreshments, including bottled water and numerous specialty beverages, such as
SoBe, Snapple, Arizona, Vitamin Water, Gatorade, and Powerade. We will compete
directly with other alkaline water producers and brands focused on the emerging
alkaline beverage market including Eternal, Essentia, Icelandic, Real Water,
Aqua Hydrate, Mountain Valley, Qure, Penta, and Alka Power.
Products offered by our direct competitors are sold in various
volumes and prices with prices ranging from approximately $1.39 for a half-liter
bottle to $2.99 for a one-liter bottle, and volumes ranging from half-liter
bottles to one-and-a half liter bottles. We currently offer our product in a
three-liter bottle for a suggested retail price (SRP) of $3.99, one-gallon
bottle for an SRP of $4.99, 700 milliliter single serving at an SRP of $1.29, 1
liter at an SRP of $1.79 and a 500 milliliter at an SRP of $0.99.
Intellectual Property
Where available, we intend to obtain trademark protection in
the United States for a number of trademarks for slogans and product designs. We
intend to aggressively assert our rights under trade secret, unfair competition,
trademark and copyright laws to protect our intellectual property, including
product design, product research and concepts and recognized trademarks. These
rights are protected through the acquisition of patents and trademark
registrations, the maintenance of trade secrets, the development of trade dress,
and, where appropriate, litigation against those who are, in our opinion,
infringing these rights. The trademark for Alkaline 88 has been approved and is
currently active.
While there can be no assurance that registered trademarks will
protect our proprietary information, we intend to assert our intellectual
property rights against any infringer. Although any assertion of our rights
could result in a substantial cost to, and diversion of effort by, our company,
management believes that the protection of our intellectual property rights will
be a key component of our sales and operating strategy.
Seasonality of Business
The sales of our products are influenced to some extent by
weather conditions in the markets in which we operate. Unusually cold or rainy
weather during the summer months may have a temporary effect on the demand for
our product and contribute to lower sales, which could have an adverse effect on
our results of operations for such periods.
8
Research and Development Costs During the Last Two Years
Alkaline 88, LLC has worked with Water Engineering Solutions, LLC, an entity that is controlled and majority-owned by Steven P. Nickolas and Richard A. Wright, on the research and development activities related to the development of our alkaline
generating electrolysis system machines, a proprietary alkaline water system.
Government Regulation
The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our product will be subject to: the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act; state consumer
protection laws; competition laws; federal, state and local workplace health and safety laws; various federal, state and local environmental protection laws; and various other federal, state and local statutes and regulations.
Legal requirements apply in many jurisdictions in the United States requiring that deposits or certain ecotaxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers. The precise requirements imposed by
these measures vary. Other types of statutes and regulations relating to beverage container deposits, recycling, ecotaxes and/or product stewardship also apply in various jurisdictions in the United States. We anticipate that additional, similar
legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States.
Any third-party bottling facility that we may choose to utilize in the future and any other such operations will be subject to various environmental protection statutes and regulations, including those relating to the use of water resources and the
discharge of wastewater. It will be our policy to comply with any and all such legal requirements. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect on our capital expenditures,
net income or competitive position.
Employees
In addition to Steven P. Nickolas, who is our President, Chief Executive Officer, Director and major stockholder, and Richard A. Wright, who is our Vice-President, Secretary, Treasurer and Director, we currently employ 11 full time employees and 1
part-time employee in marketing, accounting and administration. We also work with retail brokers in the United States who are paid on a contract basis. Our operations are overseen directly by management that engages our employees to carry on our
business. Our management oversees all responsibilities in the areas of corporate administration, business development, and research. We intend to expand our current management to retain skilled directors, officers, and employees with experience
relevant to our business focus. Our management’s relationships with manufacturers, distillers, development/research companies, bottling concerns, and certain retail customers will provide the foundation through which we expect to grow our
business in the future. We believe that the skill-set of our management team will be a primary asset in the development of our brands and trademarks. We also plan to form an independent network of contract sales and regional managers, a promotional
support team, and several market segment specialists who will be paid on a variable basis.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before
purchasing our securities. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks.
9
Risks Related to Our Business
Because we have a limited operating history, our ability to fully and successfully develop our business is unknown.
We were incorporated in June 6, 2011, and we have only begun producing and distributing alkaline bottled water in 2013, and we have a limited operating history from which investors can evaluate our business. Our ability to successfully develop our
products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broad market acceptance by consumers. Without this market acceptance, we will
not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.
Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors. We anticipate
operating losses in upcoming future periods. This will occur because there are expenses associated with the development, production, marketing, and sales of our product.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of
business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. As of March 31, 2015, we had an accumulated deficit of $11,652,350. Our ability to
continue as a going concern is dependent on our company obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations. In
its report on the financial statements for the year ended March 31, 2015, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
We will need additional funds to produce, market, and distribute our product.
We will have to spend additional funds to produce, market and distribute our product. If we cannot raise sufficient capital, we may have to cease operations and you could lose your investment. We will need additional funds to produce our product for
distribution to our target market. Even after we have produced our product, we will have to spend substantial funds on distribution, marketing and sales efforts before we will know if we have commercially viable and marketable/sellable products.
There is no guarantee that sufficient sale levels will be achieved.
There is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sufficient sales to cover our expenses and result in profits. Consequently, there is a risk that you may lose all of your investment.
Our development, marketing, and sales activities are limited by our size.
Because we are small and do not have much capital, we must limit our product development, marketing, and sales activities. As such we may not be able to complete our production and business development program in a manner that is as thorough as we
would like. We may not ever generate sufficient revenues to cover our operating and expansion costs and you may, therefore, lose your entire investment.
10
Changes in the non-alcoholic beverage business
environment and retail landscape could adversely impact our financial results.
The non-alcoholic beverage business environment is rapidly
evolving as a result of, among other things, changes in consumer preferences,
including changes based on health and nutrition considerations and obesity
concerns; shifting consumer tastes and needs; changes in consumer lifestyles;
and competitive product and pricing pressures. In addition, the non-alcoholic
beverage retail landscape is very dynamic and constantly evolving, not only in
emerging and developing markets, where modern trade is growing at a faster pace
than traditional trade outlets, but also in developed markets, where discounters
and value stores, as well as the volume of transactions through e-commerce, are
growing at a rapid pace. If we are unable to successfully adapt to the rapidly
changing environment and retail landscape, our share of sales, volume growth and
overall financial results could be negatively affected.
Intense competition and increasing competition in the
commercial beverage market could hurt our business.
The commercial retail beverage industry, and in particular its
non-alcoholic beverage segment, is highly competitive. Market participants are
of various sizes, with various market shares and geographical reach, some of
whom have access to substantially more sources of capital.
We compete generally with all liquid refreshments, including
bottled water and numerous specialty beverages, such as: SoBe; Snapple; Arizona;
Vitamin Water; Gatorade; and Powerade.
We compete indirectly with major international beverage
companies including but not limited to: the Coca-Cola Company; PepsiCo, Inc.;
Nestlé; Dr Pepper Snapple Group; Groupe Danone; Kraft Foods Group, Inc.; and
Unilever. These companies have established market presence in the United States,
and offer a variety of beverages that are substitutes to our product. We face
potential direct competition from such companies, because they have the
financial resources, and access to manufacturing and distribution channels to
rapidly enter the alkaline water market. We compete directly with other alkaline
water producers and brands focused on the emerging alkaline beverage market
including: Eternal; Essentia; Icelandic; Real Water; Aqua Hydrate; Mountain
Valley; Qure; Penta; and Alka Power. These companies could bolster their
position in the alkaline water market through additional expenditure and
promotion.
As a result of both direct and indirect competition, our
ability to successfully distribute, market and sell our product, and to gain
sufficient market share in the United States to realize profits may be limited,
greatly diminished, or totally diminished, which may lead to partial or total
loss of your investments in our company.
Alternative non-commercial beverages or processes could
hurt our business.
The availability of non-commercial beverages, such as tap
water, and machines capable of producing alkaline water at the consumers home
or at store-fronts could hurt our business, market share, and profitability.
Expansion of the alkaline beverage market or sufficiency
of consumer demand in that market for operations to be profitable are not
guaranteed.
The alkaline water market is an emerging market and there is no
guarantee that this market will expand or that consumer demand will be
sufficiently high to allow our company to successfully market, distribute and
sell our product, or to successfully compete with current or future competition,
all of which may result in total loss of your investment.
Our growth and profitability depends on the performance
of third-parties and our relationship with them.
Our distribution network and its success depend on the
performance of third parties. Any non-performance or deficient performance by
such parties may undermine our operations, profitability, and result in total
loss to your investment. To distribute our product, we use a
broker-distributor-retailer network whereby brokers represent our products to
distributors and retailers who will in turn sell our product to consumers. The
success of this network will depend on the performance of the brokers,
distributors and retailers of this network. There is a risk that a broker,
distributor, or retailer may refuse to or cease to market or carry our product.
There is a risk that the mentioned entities may not adequately perform their
functions within the network by, without limitation, failing to distribute to
sufficient retailers or positioning our product in localities that may not be
receptive to our product. Furthermore, such third-parties financial position or
market share may deteriorate, which could adversely affect our distribution,
marketing and sale activities. We also need to maintain good commercial
relationships with third-party brokers, distributors and retailers so that they
will promote and carry our product. Any adverse consequences resulting from the
performance of third-parties or our relationship with them could undermine our
operations, profitability and may result in total loss of your investment.
11
The loss of one or more of our major customers or a
decline in demand from one or more of these customers could harm our business.
We have 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. There can be no
assurance that such customers will continue to order our products in the same
level or at all. A reduction or delay in orders from such customers, including
reductions or delays due to market, economic or competitive conditions, could
have a material adverse effect on our business, operating results and financial
condition.
Health benefits of alkaline water is not guaranteed or
proven, rather it is perceived by consumers.
Health benefits of alkaline water are not guaranteed and have
not been proven. There is a consumer perception that drinking alkaline water has
beneficial health effects. Consequently, negative changes in consumers
perception of the benefits of alkaline water or negative publicity surrounding
alkaline water may result in loss of market share or potential market share and
hence loss of your investment.
Water scarcity and poor quality could negatively impact
our production costs and capacity.
Water is the main ingredient in our product. It is also a
limited resource, facing unprecedented challenges from overexploitation,
increasing pollution, poor management, and climate change. As demand for water
continues to increase, as water becomes scarcer, and as the quality of available
water deteriorates, we may incur increasing production costs or face capacity
constraints that could adversely affect our profitability or net operating
revenues in the long run.
Increase in the cost, disruption of supply or shortage of
ingredients, other raw materials or packaging materials could harm our
business.
We and our bottlers will use water, 84 trace Himalayan salts,
packaging materials for bottles such as plastic and paper products. The prices
for these ingredients, other raw materials and packaging materials fluctuate
depending on market conditions. Substantial increases in the prices of our or
our bottlers ingredients, other raw materials and packaging materials, to the
extent they cannot be recouped through increases in the prices of finished
beverage products, would increase our operating costs and could reduce our
profitability. Increases in the prices of our finished products resulting from a
higher cost of ingredients, other raw materials and packaging materials could
affect the affordability of our product and reduce sales.
An increase in the cost, a sustained interruption in the
supply, or a shortage of some of these ingredients, other raw materials, or
packaging materials and containers that may be caused by a deterioration of our
or our bottlers relationships with suppliers; by supplier quality and
reliability issues; or by events such as natural disasters, power outages, labor
strikes, political uncertainties or governmental instability, or the like, could
negatively impact our net revenues and profits.
Changes in laws and regulations relating to beverage
containers and packaging could increase our costs and reduce demand for our
products.
We and our bottlers intend to offer our product in
nonrefillable, recyclable containers in the United States. Legal requirements
have been enacted in various jurisdictions in the United States requiring that
deposits or certain ecotaxes or fees be charged for the sale, marketing and use
of certain nonrefillable beverage containers. Other proposals relating to
beverage container deposits, recycling, ecotax and/or product stewardship have
been introduced in various jurisdictions in the United States and overseas, and
we anticipate that similar legislation or regulations may be proposed in the
future at local, state and federal levels in the United States. Consumers
increased concerns and changing attitudes about solid waste streams and
environmental responsibility and the related publicity could result in the
adoption of such legislation or regulations. If these types of requirements are
adopted and implemented on a large scale in the geographical regions in which we
operate or intend to operate, they could affect our costs or require changes in
our distribution model, which could reduce our net operating revenues or
profitability.
12
Significant additional labeling or warning requirements
or limitations on the availability of our product may inhibit sales of affected
products.
Various jurisdictions may seek to adopt significant additional
product labeling or warning requirements or limitations on the availability of
our product relating to the content or perceived adverse health consequences of
our product. If these types of requirements become applicable to our product
under current or future environmental or health laws or regulations, they may
inhibit sales of our product.
Unfavorable general economic conditions in the United
States could negatively impact our financial performance.
Unfavorable general economic conditions, such as a recession or
economic slowdown, in the United States could negatively affect the
affordability of, and consumer demand for, our product in the United States.
Under difficult economic conditions, consumers may seek to reduce discretionary
spending by forgoing purchases of our products or by shifting away from our
beverages to lower-priced products offered by other companies, including
non-alkaline water. Consumers may also cease purchasing bottled water and
consume tap water. Lower consumer demand for our product in the United States
could reduce our profitability.
Adverse weather conditions could reduce the demand for
our products.
The sales of our products are influenced to some extent by
weather conditions in the markets in which we operate. Unusually cold or rainy
weather during the summer months may have a temporary effect on the demand for
our product and contribute to lower sales, which could have an adverse effect on
our results of operations for such periods.
Changes in, or failure to comply with, the laws and
regulations applicable to our products or our business operations could increase
our costs or reduce our net operating revenues.
The advertising, distribution, labeling, production, safety,
sale, and transportation in the United States of our product will be subject to:
the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the
Lanham Act; state consumer protection laws; competition laws; federal, state,
and local workplace health and safety laws, such as the Occupational Safety and
Health Act; various federal, state and local environmental protection laws; and
various other federal, state, and local statutes and regulations. Legal
requirements also apply in many jurisdictions in the United States requiring
that deposits or certain ecotaxes or fees be charged for the sale, marketing,
and use of certain non-refillable beverage containers. The precise requirements
imposed by these measures vary. Other types of statutes and regulations relating
to beverage container deposits, recycling, ecotaxes and/or product stewardship
also apply in various jurisdictions in the United States. We anticipate that
additional, similar legal requirements may be proposed or enacted in the future
at the local, state and federal levels in the United States. Changes to such
laws and regulations could increase our costs or reduce our net operating
revenues.
In addition, failure to comply with environmental, health or
safety requirements and other applicable laws or regulations could result in the
assessment of damages, the imposition of penalties, suspension of production,
changes to equipment or processes, or a cessation of operations at our or our
bottlers facilities, as well as damage to our image and reputation, all of
which could harm our profitability.
13
Our products are considered premium and healthy beverages
and are being sold at premium prices compared to our competitors; we cannot
provide any assurances as to consumers' continued market acceptance of our
current and future products.
We will compete directly with other alkaline water producers
and brands focused on the emerging alkaline beverage market including Eternal, Essentia, Icelandic, Real Water, Aqua Hydrate, Mountain Valley, Qure, Penta, and
Alka Power. Products offered by our direct competitors are sold in various
volumes and prices with prices ranging from approximately $1.39 for a half-liter
bottle to $2.99 for a one-liter bottle, and volumes ranging from half-liter
bottles to one-and-a half liter bottles. We currently offer our product in a
three-liter bottle for an SRP of $3.99, one-gallon bottle for an SRP of $4.99,
700 milliliter single serving at an SRP of $1.29, 1 liter at an SRP of $1.79 and
a 500 milliliter at an SRP of $.99. Our competitors may introduce larger sizes
and offer them at an SRP that is lower than our product. We can provide no
assurances that consumers will continue to purchase our product or that they
will not prefer to purchase a competitive product.
We rely on key executive officers, and their knowledge of
our business would be difficult to replace.
We are highly dependent on our two executive officers, Steven
P. Nickolas and Richard A. Wright. We do not have key person life insurance
policies for any of our officers. The loss of management and industry expertise
of any of our key executive officers could result in delays in product
development, loss of any future customers and sales and diversion of management
resources, which could adversely affect our operating results.
Our executive officers are not subject to supervision or
review by an independent board or audit committee.
Our board of directors consists of Steven P. Nickolas and
Richard A. Wright, our executive officers. Accordingly, we do not have any
independent directors. Also we do not have an independent audit committee. As a
result, the activities of our executive officers are not subject to the review
and scrutiny of an independent board of directors or audit committee.
Risk Related to Our Stock
Because Steven P. Nickolas controls a large percentage of
our voting stock, he has the ability to influence matters affecting our
stockholders.
Steven P. Nickolas, our President, Chief Executive Officer and
Director, exercises voting and dispositive power with respect to 40,300,000
shares of our common stock, which are beneficially owned by WiN Investments, LLC
and Lifewater Industries, LLC, and owns 10,000,000 shares of Series A Preferred
Stock, which has 10 votes per share upon any matter submitted to our
stockholders for a vote. Accordingly, he controls a large percentage of the
votes attached to our outstanding voting securities. As a result, he has the
ability to influence matters affecting our stockholders, including the election
of our directors, the acquisition or disposition of our assets, and the future
issuance of our securities. Because he controls such large percentage of votes,
investors may find it difficult to replace our management if they disagree with
the way our business is being operated. Because the influence by Mr. Nickolas
could result in management making decisions that are in the best interest of Mr.
Nickolas and not in the best interest of the investors, you may lose some or all
of the value of your investment in our common stock.
Because we can issue additional shares of common stock,
our stockholders may experience dilution in the future.
We are authorized to issue up to 1,125,000,000 shares of common
stock and 100,000,000 shares of preferred stock, of which 127,295,286 shares of
common stock are issued and outstanding and 20,000,000 shares of Series A
Preferred Stock are issued and outstanding as of July 13, 2015. Our board of
directors has the authority to cause us to issue additional shares of common
stock and preferred stock, and to determine the rights, preferences and
privileges of shares of our preferred stock, without consent of our
stockholders. Consequently, the stockholders may experience more dilution in
their ownership of our stock in the future.
Trading on the OTCQB may be volatile and sporadic, which
could depress the market price of our common stock and make it difficult for our
stockholders to resell their shares.
Our common stock is quoted on the OTCQB operated by the OTC
Markets Group. Trading in stock quoted on the OTCQB is often thin and
characterized by wide fluctuations in trading prices, due to many factors that
may have little to do with our operations or business prospects. This volatility
could depress the market price of our common stock for reasons unrelated to
operating performance. Moreover, the OTCQB is not a stock exchange, and trading
of securities on the OTCQB is often more sporadic than the trading of securities
listed on a national securities exchange like the NASDAQ or the NYSE.
Accordingly, stockholders may have difficulty reselling any of our shares.
14
A decline in the price of our common stock could affect
our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because we plan to acquire a significant portion
of the funds we need in order to conduct our planned operations through the sale
of equity securities, a decline in the price of our common stock could be
detrimental to our liquidity and our operations because the decline may cause
investors not to choose to invest in our stock. If we are unable to raise the
funds we require for all our planned operations, we may be forced to reallocate
funds from other planned uses and may suffer a significant negative effect on
our business plan and operations, including our ability to develop new products
and continue our current operations. As a result, our business may suffer, and
not be successful and we may go out of business. We also might not be able to
meet our financial obligations if we cannot raise enough funds through the sale
of our equity securities and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our
shares of common stock in the near future, our stockholders will not be able to
receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the
development and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the near future. The declaration, payment and
amount of any future dividends will be made at the discretion of the board of
directors, and will depend upon, among other things, the results of operations,
cash flows and financial condition, operating and capital requirements, and
other factors as the board of directors considers relevant. There is no
assurance that future dividends will be paid, and if dividends are paid, there
is no assurance with respect to the amount of any such dividend. Unless we pay
dividends, our stockholders will not be able to receive a return on their shares
unless they sell them.
Our stock is a penny stock. Trading of our stock may be
restricted by the SECs penny stock regulations, which may limit a stockholders
ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange
Commission (SEC) has adopted Rule 15g-9 which generally defines penny
stock to be any equity security that has a market price (as defined in Rule
15g-9) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny
stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC, which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
15
FINRA sales practice requirements may also limit a
stockholders ability to buy and sell our stock.
In addition to the penny stock rules promulgated by the SEC,
the Financial Industry Regulatory Authority (FINRA) has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customers financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We do not own any real estate or other property used in the
operation of our current business. Our principal offices are located at 7730 E
Greenway Road Ste. 203, Scottsdale, AZ 85260 with the size of 3,500 square feet.
We have recently entered into a new leasing arrangement with rent arrangement
with 7730 E Greenway Properties, an unrelated third party, for $5,000 per month.
We believe that the condition of our principal offices is satisfactory, suitable
and adequate for our current needs.
ITEM 3. LEGAL PROCEEDINGS
We know of no material pending legal proceedings to which our
company or any of our subsidiaries is a party or of which any of our properties,
or the properties of any of our subsidiaries, is the subject. In addition, we do
not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material
interest adverse to our company or any of our subsidiaries.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Markets Groups OTCQB
under the trading symbol WTER. Trading in stocks quoted on the OTCQB is often
thin and is characterized by wide fluctuations in trading prices due to many
factors that may be unrelated or have little to do with a companys operations
or business prospects.
Our common stock became eligible for quotation on the OTC
Bulletin Board on July 10, 2012 and became ineligible for quotation on July 17,
2014.
Set forth below are the range of high and low bid quotations
for the periods indicated as reported by the OTC Bulletin Board or OTCQB. The
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions.
16
Quarter
Ended |
High Bid |
Low Bid |
March 31, 2015 |
$0.15 |
$0.06 |
December 31, 2014
|
$0.12 |
$0.04 |
September 30, 2014
|
$0.23 |
$0.09 |
June 30, 2014 |
$0.44 |
$0.10 |
March 31, 2014 |
$0.26 |
$0.15 |
December 31, 2013
|
$0.70 |
$0.2501 |
September 30, 2013
|
$1.305 |
$0.35 |
June 30, 2013 |
$0
|
$0
|
On July 13, 2015, the closing price of our common stock as
reported by the OTCQB was $0.17 per share.
Transfer Agent
Our shares of common stock are issued in registered form. The
transfer agent and registrar for our common stock is Island Stock Transfer,
located at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.
Holders of Common Stock
As of July 13, 2015, there were approximately
29 holders of
record of our common stock. As of such date,
133,045,825 shares were issued and
outstanding.
Dividends
The payment of dividends, if any, in the future, rests within
the sole discretion of our board of directors. The payment of dividends will
depend upon our earnings, our capital requirements and our financial condition,
as well as other relevant factors. We have not declared any cash dividends since
our inception and have no present intention of paying any cash dividends on our
common stock in the foreseeable future.
There are no restrictions in our articles of incorporation or
bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect to
the distribution of the dividend:
|
1. |
We would not be able to pay our debts as they become due
in the usual course of business; or |
|
|
|
|
2. |
Our total assets would be less than the sum of our total
liabilities plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those receiving the
distribution. |
17
Securities Authorized for Issuance under Equity Compensation
Plans
The following table summarizes certain information regarding
our equity compensation plans as of March 31, 2015.
Plan category
|
Number of securities to
be issued upon exercise of outstanding options,
warrants and rights
(a) |
Weighted-average
exercise price of outstanding options, warrants
and rights
(b) |
Number of securities
remaining available for future issuance under equity
compensation plans (excluding securities
reflected in column (a))
(c) |
Equity compensation plans approved by security
holders |
17,170,000 |
$0.1195 |
6,596,000 |
Equity compensation plans not approved by security
holders |
Nil |
N/A |
Nil |
Total |
17,170,000 |
$0.1195 |
6,596,000 |
Effective October 7, 2013, our board of directors adopted and
approved the 2013 Equity Incentive Plan. The plan was approved by a majority of
our stockholders on October 7, 2013. On October 31, 2014, our board of directors
amended the 2013 Equity Incentive Plan to, among other things, increase the
number of shares of stock of our company available for the grant of awards under
the plan from 20,000,000 shares to 35,000,000 shares. The purpose of the plan is
to (a) enable our company and any of our affiliates to attract and retain the
types of employees, consultants and directors who will contribute to our
companys long range success; (b) provide incentives that align the interests of
employees, consultants and directors with those of the stockholders of our
company; and (c) promote the success of our companys business. The plan enables
us to grant awards of a maximum of 35,000,000 shares of our stock and awards
that may be granted under the plan includes incentive stock options,
non-qualified stock options, stock appreciation rights, restricted awards and
performance compensation awards.
Recent Sales of Unregistered Securities
Except as disclosed below, since the beginning of our fiscal
year ended March 31, 2015, we have not sold any equity securities that were not
registered under the Securities Act of 1933 that were not previously reported in
a quarterly report on Form 10-Q or in a current report on Form 8-K.
In consideration for the consulting services to be rendered to
our company, we issued an aggregate of 3,200,000 shares of our common stock to
three consultants effective as of February 18, 2015. The issuance of these
shares was exempt from registration pursuant to Section 4(a)(2) of the
Securities Act of 1933.
In consideration for the consulting services to be rendered to
our company pursuant to a consulting agreement effective as of April 7, 2015, we
issued 2,000,000 shares of our common stock to a consultant effective as of
April 7, 2015. The issuance of these shares was exempt from registration
pursuant to Section 4(a)(2) of the Securities Act of 1933.
In consideration for the consulting services to be rendered to
our company pursuant to a service agreement effective as of April 10, 2015, we
issued 1,500,000 shares of our common stock to a consultant effective as of
April 10, 2015 and agreed to issue up to an additional 1,500,000 shares of our
common stock upon the 180th day anniversary of the service agreement. The
issuance of these shares was and will be exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933.
In consideration for the consulting services to be rendered to
our company pursuant to a consulting agreement effective as of May 1, 2015, we
issued an aggregate of 250,000 shares of our common stock to a consultant
effective as of May 1, 2015. The issuance of these shares was exempt from
registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
18
On May 7, 2015, we sold 1,428,571 units of our securities at a
price of $0.07 per unit for gross proceeds of $100,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On May 8, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On May 11, 2015, we entered into a securities purchase
agreement with Assurance Funding Solutions LLC, pursuant to which we sold a
secured term note of our company in the aggregate principal amount of $250,000,
together with 1,000,000 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. We may prepay the note by paying the holder 110% of the
principal amount outstanding together with accrued but unpaid interest thereon,
provided that we provide written notice to the holder at least 30 days prior to
the date of prepayment. Pursuant to the securities purchase agreement, we 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, we also entered into a general security agreement dated May
11, 2015 with Assurance Funding Solutions LLC. The issuance and sale of
securities by us under the securities purchase agreement with Assurance Funding
Solutions LLC was exempt from registration pursuant to Section 4(a)(2) of the
Securities Act of 1933 and Rule 506 promulgated thereunder.
On June 11, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 19, 2015, we sold 2,582,857 units of our securities at
a price of $0.07 per unit for gross proceeds of $180,800. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 26, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 29, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
19
On June 30, 2015, we sold 714,286 units of our securities at a price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 30, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 1, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 2, 2015, we sold 500,000 units of our securities at a price of $0.07 per unit for gross proceeds of $35,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 6, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
20
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and the related notes that appear elsewhere in this annual
report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this annual report on Form 10-K.
Overview
We offer retail consumers bottled alkaline water in 500ml,
700ml, 1-liter, 3-liter and 1-gallon sizes under the trade name Alkaline88. Our
product is produced through an electrolysis process that uses specialized
electronic cells coated with a variety of rare earth minerals to produce our 8.8
pH drinking water without the use of any chemicals. Our product also
incorporates 84 trace Himalayan salts. The main reason consumers drink our
product is for the perceived benefit that a proper pH balance helps fight
disease and boosts the immune system and the perception that alkaline water
helps to maintain a proper body pH and keeps cells young and hydrated.
Our company, The Alkaline Water Company Inc., was incorporated
under the laws of the State of Nevada on June 6, 2011 under the name Global
Lines Inc.. Our business model prior to the acquisition of Alkaline Water Corp.
on May 31, 2013 was to provide chauffeuring and transportation services to
residents within our local market, primarily providing transportation services
such as private school student transport, sightseeing trips, and elderly
transportation, and offering transportation to the airport and special events
such as proms and weddings. However, as we had not successfully developed our
service and had no source of revenue from our business plan, we determined to
seek out a new business opportunity to increase value for our stockholders.
On February 20, 2013, The Alkaline Water Company Inc. (formerly
Global Lines Inc.) entered into a non-binding letter of intent with Alkaline 88,
LLC (formerly Alkaline 84, LLC), a wholly-owned subsidiary of Alkaline Water
Corp., for the acquisition of all of the issued and outstanding securities of
the capital of Alkaline 88, LLC. Further to this letter of intent, on May 31,
2013, The Alkaline Water Company Inc. entered into a share exchange agreement
with Alkaline Water Corp. and all of its stockholders, and as a result of the
closing of this agreement on the same date, Alkaline Water Corp. became a
wholly-owned subsidiary of The Alkaline Water Company Inc. Consequently, after
the closing of this agreement we adopted the business of Alkaline Water Corp.s
wholly-owned subsidiary, Alkaline 88, LLC.
Going Concern
Our financial statements are prepared using generally accepted
accounting principles in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. We have not yet established an
ongoing source of revenues sufficient to cover our operating costs and to allow
us to continue as a going concern. As of March 31, 2015, we had an accumulated
deficit of $11,652,350. Our ability to continue as a going concern is dependent
on our company obtaining adequate capital to fund operating losses until we
become profitable. If we are unable to obtain adequate capital, we could be
forced to significantly curtail or cease operations.
In its report on our financial statements for the year ended
March 31, 2015, our independent registered public accounting firm included an
explanatory paragraph regarding substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
We will need to raise additional funds to finance continuing
operations. However, there are no assurances that we will be successful in
raising additional funds. Without sufficient additional financing, it would be
unlikely for us to continue as a going concern. Our ability to continue as a
going concern is dependent upon our ability to successfully accomplish the plans
described in this annual report and eventually secure other sources of financing
and attain profitable operations.
21
Results of Operations
Years Ended March 31, 2015 and March 31, 2014
The following summary of our results of operations should be
read in conjunction with our audited consolidated financial statements for the
years ended March 31, 2015 and March 31, 2014 which are included herein:
|
|
Year Ended |
|
|
Year Ended |
|
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
Revenue |
$ |
3,700,476 |
|
$ |
552,699 |
|
Cost of goods sold |
|
2,532,436 |
|
|
411,851 |
|
Gross profit |
|
1,168,040 |
|
|
140,848 |
|
Net Loss (after operating expenses and other expenses |
$ |
(7,139,449 |
) |
$ |
(4,229,513 |
)
|
Revenue and Cost of Goods Sold
We had revenue from sales of our product for the year ended
March 31, 2015 of $3,700,476, as compared to $552,699 for the year ended March
31, 2014, an increase of 570%, generated by sales of our alkaline water. The
increase in sales is due to the expanded distribution of our products to
additional retailers throughout the country. As of March 31, 2015, the product
is now available in all 50 states at over 16,000 retail locations. As of
December 31, 2013 the product was in 5 states and only 500 stores. This increase
has occurred primarily through the addition of 34 of the top national grocery
retailers as customer during the period. The Company distributes its product
through several channels. The Company sells through large national distributors
(UNFI, KeHe, Tree of Life, C&S, Core-Mark and Natures Best), which together
represent over 150,000 retail outlets. The Company also sells its product
directly to retail clients, including convenience stores, natural food products
stores, large ethnic markets and national retailers. Some examples of retail
clients are, Albertsons, Safeway, Kroger, Schnucks, Smart & Final,
Jewel-Osco, Sprouts, Bashas, Stater Bros. Markets, Unified Grocers, Bristol
Farms, Vallarta, Superior Foods, Ingles, HEB and Brookshires.
Cost of goods sold is comprised of production costs, shipping
and handling costs. For the year ended March 31, 2015, we had cost of goods sold
of $2,532,436, or 68.4% of net sales, as compared to cost of goods sold of
$411,851, or 74.5% of net sales, for the year ended March 31, 2014. The decrease
in cost of goods sold compared to the same period last year was due to
additional slotting fees and initial order discounts in the prior year as major
retail stores were added during the period.
Expenses
Our operating expenses for the year ended March 31, 2015 and
for the year ended March 31, 2014 are as follows:
|
|
Year Ended |
|
|
Year Ended |
|
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
Sales and marketing expenses |
$ |
1,386,671 |
|
$ |
464,081 |
|
General and administrative expenses |
|
6,520,451 |
|
|
3,852,773 |
|
General and administrative expenses
related party |
|
- |
|
|
62,092 |
|
Depreciation expenses |
|
175,036 |
|
|
42,407 |
|
Total operating expenses |
$ |
8,082,158 |
|
$ |
4,421,353 |
|
During the year ended March 31, 2015, our total operating
expenses were $8,082,158, as compared to $4,421,353 for the year ended March 31,
2014. For the year ended March 31, 2015, the total included $1,386,671 of sales
and marketing expenses and $6,520,451 of general and administrative expenses,
consisting primarily of $2,428,782 of stock option compensation expense,
$1,301,477 in stock compensation expense and $646,244 of professional fees.
22
Our stock and stock option compensation expense was incurred as
a part of our issuance of certain stock options and stock grants to employees
and key consultants to develop our business. Although a non-cash expense, the
value of such issuances had a material impact on our general and administrative
expenses for the year ended March 31, 2015.
For the year ended March 31, 2014, the total included $464,083
of sales and marketing expenses and $3,852,773 of general and administrative
expenses, consisting primarily of approximately $2,225,736 of stock option
compensation expense, $426,555 in stock compensation expense and $541,158 of
professional fees. Our stock and stock option compensation expense was incurred
as a part of our issuance of certain stock options and stock grants to employees
and key consultants to develop our business. Although a non-cash expense, the
value of such issuances had a material impact on our general and administrative
expenses for the year ended March 31, 2014.
During the year ended March 31, 2014, we had a total of $62,092
in general and administrative expenses with related parties. Of the total,
$33,592 was consulting fees to an officer, director and stockholder of our
company, $12,000 was rent to an entity that is controlled and owned by an
officer, director and stockholder of our company, and $16,500 was professional
fees to an entity that is controlled and owned by an officer, director and
stockholder of our company.
Liquidity and Capital Resources
Working Capital
|
|
At March 31, 2015 |
|
|
At March 31, 2014 |
|
Current assets |
$ |
717,341 |
|
$ |
281,322 |
|
Current liabilities |
|
1,413,331 |
|
|
836,323 |
|
Working capital (deficiency) |
$ |
(695,990 |
) |
$ |
(555,001 |
) |
Current Assets
Current assets as of March 31, 2015 and March 31, 2014
primarily relate to $90,113 and $2,665 in cash, $416,373 and $166,404 in
accounts receivable and $193,355 and $57,965 in inventory, respectively.
Current Liabilities
Current liabilities as of March 31, 2015 and March 31, 2014
primarily relate to $562,498 and $320,154 in accounts payable, revolving
financing of $160,437 and $83,348 and $194,940 and $337,988 in derivative
liability, respectively.
Cash Flow
Our cash flows for the years ended March 31, 2015 and 2014 are
as follows:
|
|
Year |
|
|
Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
Net cash used in operating activities |
$ |
(3,152,781 |
) |
$ |
(1,390,980 |
) |
Net cash used in investing activities |
|
(352,170 |
) |
|
(276,310 |
) |
Net cash provided by financing activities
|
|
3,592,398 |
|
|
1,605,348 |
|
Net (decrease) increase in cash and cash equivalents |
$ |
87,447 |
|
$ |
(61,942 |
)
|
Operating Activities
Net cash used in operating activities was $3,152,781 for the
year ended March 31, 2015, as compared to $1,390,980 used in operating
activities for the year ended March 31, 2014. The increase in net cash used in
operating activities was primarily due to development of markets, and investment
in accounts receivable and inventory.
23
Investing Activities
Net cash used in investing activities was $352,170 for the year ended March 31, 2015, as compared to $276,310 used in investing activities for the year ended March 31, 2014. The increase in net cash used by investing activities was primarily
from purchase of production equipment.
Financing Activities
Net cash provided by financing activities for the year ended March 31, 2015 was $3,592,398, as compared to $1,605,348 for the year ended March 31, 2014. The increase of net cash provided by financing activities was mainly attributable to
sales of our common stock and exercise of warrants.
May 2014 Private Placement financing
On May 1, 2014, we completed the offering and sale of an aggregate of 17,333,329 shares of our common stock and warrants to purchase an aggregate of 8,666,665 shares of our common stock, for aggregate gross proceeds of $2,599,999. Each share of
common stock we sold in the offering was accompanied by a warrant to purchase one-half of a share of common stock at an exercise price of $0.15 per share for a period of five years from the date of issuance. Each share of common stock and
warrant was sold at a price of $0.15.
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, we 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, we issued warrants to purchase an aggregate of 5.5% of the aggregate number of shares of our common stock sold in the offering, or 953,333, to Wainwright and its designees.
August 2014 Warrant Exercise
On August 12, 2014, we entered into an agreement with Wainwright whereby Wainwright agreed to act as our exclusive agent to facilitate the exercise of the outstanding warrants on a reasonable best efforts basis. We agreed to pay Wainwright a
transaction fee equal to 10% of the aggregate gross proceeds received by us in connection with the exercise of the warrants. In addition, we agreed to reimburse Wainwright $10,000 for its legal fees and expenses, provided that no reimbursement
will be payable by us to Wainwright if the exercise of the warrants results in gross proceeds to us of less than $500,000.
On August 20, 2014, we entered into a warrant amendment agreement with certain holders of our outstanding common stock purchase warrants, whereby we agreed to reduce the exercise price of the existing warrants to $0.10 per share in consideration
for the immediate exercise of the existing warrants by the holders and the holders were to be issued new common stock purchase warrants of our 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 $0.125 per share, subject to adjustment in the new warrants.
On August 21, 2014, pursuant to the warrant amendment agreement, we issued an aggregate of 9,829,455 shares of our common stock upon exercise of the existing warrants at an exercise price of $0.10 per share for aggregate gross proceeds of
$982,945.50. In addition, we issued new warrants to purchase an aggregate of 9,829,455 shares of our common stock at an exercise price of $0.125 per share for a period of five years from the date of issuance.
October 2014 Warrant Exercise
On October 7, 2014, we entered into a warrant amendment agreement with Neil William Rogers, whereby we agreed to reduce the exercise price of the 4,699,800 share purchase warrants held by him to $0.10 per share in consideration for the immediate
exercise of the existing warrants by Mr. Rogers and Mr. Rogers was to be issued new common stock purchase warrants of our 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 Mr. Rogers, provided that the exercise price of the new warrants will be $0.125 per share, subject to adjustment in the new warrants.
24
On October 7, 2014, pursuant to the warrant amendment agreement, we issued an aggregate of 4,699,800 shares of our common stock upon exercise of the existing warrants at an exercise price of $0.10 per share for aggregate gross proceeds of
$469,980. In addition, we issued new warrants to purchase an aggregate of 4,699,800 shares of our common stock at an exercise price of $0.125 per share for a period of two years from the date of issuance.
Cash Requirements
We believe that cash flow from operations will not meet our present and near-term cash needs and thus we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working
capital requirements for the next 12 months. We estimate that our capital needs over the next 12-month will be $1,000,000 to $3,000,000. We will require additional cash resources to achieve the milestones indicated above. If our own
financial resources and future current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity
securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify
our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business
operations and could harm our overall business prospects.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to our stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2015
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
The
Alkaline Water Company, Inc.
We have audited the accompanying balance sheets of The Alkaline
Water Company, Inc. as of March 31, 2015 and 2014, and the related statements of
income, stockholders equity (deficit), and cash flows for each of the years in
the period ended March 31, 2015. The Alkaline Water Company, Inc.s management
is responsible for these financial statements. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of The Alkaline
Water Company, Inc. as of March 31, 2015 and 2014 and the related statements of
income, stockholders equity (deficit), and cash flows for each of the years in
the period ended March 31, 2015, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has negative working capital at March
31, 2015, has incurred recurring losses and recurring negative cash flow from
operating activities, and has an accumulated deficit which raises substantial
doubt about its ability to continue as a going concern. Managements plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
July 13, 2015
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED
BALANCE SHEETS
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
$ |
90,113 |
|
$ |
2,665 |
|
Accounts receivable, net |
|
416,373 |
|
|
166,404 |
|
Inventory |
|
193,355 |
|
|
57,965 |
|
Prepaid Expenses and other current assets |
|
17,500 |
|
|
- |
|
Deferred financing cost |
|
- |
|
|
54,288 |
|
Total current assets |
|
717,341 |
|
|
281,322 |
|
|
|
|
|
|
|
|
Fixed assets, net |
|
1,199,900 |
|
|
286,986 |
|
Total assets |
$ |
1,917,241 |
|
$ |
568,308 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
562,499
|
|
$ |
320,154
|
|
Accounts payable - related party |
|
43,036 |
|
|
18,403 |
|
Accrued expenses |
|
160,437 |
|
|
56,601 |
|
Accrued interest |
|
- |
|
|
19,829 |
|
Revolving financing |
|
242,875 |
|
|
83,348 |
|
Current portion of capital leases |
|
209,544 |
|
|
- |
|
Derivative liability |
|
194,940 |
|
|
337,988 |
|
Total current liabilities
|
|
1,413,331 |
|
|
836,323 |
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
Capitalize leases |
|
233,770 |
|
|
- |
|
Total Long-term liabilities
|
|
233,770 |
|
|
- |
|
|
|
|
|
|
|
|
Total
liabilities |
|
1,647,101 |
|
|
836,323 |
|
|
|
|
|
|
|
|
Redeemable convertible Preferred stock |
|
- |
|
|
83,820 |
|
|
|
|
|
|
|
|
Stockholders' equity (deficit): |
|
|
|
|
|
|
Preferred stock - $0.001 par
value, 100,000,000 shares authorized. Series A issued 20,000,000 |
|
20,000 |
|
|
20,000 |
|
Common stock, Class A, $0.001 par value,
1,125,000,000 shares authorized, 124,495,826 and 81,602,175 shares
issued and
outstanding as of March 31, 2015 and March 31, 2014,
respectively |
|
124,496 |
|
|
81,602 |
|
Additional paid in
capital |
|
11,777,994 |
|
|
4,059,464 |
|
Common stock issuable |
|
- |
|
|
- |
|
Deficit accumulated |
|
(11,652,350 |
)
|
|
(4,512,901 |
) |
Total stockholders' equity (deficit) |
$ |
270,140 |
|
$ |
(351,835 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders' Equity
(deficit) |
$ |
1,917,241 |
|
$ |
568,308 |
|
See Accompanying Notes to Consolidated Financial Statements.
F-2
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
For the year ended |
|
|
For the year ended |
|
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
3,700,476
|
|
$ |
552,699
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
2,532,436 |
|
|
411,851 |
|
|
|
|
|
|
|
|
Gross profit |
|
1,168,040 |
|
|
140,848 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
Sales and marketing expenses |
|
1,386,671 |
|
|
464,081 |
|
General and
administrative |
|
6,520,451 |
|
|
3,852,773 |
|
General and administrative - related
party |
|
- |
|
|
62,092 |
|
Depreciation expense
|
|
175,036 |
|
|
42,407 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
8,082,158 |
|
|
4,421,353 |
|
|
|
|
|
|
|
|
Other Income (expenses): |
|
|
|
|
|
|
Interest expense |
|
(26,241 |
) |
|
(11,055 |
) |
Interest income |
|
11 |
|
|
- |
|
Interest expense on redeemable
preferred stock |
|
(40,383 |
) |
|
(468,256 |
) |
Fees paid on credit
line |
|
(27,283 |
) |
|
(8,603 |
) |
Amortization of deferred financing cost
|
|
(43,149 |
) |
|
- |
|
Placement agent fee to
acquired credit line |
|
- |
|
|
(10,000 |
) |
Amortization of debt discount |
|
(414,370 |
) |
|
(107,532 |
) |
Other expenses |
|
(11 |
) |
|
(1,530 |
) |
Other income - related party |
|
- |
|
|
40,029 |
|
Change in derivative
liability |
|
326,095 |
|
|
617,939 |
|
|
|
|
|
|
|
|
Total other
expense |
|
(225,331 |
) |
|
50,992 |
|
|
|
|
|
|
|
|
Net loss |
$ |
(7,139,449 |
) |
$ |
(4,229,513 |
) |
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding - basic and fully dulitive |
|
111,704,823 |
|
|
80,220,729 |
|
|
|
|
|
|
|
|
Net loss per share basic and
fully diluted |
$ |
(0.06 |
) |
$ |
(0.05 |
) |
See Accompanying Notes to Consolidated Financial Statements.
F-3
THE ALKALINE WATER
COMPANY
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY (DEFICIT)
FOR
THE YEARS ENDED MARCH 31, 2015 AND
MARCH 31, 2014
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Deficit |
|
|
|
|
|
|
Number |
|
|
Par Value |
|
|
Number |
|
|
Par Value |
|
|
Paid-in Capital |
|
|
Accumulated |
|
|
Total |
|
Balance, March 31, 2013 |
|
- |
|
$ |
- |
|
|
77,500,000 |
|
$ |
77,500 |
|
$ |
176,405 |
|
$ |
(283,388 |
) |
$ |
(29,483 |
) |
Common stock for conversion of notes
and interest payable |
|
|
|
|
|
|
|
574,675 |
|
|
574 |
|
|
229,295 |
|
|
|
|
|
229,869 |
|
Common stock issued for
cash |
|
|
|
|
|
|
|
2,562,500 |
|
|
2,563 |
|
|
1,022,438 |
|
|
|
|
|
1,025,001 |
|
Common stock issued for services |
|
|
|
|
|
|
|
965,000 |
|
|
965 |
|
|
2,631,326 |
|
|
|
|
|
2,632,291 |
|
Issuance of Series A
preferred stock to officers |
|
20,000,000 |
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,229,513 |
) |
|
(4,229,513 |
) |
Balance, March 31, 2014 |
|
20,000,000 |
|
|
20,000 |
|
|
81,602,175 |
|
|
81,602 |
|
|
4,059,464 |
|
|
(4,512,901 |
) |
|
(351,835 |
) |
Value of warrants issued with Capital lease
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
309,029 |
|
|
|
|
|
309,029 |
|
Shares issued for cash
Private Placement |
|
|
|
|
|
|
|
17,333,329 |
|
|
17,333 |
|
|
2,342,643 |
|
|
|
|
|
2,359,976 |
|
Shares issued to contractors |
|
|
|
|
|
|
|
6,502,500 |
|
|
6,503 |
|
|
939,620 |
|
|
|
|
|
946,123 |
|
Shares issued to employees
|
|
|
|
|
|
|
|
3,550,000 |
|
|
3,550 |
|
|
351,805 |
|
|
|
|
|
355,355 |
|
Warrant exercises |
|
|
|
|
|
|
|
14,529,256 |
|
|
14,529 |
|
|
1,439,275 |
|
|
|
|
|
1,453,804 |
|
Stock Options issued to
employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,428,782 |
|
|
|
|
|
2,428,782 |
|
Option exercises |
|
|
|
|
|
|
|
182,000 |
|
|
182 |
|
|
1,638 |
|
|
|
|
|
1,820 |
|
Fees paid on stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346,295 |
) |
|
|
|
|
(346,295 |
) |
Shares issued with conversion Preferred
Series B |
|
|
|
|
|
|
|
796,566 |
|
|
797 |
|
|
252,033 |
|
|
|
|
|
252,830 |
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,139,449 |
) |
|
(7,139,449 |
) |
Balance, March 31, 2015 |
|
20,000,000 |
|
$ |
20,000 |
|
|
124,495,826 |
|
$ |
124,496 |
|
$ |
11,777,994 |
|
$ |
(11,652,350 |
) |
$ |
270,140 |
|
See Accompanying Notes to Consolidated Financial Statements.
F-4
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
For the year ended |
|
|
For the year ended |
|
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss |
$ |
(7,139,449 |
)
|
|
(4,229,513 |
)
|
Adjustments to reconcile net income to
net cash used in operating activities: |
|
|
|
|
|
|
Bad Debt expense |
|
6,225 |
|
|
10,000 |
|
Depreciation
expense |
|
175,036 |
|
|
42,407 |
|
Interest expense converted to common stock |
|
|
|
|
3,555 |
|
Shares issued for
services |
|
3,730,263 |
|
|
2,652,291 |
|
Amortization of debt discount & debt financing cost |
|
457,518 |
|
|
107,532 |
|
Interest expense
on redeemable preferred stock on initial issuance |
|
|
|
|
455,926 |
|
Change in derivative liabilities |
|
(326,095 |
)
|
|
(617,939 |
)
|
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
Accounts
receivable |
|
(256,194 |
)
|
|
(161,294 |
)
|
Inventory |
|
(135,390 |
) |
|
(50,392 |
) |
Prepaid
expenses and other current assets |
|
(17,500 |
)
|
|
- |
|
Accounts payable |
|
244,165 |
|
|
307,504 |
|
Accounts
payable - related party |
|
24,633 |
|
|
17,913 |
|
Accrued expenses |
|
103,836 |
|
|
51,201 |
|
Accrued
interest |
|
(19,829 |
)
|
|
19,829 |
|
|
|
|
|
|
|
|
Net cash used in
operating activities |
|
(3,152,781 |
)
|
|
(1,390,980 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES |
|
|
|
|
|
|
Purchase of fixed assets |
|
(352,169 |
) |
|
(276,310 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(352,169 |
) |
|
(276,310 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from revolving
financing |
|
159,527 |
|
|
83,348 |
|
Proceeds from sale of common stock, net
|
|
2,361,999 |
|
|
1,100,000 |
|
Proceeds from the
exercise of warrants, net |
|
1,344,630 |
|
|
- |
|
Repayment of capital lease |
|
(26,588 |
) |
|
- |
|
Repayment of redeemable
preferred shares |
|
(247,170 |
)
|
|
- |
|
Proceeds from sale of
mandatory
redeemable preferred stock, net |
|
- |
|
|
422,000 |
|
|
|
|
|
|
|
|
Net cash provided by financing
activities |
|
3,592,398 |
|
|
1,605,348 |
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
87,448 |
|
|
(61,942 |
) |
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
|
2,665 |
|
|
64,607 |
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
$ |
90,113 |
|
$ |
2,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
Interest paid |
$ |
46,070 |
|
$ |
- |
|
Income taxes paid |
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND
FINANCING ACTIVITIES: |
|
|
|
|
|
|
Debt converted to common stock |
$ |
- |
|
$ |
229,870 |
|
Derivative liability on
redeemable preferred stock |
|
- |
|
|
422,000 |
|
Preferred stock conversion to common
stock |
|
252,830 |
|
|
- |
|
Deferred discount on
conversion of preferred stock |
|
56,098 |
|
|
- |
|
Fair value of derivate liability at
issuance of Warrants |
|
389,710 |
|
|
- |
|
Fair value of
derivative liability at exercise |
|
150,566 |
|
|
- |
|
Exercise of stock options with accounts
payable |
|
1,820 |
|
|
- |
|
Capitalized lease |
|
735,781 |
|
|
- |
|
Warrant issued for deferred financing
cost |
|
309,028 |
|
|
- |
|
See Accompanying Notes to Consolidated Financial
Statements.
F-5
THE ALKALINE WATER COMPANY INC.
NOTES TO
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 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
For the period from June 19, 2012 to March 31, 2015, the
consolidated financial statements include the accounts of Alkaline Water Corp.
(an Arizona Corporation) and Alkaline 88 LLC (formerly Alkaline 84, LLC) (an
Arizona Limited Liability Company). For the period from April 1, 2013 to March
31, 2015, 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.
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
$90,113 and $2,665 in cash and cash equivalents at March 31, 2015 and 2014,
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,
2015 and 2014:
|
|
2015 |
|
|
2014 |
|
Trade receivables |
$ |
426,862 |
|
$ |
176,404 |
|
Less: Allowance for doubtful accounts |
|
(10,889 |
) |
|
(10,000 |
) |
Net accounts receivable |
$ |
416,373 |
|
$ |
166,404 |
|
F-6
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, 2015 and 2014, inventory consisted of the
following:
|
|
2015 |
|
|
2014 |
|
Raw materials |
$ |
145,329 |
|
$ |
24,022 |
|
Finished goods |
|
48,026 |
|
|
33,943 |
|
Total inventory |
$ |
193,355 |
|
$ |
57,965 |
|
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 |
3 years or term of the lease
|
Stock-based Compensation
The Company accounts for stock-based compensation to employees
in accordance with FASB 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
FASB 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, 2015 and 2014 were $499,978
and $160,464, 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, we will provide credit to our customers
for damaged goods.
F-7
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 Accounting Standards Codification ("ASC") 815
Accounting for Derivative Instruments and Hedging Activities, as
amended, these embedded derivatives are marked-to-market each reporting period,
with a corresponding non-cash gain or loss charged to the current period. A
warrant derivative liability is also determined in accordance with ASC 815.
Based on ASC 815, warrants which are determined to be classified as derivative
liabilities are marked-to-market each reporting period, with a corresponding
non-cash gain or loss charged to the current period. The practical effect of
this has been that when our stock price increases so does our derivative
liability resulting in a non-cash loss charge that reduces our earnings and
earnings per share. When our stock price declines, we record a non-cash gain,
increasing our earnings and earnings per share. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, there exists a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
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.
Concentration
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.
The Company has 3 major customers that together account for 60%
(18%, 14%, 14% and 14%, respectively) of accounts receivable at March 31, 2014,
and 5 customers that together account for 66% (20%, 16%, 15%, 8% and 6%,
respectively) of the total revenues earned for the year ended March 31, 2014.
The Company has 3 vendors that accounted for 56% (29%, 14%, and
13%, respectively) of purchases for the year ended March 31, 2014.
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.
F-8
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 Accounting
Standard Codification (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
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, 2015 and 2014, respectively.
Reclassification
Certain accounts in the prior period were reclassified to
conform to the current period financial statements presentation.
Recent pronouncements
In June 2014, the FASB issued ASU No. 2014-10, Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in
Topic 810, Consolidation. The amendments in this update remove the definition of
a development stage entity from the Master Glossary of the Accounting Standards
Codification, thereby removing the financial reporting distinction between
development stage entities and other reporting entities from GAAP. In addition,
the amendments eliminate the requirements for development stage entities to (1)
present inception to-date information in the statements of income, cash flows,
and shareholder equity, (2) label the financial statements as those of a
development stage entity, (3) disclose a description of the development stage
activities in which the entity is engaged, and (4) disclose in the first year in
which the entity is no longer a development stage that in prior years it had
been in the development stage. The Company early adopt ASU No. 2014-10 during
the second quarter of the year ended March 31, 2015.
In August 2014, the FASB issued ASU No. 2014-15, Presentation
of Financial Statements Going Concern (Subtopic 205-40), Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern.
Continuation of a reporting entity as a going concern is presumed as the basis
for preparing financial statements unless and until the entitys liquidation
becomes imminent. Preparation of financial statements under this presumption is
commonly referred to as the going concern basis of accounting. Currently, there
is no guidance under U.S. GAAP about managements responsibility to evaluate
whether there is substantial doubt about an entitys ability to continue as a
going concern or to provide related footnote disclosures. The amendments in this
Update provide that guidance. In doing so, the amendments should reduce
diversity in the timing and content of footnote disclosures. The amendments
require management to assess an entitys ability to continue as a going concern
by incorporating and expanding upon certain principles that are currently in
U.S. auditing standards. Specifically, the amendments (1) provide a definition
of the term substantial doubt, (2) require an evaluation every reporting period
including interim periods, (3) provide principles for considering the mitigating
effect of managements plans, (4) require certain disclosures when substantial
doubt is alleviated as a result of consideration of managements plans, (5)
require an express statement and other disclosures when substantial doubt is not
alleviated, and (6) require an assessment for a period of one year after the
date that the financial statements are issued (or available to be issued). For
the period ended December 31, 2014, management evaluated the Companys ability
to continue as a going concern and concluded that substantial doubt has not been
alleviated about the Companys ability to continue as a going concern. While the
Company continues to explore further significant sources of financing,
managements assessment was based on the uncertainty related to the amount and
nature of such financing over the next twelve months.
F-9
The Company has evaluated other recent accounting
pronouncements through June 2015 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, 2015 of $(11,652,350). 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:
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
Machinery and Equipment |
$ |
625,766 |
|
$ |
273,597 |
|
Machinery under Capital Lease |
|
735,781 |
|
|
- |
|
Office Equipment |
|
53,631 |
|
|
53,631 |
|
Leasehold Improvements |
|
3,979 |
|
|
3,979 |
|
|
|
|
|
|
|
|
Less: Accumulated Depreciation |
|
(219,257 |
) |
|
(44,221 |
|
Fixed Assets, net |
$ |
1,199,900 |
|
$ |
286,986 |
|
Depreciation expense for the years ended March 31, 2015 and
2014 was $175,036 and $42,407, respectively.
NOTE 4 EQUIPMENT DEPOSITS RELATED PARTY
The Company paid deposits on equipment to Water Engineering
Solutions, LLC, a related party, 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 $274,769 and reduced the deposit on equipment. As of
December 31, 2014, the total amount of deposits for equipment is $188,289. On February 12, 2015 Water Engineering Solutions LLC refunded $200,000 related to the deposit as the order for a new machine had been deferred until late summer 2015. 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.
F-10
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. We also agreed to direct all parties obligated to pay
the accounts to send all payments for all accounts directly to Gibraltar. All
collections from accounts will be applied to our indebtedness, 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.
The initial indebtedness is $500,000. The Company may request
an increase to the initial indebtedness in $500,000 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, we give Gibraltar notice of our intention to terminate the agreement. In
addition, we will be able to exit the agreement at any time for a fee of 2% of
the line of credit in place at the time of prepayment. On March 31, 2015 the
amount borrowed on this facility was $242,875.
NOTE 6 DERIVATIVE LIABILITY
On November 7, 2013, we sold to certain institutional investors
10% Series B Convertible Preferred Shares which are subject to mandatory
redemption and include down-round provisions that reduce the exercise price of a
warrant and convertible instrument. As required by ASC 815 Derivatives and
Hedging, if the Company either issues equity shares for a price that is lower
than the exercise price of those instruments or issues new warrants or
convertible instruments that have a lower exercise price, the 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.
F-11
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 17,333,329 shares of our common stock and warrants to purchase
an aggregate of 8,666,665 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 $0.15 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 $0.15. 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 $0.10 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 $0.125 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 $0.125. 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.
On August 21, 2014, pursuant to the Warrant Amendment
Agreement, the Company issued an aggregate of 9,829,455 shares of the Companys
common stock upon exercise of the Existing Warrants at an exercise price of
$0.10 per share for aggregate gross proceeds of $982,945. An aggregate of
8,666,664 shares 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, we issued warrants to purchase an aggregate
of 5.5% of the aggregate number of shares of our common stock sold in the
offering, or 953,333, to Wainwright and its designees. These warrants have an
exercise price of $0.1875 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.
F-12
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 |
$ |
0 .3275 |
|
Term (Years) |
|
Less than 1 |
|
Volatility |
|
331% |
|
Exercise prices |
$ |
0.43 |
|
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 |
$ |
0.15 |
|
$ |
0.15 |
|
Term (Years) |
|
5 |
|
|
5 |
|
Volatility |
|
306% |
|
|
306% |
|
Exercise prices |
$ |
0.15 |
|
$ |
0.1875 |
|
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 |
$ |
0.12 |
|
Term (Years) |
|
5 |
|
Volatility |
|
247% |
|
Exercise prices |
$ |
0.125 |
|
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 August 21,
2014 is as follows:
|
|
Existing Warrants |
|
Stock price |
$ |
0.17 |
|
Term (Years) |
|
5 |
|
Volatility |
|
247% |
|
Exercise prices |
$ |
0.10 |
|
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 |
$ |
0.1081 |
|
Term (Years) |
|
4 to 5 |
|
Volatility |
|
148% |
|
Exercise prices |
$ |
0.55 to 0.125 |
|
Dividend yield |
|
0% |
|
F-13
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 |
|
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 December 31, 2014.
|
|
|
|
|
Fair Value Measurement at December 31, 2014 |
|
|
|
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 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, 2014 the fair value of these warrant liabilities was
$209,320 and the conversion feature liability was $128,668. Changes in the
derivative liability for the period ended March 31, 2015 consist of:
|
|
Year |
|
|
|
Ended |
|
|
|
March 31, 2015 |
|
Derivative liability at March 31, 2014 |
$ |
337,988 |
|
Redemption of convertible preferred stock
|
|
(56,098 |
) |
Warrants issued May 1, 2014 |
|
216,236 |
|
Placement agent warrants May 1, 2014 |
|
23,787 |
|
Exercise of Warrants August 21, 2014 |
|
(168,273 |
) |
Insurance of warrants August
21, 2014 |
|
167,395 |
|
Change in derivative
liability-mark to market |
|
(326,095) |
|
Derivative liability at March
31, 2015 |
$ |
194,940 |
|
F-14
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, we also entered into a registration rights agreement with
the investors pursuant to which we are obligated to file a registration
statement to register the resale of the shares of common stock issuable upon
conversion of the Series B Preferred Stock and upon exercise of the
Warrants.
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 we 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.
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.
F-15
Common Stock
We are authorized to issue 1,125,000,000 shares of $0.001 par
value common stock. On May 31, 2013, we effected a 15-for-1 forward stock split
of our $0.001 par value common stock. All shares and per share amounts have been
retroactively restated to reflect such split. Prior to the acquisition of
Alkaline Water Corp., we had 109,500,000 shares of common stock issued and
outstanding. On May 31, 2013, we issued 43,000,000 shares in exchange for a 100%
interest in Alkaline Water Corp. For accounting purposes, the acquisition of
Alkaline Water Corp. by The Alkaline Water Company Inc. has been recorded as a
reverse acquisition of a company and recapitalization of Alkaline Water Corp.
based on the factors demonstrating that Alkaline Water Corp. represents the
accounting acquirer. Consequently, after the closing of this agreement we
adopted the business of Alkaline Water Corp.s wholly-owned subsidiary, Alkaline
88, LLC. As part of the acquisition, the former management of the Company agreed
to cancel 75,000,000 shares of common stock.
Sale of Restricted Shares
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 17,333,329 shares of our common stock and warrants to purchase
an aggregate of 8,666,665 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 $0.15 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 $0.15.
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, we issued warrants to purchase an
aggregate of 5.5% of the aggregate number of shares of our common stock sold in
the offering, or 953,333, to Wainwright and its designees. These warrants have
an exercise price of $0.1875 per share and expire on April 16, 2019.
On October 8, 2013, the Company issued an aggregate of
1,250,000 shares of our common stock to three investors in a non-brokered
private placement, at a purchase price of $0.40 per share for gross proceeds of
$500,000. In addition, the Company issued 1,250,000 warrants with an exercise
price of $0.50 per share and 650,000 warrants with an exercise prices of $0.60
per share to a finder in connection with this private placement. Each unit
consisted of one share purchase warrant entitling the holder to purchase, for a
period of two years from issuance, one share of our common stock at an exercise
price of $0.50 per share and one-half of one share purchase warrant, with each
whole share purchase warrant entitling the holder to purchase, for a period of
two years from issuance, one share of our common stock at an exercise price of
$0.60 per share.
On May 31, 2013, the Company sold 1,312,500 units at $0.40 per
share for total cash of $525,000. Each unit consisted of one share of common
stock, one warrant which entitles the holder to purchase one share of common
stock for a period of 2 years with an exercise price of $0.50 per share, and 1/2
warrant which entitles the holder to purchase 1/2 share of common stock for a
period of 2 years with an exercise price of $0.60 per share.
On May 31, 2013, the Company converted principal amount of
$225,000 and accrued interest of $4,870 into 574,675 units at $0.40 per share
for total debt converted of $229,870. Each unit consisted of one share of common
stock, one warrant which entitles the holder to purchase one share of common
stock for a period of 2 years with an exercise price of $0.50 per share, and 1/2
warrant which entitles the holder to purchase 1/2 share of common stock for a
period of 2 years with an exercise price of $0.60 per share.
F-16
Common Stock Issued for Services
On August 8, 2013, the Company entered into a service contract that included the issuance of 250,000 common shares. These shares were valued at fair value of $0.55 per share and have been charged as stock compensation to general and
administrative expense.
Effective October 10, 2013, the Company issued 200,000 shares of common stock to a consultant in consideration for services rendered by the consultant to our company.
Between December 13, 2013 and December 20, 2013, the Company issued 170,000 common shares to consultants for services rendered. These shares were valued at fair value of $59,300 and have been charged as stock compensation to general and
administrative expense.
On December 20, 2013, the Company issued 65,000 common shares to employees for services rendered. These shares were valued at fair value of $0.327 per share and have been charged as stock compensation to general and administrative expense.
Between January 2, 2014 and January 14, 2014, the Company issued 280,000 shares of common stock to various consultants in consideration for services rendered by the consultants to the company. These shares were valued at fair value of $76,500
and have been charged as stock compensation to general and administrative expense.
On May 15, 2014, the Company issued 100,000 restricted common shares to consultant for services rendered and were valued at the market value on that date of $0.150 per share.
On June 2, 2014, the Company issued 100,000 restricted common shares to consultant for services rendered and were valued at the market value on that date of $0.130 per share.
On June 6, 2014, the Company issued 1,000,000 restricted common shares to consultant for services rendered and were valued at the market value on that date of $0.134 per share.
On June 11, 2014, the Company issued 250,000 restricted common shares to consultant for services rendered and were valued at the market value on that date of $0.121 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 350,000 of the Company’s
common shares as follows: 175,000 common shares upon execution of the agreement, 70,000 common shares on or before July 15, 2014, 70,000 common shares on or before August 15, 2014 and 35,000 common shares on or before September 15, 2014.
On August 1, 2014, the Company issued 1,000,000 common shares to a consultant for services rendered that were valued at the market value on that date of $0.175 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 2,000,000 of the Company’s common shares to be issued as follows: 500,000 common shares on
the date of the execution of the agreement, 500,000 common shares on the date that is 45 days from the execution date, 500,000 common shares on the date that is 90 days from the execution date, and 500,000 common shares on the date that is 135 days
from the execution date.
On September 2, 2014, the Company issued 50,000 common shares to consultant for services rendered that were valued at the market value on that date of $0.135 per share.
On September 30, 2014, the Company issued 300,000 common shares to consultant for services rendered that were valued at the market value on that date of $0.108 per share.
On October 1, 2014, the Company issued 40,000 common shares to consultant for services rendered that were valued at the market value on that date of $0.113 per share.
F-17
On January 15, 2015, the Company issued 50,000 common shares
to consultant for services rendered that were valued at the market value on that
date of $0.07 per share.
On February 18, 2015, the Company issued 1,225,000 common
shares to consultants for services rendered that were valued at the market value
on that date of $0.10 per share.
On February 18, 2015, the Company issued 3,550,000 common
shares to employees for services rendered that were valued at the market value
on that date of $0.10 per share.
NOTE 9 OPTIONS AND WARRANTS
Stock Option Awards
On October 9, 2013, the Company granted a total of 6,000,000
stock options to Steven A. Nickolas and Richard A. Wright (3,000,000 stock
options to each). The stock options are exercisable at the exercise price of
$0.605 per share for a period of ten years from the date of grant. The stock
options vest as follows: (i) 1,000,000 upon the date of grant; and (ii) 500,000
per quarter until fully vested.
On May 12, 2014, the Company granted a total of 820,000 stock
options to employees and consultants. The stock options are exercisable at the
exercise price of $0.15 per share for a period of ten years from the date of
grant. 502,500 stock options vested upon the date of grant, 116,250 stock
options vest on December 31, 2014, 116,250 stock options vest on December 31,
2014 and 85,000 stock options vest on December 31, 2014.
On May 12, 2014, the Company granted a total of 1,200,000 stock
options Steven A. Nickolas and Richard A. Wright (600,000 stock options to
each). The stock options are exercisable at the exercise price of $0.165 per
share for a period of ten years from the date of grant. 1,200,000 stock options
vested upon the date of grant.
On May 16, 2014, the Company granted a total of 250,000 stock
options to a consultant. The stock options are exercisable at the exercise price
of $0.143 per share for a period of ten years from the date of grant. 62,500
stock options vested upon the date of grant, 62,500 stock options vest on
December 31, 2014, 62,500 stock options vest on December 31, 2014 and 62,500
stock options vest on December 31, 2014.
On May 21, 2014, the Company granted a total of 6,000,000 stock
options Steven A. Nickolas and Richard A. Wright (3,000,000 stock options to
each). The stock options are exercisable at the exercise price of $0.1455 per
share for a period of ten years from the date of grant. 3,000,000 stock options
vested upon the date of grant and the 3,000,000 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 20,000,000
shares to 35,000,000 shares.
On October 31, 2014, the Company reduced the exercise price of
an aggregate of 6,000,000 stock options granted on October 9, 2013 to Steven P.
Nickolas and Richard A. Wright, our directors and executive officers, to $0.15
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 1,600,000 stock options granted on to Steven P. Nickolas and
Richard A. Wright, our directors and executive officers, to $0.115 per share an
exercise date to February 18, 2020, with vested immediately.
On February 18, 2015, the Company granted a total of 1,300,000
stock options to employees and consultants. The stock options are exercisable at
the exercise price of $0.10 per share for a period of ten years from the date of
grant. 887,500 stock options vested by March 31, 2015, 137,500 stock
options vest on June 30, 2015, 137,500 stock options vest on September 30, 2015
and 137,500 stock options vest on December 31, 2015.
F-18
For the period ended March 31, 2015 and March 31, 2014, the Company has recognized compensation expense of $2,428,782 and $2,225,736, respectively, on the stock options granted that vested. The fair value of the unvested shares is $0 as of March 31, 2015. The aggregate intrinsic value of these options was $38,735 at March 31, 2015. Stock option activity summary covering options is presented in the table below:
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
|
Shares |
|
|
Price |
|
|
Term (years) |
|
Outstanding at March 31, 2014 |
|
6,000,000 |
|
$ |
0.61 |
|
|
8.8 |
|
Granted |
|
17,352,000 |
|
$ |
0.14 |
|
|
9.1 |
|
Exercised |
|
(182,000 |
) |
$ |
0.01 |
|
|
9.5 |
|
Expired/Forfeited |
|
(6,000,000 |
) |
$ |
- |
|
|
8.5 |
|
Outstanding at March 31, 2015 |
|
17,170,000 |
|
$ |
0.14 |
|
|
8.5 |
|
Exercisable at March 31, 2015 |
|
16,907,500 |
|
$ |
0.14 |
|
|
8.5 |
|
Warrants
The following is a summary of the status of all of our warrants
as of March 31, 2015 and changes during the twelve months ended on that date:
|
|
|
|
|
Weighted- |
|
|
|
Number |
|
|
Average |
|
|
|
of Warrants |
|
|
Exercise Price |
|
Outstanding at March 31, 2014 |
|
8,310,415 |
|
$ |
0.52 |
|
Granted |
|
29,249,253 |
|
|
0.13 |
|
Exercised |
|
(14,529,256 |
) |
|
(0.31 |
) |
Cancelled |
|
- |
|
|
0.00 |
|
Outstanding at March 31, 2015 |
|
23,030,412 |
|
|
0.14 |
|
Warrants exercisable at March 31, 2015 |
|
21,313,672 |
|
$ |
0.14 |
|
The following table summarizes information about stock warrants
outstanding and exercisable at March 31, 2015:
|
|
STOCK WARRANTS OUTSTANDING AND EXERCISABLE |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Remaining |
|
|
|
Warrants |
|
|
Contractual |
|
Exercise
Price |
|
Outstanding |
|
|
Life in Years |
|
$0.1000 |
|
3,383,260 |
|
|
4.9 |
|
$ 0.1250 |
|
16,245,995 |
|
|
4.0 |
|
$ 0.1875 |
|
953,333 |
|
|
4.1 |
|
$ 0.2500 |
|
2,325,582 |
|
|
1.8 |
|
$ 0.5500 |
|
116,279 |
|
|
2.4 |
|
$ 0.6000 |
|
5,963 |
|
|
.3 |
|
The Company agreed to reduce the exercise price of certain
existing warrants to $0.10 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 $0.125 per share.
F-19
On August 21, 2014, pursuant to a Warrant Amendment Agreement,
the Company issued an aggregate of 9,829,455 shares of the Companys common
stock upon the exercise of Existing Warrants at an exercise price of $0.10 per
share for aggregate gross proceeds of $982,945. Simultaneously, the Company
issued new warrants to purchase an aggregate of 9,829,455 shares of our common
stock with a term of 5 years and exercise price of $0.125 per warrant share. The
Company recorded this issuance in additional paid-in capital.
On October 7, 2014, pursuant to a Warrant Amendment Agreement,
the Company issued an aggregate of 4,699,800 shares of the Companys common
stock upon exercise of the Existing Warrants at an exercise price of $0.10 per
share for aggregate gross proceeds of $469,980. Simultaneously, the Company
issued new warrants to purchase an aggregate of 4,699,800 shares of our common
stock with a term of 5 years and exercise price of $0.125 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 3,600,000 shares of our common stock to the Lessor and/or
its affiliates at an exercise price of $0.125 per share for a period of five
years. 900,000 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 3,600,000 and issue a
warrant to purchase 5,100,000 shares of our common stock to the Lessor and/or
its affiliates at an exercise price of $0.10 per share for a period of five
years. 900,000 shares vested on October 22, 2014, 665,822 shares on October 28,
2014, 680,277 shares on December 22, 2014, 347,271 shares on February 3, 2015
and 789,940 shares on March 5, 2015. The remaining 905,267 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.
The fair value of the warrants granted during the period ended
December 31, 2014 was estimated at the date of master lease agreement using the
Black-Scholes option-pricing model and a level 3 valuation measure, with the
following assumptions:
Market value of stock on grant date
|
$ |
0.1245 |
|
Risk-free interest rate (1) |
|
1.47% |
|
Dividend yield |
|
0.00% |
|
Volatility factor |
|
165% |
|
Weighted average expected life (years) (2)
|
|
5 |
|
Expected forfeiture rate |
|
0.00% |
|
F-20
The Company evaluated these warrants under (ASC) 870-20 Debt
with Conversion and other Options and concluded that these leases were debt
instruments with detachable warrants. The Company recorded a reduction in
capital leases liability based on the bifurcated relative fair value of the
vested warrants of $309,028 and the related capital lease payable. The Company
will amortize over the terms of the lease. For the period ended March 31, 2015
the Company amortized $43,148 as interest expense related to capital lease
discount cost on these warrants.
NOTE 10 RELATED PARTY TRANSACTIONS
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 20,000,000
shares to 35,000,000 shares.
On October 31, 2014, the Company reduced the exercise price of
an aggregate of 6,000,000 stock options granted to Steven P. Nickolas and
Richard A. Wright, our directors and executive officers, to $0.15 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 |
|
$ |
0.605 |
|
$ |
0.15 |
|
|
October 9, 2023 |
|
|
3,000,000 |
|
Richard A. Wright
|
|
October 9, 2013 |
|
$ |
0.605 |
|
$ |
0.15
|
|
|
October 9, 2023 |
|
|
3,000,000 |
|
On May 21, 2014, the Company granted a total of 6,000,000 stock
options Steven A. Nickolas and Richard A. Wright (3,000,000 stock options to
each). The stock options are exercisable at the exercise price of $0.1455 per
share for a period of ten years from the date of grant. 3,000,000 stock options
vested upon the date of grant and 3,000,000 stock options will vest on November
21, 2014.
On October 9, 2013, the Company granted a total of 6,000,000
stock options to Steven A. Nickolas and Richard A. Wright (3,000,000 stock
options to each). The stock options are exercisable at the exercise price of
$0.605 per share for a period of ten years from the date of grant. The stock
options vest as follows: (i) 1,000,000 upon the date of grant; and (ii) 500,000
per quarter until fully vested.
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 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.
F-21
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.
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. 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.
During the year ended March 31, 2014, the Company had a total
of $62,092, in general and administrative expenses with related parties. Of that
total for year ended March 31, 2014, $33,592 was consulting fees to an officer,
director and shareholder of the Company, $12,000 was rent to an entity that is
controlled and owned by an officer, director and shareholder of the Company and
$16,500 was professional fees to an entity that is controlled and owned by an
officer, director and shareholder.
During the year ended March 31, 2014, the Company recorded as
other related party income a total of $40,029 to an entity that is controlled
and owned by an officer, director and shareholder of the Company. The income
reflects the Companys estimate of vehicle rent and labor of an employee when
utilized by the related party.
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:
|
|
2015 |
|
|
2014 |
|
Deferred income tax assets: |
$ |
1,270,000 |
|
$ |
260,000 |
|
Valuation allowance |
|
(1,270,000 |
) |
|
(260,000 |
)
|
Net total |
$ |
- |
|
$ |
- |
|
At March 31, 2015, the Company had net operating loss
carryforwards of approximately $3,190,000 and net operating loss carryforwards
expire in 2023 through 2034.
The valuation allowance was increased by $1,010,000 during the
year ended March 31, 2015. The current income tax benefit of $1,270,000 and
$260,000 generated for the years ended March 31, 2015 and 2014, 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,
2015, 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 July 31, 2016. At March
31, 2014, future minimum contractual obligations were as follows:
F-22
|
|
|
|
|
|
|
|
|
Facilities |
|
|
Equipment |
|
|
|
|
|
|
|
|
Year ending March 31, 2016 |
$ |
56,333 |
|
$ |
10,436 |
|
Year ending March 31, 2017 |
|
94,293 |
|
|
10,436 |
|
Year ending March 31, 2018 |
|
87,648 |
|
|
4,348 |
|
Year ending March 31, 2018 |
|
42,000 |
|
|
- |
|
|
|
|
|
|
|
|
Total Minimum Lease Payments: |
$ |
280,274 |
|
$ |
25,220 |
|
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.
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 purchase 3,600,000 shares of our common stock to the Lessor and/or
its affiliates at an exercise price of $0.125 per share for a period of five
years. 900,000 shares vested.
F-23
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 3,600,000 and issue a
warrant to purchase 5,100,000 shares of our common stock to the Lessor and/or
its affiliates at an exercise price of $0.10 per share for a period of five
years. 900,000 shares vested on October 22, 2014, 665,822 shares on October 28,
2014, 680,277 shares on December 22, 2014, 347,271 shares on February 3, 2015
and 789,940 shares on March 5, 2015. The remaining 905,267 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.
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 SUBSEQUENT EVENTS
On April 7, 2015, the Company issued 2,000,000 restricted
common shares to consultant for services rendered that were valued at the market
value on that date of $0.07 per share.
On April 10, 2015, the Company issued 1,500,000 restricted
common shares to consultant for services rendered that were valued at the market
value on that date of $0.097 per share.
On April 27, 2015, the Company issued 2,000,000 restricted
common shares to consultant for services rendered that were valued at the market
value on that date of $0.08 per share.
On May 1, 2015, the Company issued 250,000 restricted common
shares to consultant for services rendered that were valued at the market value
on that date of $0.08 per share.
On May 6, 2015, the Company issued 3,000,000 restricted common
shares to consultant for services rendered that were valued at the market value
on that date of $0.097 per share.
On May 22, 2015, the Company issued 1,000,000 restricted common
shares to consultant for services rendered that were valued at the market value
on that date of $0.079 per share.
In consideration for the consulting services to be rendered to
our company pursuant to a consulting agreement effective as of April 7, 2015, we
issued 2,000,000 shares of our common stock to a consultant effective as of
April 7, 2015. The issuance of these shares was exempt from registration
pursuant to Section 4(a)(2) of the Securities Act of 1933.
In consideration for the consulting services to be rendered to
our company pursuant to a service agreement effective as of April 10, 2015, we
issued 1,500,000 shares of our common stock to a consultant effective as of
April 10, 2015 and agreed to issue up to an additional 1,500,000 shares of our
common stock upon the 180th day anniversary of the service agreement. The
issuance of these shares was and will be exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933.
F-24
In consideration for the consulting services to be rendered to
our company pursuant to a consulting agreement effective as of May 1, 2015, we
issued an aggregate of 250,000 shares of our common stock to a consultant
effective as of May 1, 2015. The issuance of these shares was exempt from
registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
On May 7, 2015, we sold 1,428,571 units of our securities at a
price of $0.07 per unit for gross proceeds of $100,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On May 8, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On May 11, 2015, we entered into a securities purchase
agreement with Assurance Funding Solutions LLC, pursuant to which we sold a
secured term note of our company in the aggregate principal amount of $250,000,
together with 1,000,000 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. We may prepay the note by paying the holder 110% of the
principal amount outstanding together with accrued but unpaid interest thereon,
provided that we provide written notice to the holder at least 30 days prior to
the date of prepayment. Pursuant to the securities purchase agreement, we 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, we also entered into a general security agreement dated May
11, 2015 with Assurance Funding Solutions LLC. The issuance and sale of
securities by us under the securities purchase agreement with Assurance Funding
Solutions LLC was exempt from registration pursuant to Section 4(a)(2) of the
Securities Act of 1933 and Rule 506 promulgated thereunder.
On June 11, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 19, 2015, we sold 2,582,857 units of our securities at
a price of $0.07 per unit for gross proceeds of $180,800. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 26, 2015, we sold 714,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a
period of two years. We issued the securities to one U.S. person (as that term
is defined in Regulation S of the Securities Act of 1933) relying on Rule 506 of
Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
F-25
On June 29, 2015, we sold 714,286 units of our securities at a price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30, 2015, we sold 714,286 units of our securities at a price of $0.07 per unit for gross proceeds of $50,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On June 30, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S
of the Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 1, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 2, 2015, we sold 500,000 units of our securities at a price of $0.07 per unit for gross proceeds of $35,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
On July 6, 2015, we sold 357,143 units of our securities at a price of $0.07 per unit for gross proceeds of $25,000. 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 $0.10 per share for a period of two years. We issued the securities to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) relying on Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933.
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In connection with the closing of the share exchange agreement with Alkaline Water Corp. on May 31, 2013, we changed our independent registered public accounting firm from Sadler, Gibb & Associates to Seale and Beers, CPAs. The appointment of
Seale and Beers, CPAs was approved by our board of directors.
Sadler, Gibb & Associates’ report on our financial statements for the fiscal year ended August 31, 2012 and for the period from inception on June 6, 2011 through August 31, 2011 did not contain an adverse opinion or disclaimer of opinion,
or qualification or modification as to uncertainty, audit scope, or accounting principles, except that such report on our financial statements contained an explanatory paragraph in respect to the substantial doubt about our ability to continue as a
going concern.
During the fiscal year ended August 31, 2012 and the period from inception on June 6, 2011 through August 31, 2011 and in the subsequent interim period through the date of resignation, there were no disagreements, resolved or not, with Sadler, Gibb
& Associates on any matter of accounting principles or practices, financial statement disclosure, or audit scope and procedures, which disagreement(s), if not resolved to the satisfaction of Sadler, Gibb & Associates, would have caused
Sadler, Gibb & Associates to make reference to the subject matter of the disagreement(s) in connection with its report.
During the fiscal year ended August 31, 2012 and the period from inception on June 6, 2011 through August 31, 2011 and in the subsequent interim period through the date of resignation, there were no reportable events as described in Item
304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls
and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer
to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company’s disclosure
controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our management concluded that as of the end of the period covered by this annual report on Form 10-K, our disclosure controls
and procedures were effective.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our principal executive officer and our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934).
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2015. Our management’s evaluation of
our internal control over financial reporting was based on the framework in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management
concluded that our internal control over financial reporting was effective as of March 31, 2015 and that there were no material weaknesses in our internal control over financial reporting.
27
A material weakness is a deficiency or a combination of control
deficiencies in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our principal executive officer and our principal financial
officer do not expect that our disclosure controls or our internal control over
financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of a simple error or mistake.
Additional controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter of our fiscal year ended March 31, 2015 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Directors and Executive Officers
All directors of our company hold office until the next annual
meeting of our stockholders or until their successors have been elected and
qualified, or until their death, resignation or removal. The executive officers
of our company are appointed by our board of directors and hold office until
their death, resignation or removal from office.
Our directors and executive officers, their ages, positions
held, and duration of such, are as follows:
Name
|
Position Held with Our
Company |
Age
|
Date First Elected or
Appointed
|
Steven P. Nickolas |
Chairman, President, Chief
Executive Officer and Director |
60 |
May 31, 2013 |
Richard A. Wright |
Vice-President, Secretary,
Treasurer and Director |
57 |
May 31, 2013
|
28
Business Experience
The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the
organization by which they were employed:
Steven P. Nickolas
In 2008, Mr. Nickolas was appointed President of Nutripure Beverages, Inc., a small cap pink sheet company that intended to launch a beverage product that was developed by him, on a national basis. The company was unsuccessful in raising the
necessary capital, at which time Mr. Nickolas resigned his position after three months with the company and proceeded to investigate other financial opportunities. From May 2008 to July 2010, Mr. Nickolas was a founder of and acted as the president,
secretary, treasurer and a director of Northsight Capital, Inc., a publicly-traded financial holding company (OTCBB: NCAP), which was sold in order to support the ongoing research and development of various beverage products. During this time Mr.
Nickolas founded Jayger International, LTD, which involved the sale of a variety of healthy products in Japan and other Asian countries. Mr. Nickolas also engaged in a number of consulting activities with both large and small companies and continued
to remain active in the food and beverage industry. During this same period of time Mr. Nickolas founded The Healthy Food Project, Inc., a 501(c)(3) non-profit organization dedicated to promoting the development of healthy foods and beverages for
the public use. Over the past two years Mr. Nickolas has focused his attention on the commercial development of the water electrolysis process utilized in Alkaline 88, LLC.
Effective as of May 31, 2013, Mr. Nickolas was appointed as chairman, president, chief executive officer, secretary and a director of our company. On August 7, 2013, our board of directors replaced Mr. Nickolas as secretary of our company with
Richard A. Wright.
Mr. Nickolas graduated from Claremont Men’s College (Now Claremont-Mckenna College) in 1977 with a Bachelor of Science Degree in Economics and Political Philosophy. He did post-graduate studies at Cal Poly Pomona in Psychology in 1978. He also
attended Claremont Graduate School in 1978 in Government studies.
We believe that Mr. Nickolas is qualified to serve on our board of directors because of his knowledge of our current operations in addition to his education and business experiences described above.
Richard A. Wright
Mr. Wright is a Certified Public Accountant. He graduated Magnum Cum Laude in 1978 from Mount Union University in Alliance, Ohio. He has done graduate level MBA courses at Case Western Reserve College in Cleveland, Ohio. In 2008, Mr. Wright became
the Chief Financial Officer for PCT International. PCT is a leading worldwide developer and manufacturer of last mile and access network solutions for broadband communication networks. PCT focuses on innovative and cost-effective solutions that
allow service providers to improve system integrity and expand service offerings. It has manufacturing plants in USA and China and sells their products in 42 countries. In 2010, Mr. Wright began his own tax and accounting CPA firm in Scottsdale,
Arizona, Wright Tax Solutions PLC. Mr. Wright also began Wright Investment Group, LLC, a small equity participation firm that helps provide seed capital through micro loans and financial expertise to start-up enterprises.
Effective as of May 31, 2013, Mr. Wright was appointed as vice-president, treasurer and a director of our company. On August 7, 2013, our board of directors appointed Mr. Wright as secretary of our company.
We believe that Mr. Wright is qualified to serve on our board of directors because of his knowledge of our current operations in addition to his education and business experiences described above.
Family Relationships
There are no family relationships between any director or executive officer.
29
Involvement in Certain Legal Proceedings
None of our directors and executive officers has been involved
in any of the following events during the past ten years:
|
(a) |
any petition under the federal bankruptcy laws or any
state insolvency laws filed by or against, or an appointment of a
receiver, fiscal agent or similar officer by a court for the business or
property of such person, or any partnership in which such person was a
general partner at or within two years before the time of such filing, or
any corporation or business association of which such person was an
executive officer at or within two years before the time of such
filing; |
|
|
|
|
(b) |
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offences); |
|
|
|
|
(c) |
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining such person from, or
otherwise limiting, the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct
or practice in connection with such activity; engaging in any type of
business practice; or (iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in connection with
any violation of federal or state securities laws or federal commodities
laws; |
|
|
|
|
(d) |
being the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days
the right of such person to engage in any activity described in paragraph
(c)(i) above, or to be associated with persons engaged in any such
activity; |
|
|
|
|
(e) |
being found by a court of competent jurisdiction (in a
civil action), the Securities and Exchange Commission to have violated a
federal or state securities or commodities law, and the judgment in such
civil action or finding by the Securities and Exchange Commission has not
been reversed, suspended, or vacated; |
|
|
|
|
(f) |
Being found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such civil
action or finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated; |
|
|
|
|
(g) |
being the subject of, or a party to, any federal or state
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of: (i) any federal or state securities or commodities law or
regulation; or (ii) any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a
temporary or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease- and-desist order, or
removal or prohibition order; or (iii) any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity;
or |
|
|
|
|
(h) |
being the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the
Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member. |
30
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
our executive officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to provide us with
copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons we
believe that during year ended March 31, 2015 all filing requirements applicable
to our executive officers and directors, and persons who own more than 10% of
our common stock were complied with, with the exception of the following:
Name |
Number of Late
Reports |
Number of Transactions
Not Reported on a Timely Basis |
Failure to File
Requested Forms |
Steven P. Nickolas |
1 |
2 |
1 |
Richard A. Wright |
Nil |
1 |
1 |
Code of Ethics
We have not adopted a code of ethics because our board of
directors believes that our small size does not merit the expense of preparing,
adopting and administering a code of ethics. Our board of directors intends to
adopt a code of ethics when circumstances warrant.
Committees of Board of Directors
We do not presently have a separately constituted audit
committee, compensation committee, nominating committee, or any other committees
of our board of directors. Our board of directors does not believe that it is
necessary to have such committees because it believes that the functions of such
committees can be adequately performed by our board of directors.
We do not have any defined policy or procedure requirements for
our stockholders to submit recommendations or nominations for directors. We do
not currently have any specific or minimum criteria for the election of nominees
to our board of directors and we do not have any specific process or procedure
for evaluating such nominees. Our board of directors assesses all candidates,
whether submitted by management or stockholders, and makes recommendations for
election or appointment.
A stockholder who wishes to communicate with our board of
directors may do so by directing a written request to the address appearing on
the first page of this annual report.
Audit Committee Financial Expert
Our board of directors has determined that Richard A. Wright, a
director of our company, qualifies as an audit committee financial expert as
defined in Item 407(d)(5)(ii) of Regulation S-K, but Mr. Wright is not
independent as the term is used by NASDAQ Marketplace Rule 5605(a)(2). We
believe that retaining an independent director who would qualify as an audit
committee financial expert would be overly costly and burdensome and is not
warranted in our circumstances given the early stages of our development.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following
persons:
|
(a) |
all individuals serving as our principal executive
officer during the year ended March 31, 2015 |
|
|
|
|
(b) |
each of our two most highly compensated executive
officers who were serving as executive officers at the end of the year
ended March 31, 2015; and |
|
|
|
|
(c) |
up to two additional individuals for whom disclosure
would have been provided under (b) but for the fact that the individual
was not serving as our executive officer at March 31, 2015,
|
31
who we will collectively refer to as the named executive
officers, for all services rendered in all capacities to our company and
subsidiaries for the years ended March 31, 2015 and 2014 are set out in the
following summary compensation table:
Summary Compensation Table Years ended March 31, 2015 and
2014 |
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus ($)
|
Stock
Award ($)
|
Option
Awards ($)
|
Non- Equity
Incentive Plan
Compensa- tion ($) |
Nonqualified
Deferred Compensation Earnings
($)
|
All Other
Compensa- tion ($) |
Total
($) |
Steven P. Nickolas President, Chief
Executive Officer, Chairman and
Director(1) |
2015 2014 |
124,531 39,119 |
23,937 Nil |
Nil 10,000 |
1,124,951 1,112,868 |
Nil Nil |
Nil Nil |
24,054 21,291 |
1,297,473 1,183,278 |
Richard A. Wright Vice-President,
Secretary, Treasury and
Director(2) |
2015 2014 |
118,024 24,948 |
23,937 Nil |
Nil 10,000 |
1,124,951 1,112,868 |
Nil Nil |
Nil Nil |
4,379 3,385 |
1,271,291 1,151,201
|
(1) |
Effective as of May 31, 2013, Mr. Nickolas was appointed
as chairman, president, chief executive officer, secretary and a director
of our company. On August 7, 2013, our board of directors replaced Mr.
Nickolas as secretary of our company with Richard A. Wright. |
|
|
(2) |
Effective as of May 31, 2013, Mr. Wright was appointed as
vice-president, treasurer and a director of our company. On August 7,
2013, our board of directors appointed Mr. Wright as secretary of our
company. |
For the year ended March 31, 2014 Steven P. Nickolas had an
oral agreement with Alkaline 88, LLC to provide executive level management
through his company, Beverage Science Laboratory, at the rate of $5,000 per
month. In addition, Alkaline 88, LLC provided health insurance, an auto
allowance and other benefits totaling $21,291. For the year ended March 31, 2014
Steven P. Nickolas was paid $30,000 though his consulting firm Beverage Science
Laboratory LLC services.
For the year ended March 31, 2015 Steven P. Nickolas had an
oral agreement with Alkaline 88, LLC as the Chief Executive Officer and
President for a salary of $11,000 per month plus a bonus up to 20% of his base
salary. In addition, Alkaline 88, LLC provided health insurance, an auto
allowance and other benefits totaling $24,054.
For the year ended March 31, 2014 Richard A. Wright had an oral
agreement with Alkaline 88, LLC to provide executive level management through
his company, Beverage Science Laboratory, at the rate of $4,000 per month. In
addition, Alkaline 88, LLC provided Mr. Wright an auto allowance and other
benefits totaling $3,385. For the year ended March 31, 2014 Richard A. Wright
was paid $28,000 though his CPA firm, Wright Tax Solutions PLC, for CPA and
consulting services.
For the year ended March 31, 2015 Richard A. Wright had an oral
agreement with Alkaline 88, LLC as the Chief Financial Officer for a salary of
$10,000 per month plus a bonus up to 20% of his base salary. In addition,
Alkaline 88, LLC provided, an auto allowance and other benefits totaling $4,379.
32
We have not entered into any written employment agreement or
consulting agreement with our directors or executive officers.
Effective October 7, 2013, our board of directors adopted and
approved the 2013 Equity Incentive Plan. The plan was approved by a majority of
our stockholders on October 7, 2013. On October 31, 2014, our board of directors
amended the 2013 Equity Incentive Plan to, among other things, increase the
number of shares of stock of our company available for the grant of awards under
the plan from 20,000,000 shares to 35,000,000 shares. The purpose of the plan is
to (a) enable our company and any of our affiliates to attract and retain the
types of employees, consultants and directors who will contribute to our
companys long range success; (b) provide incentives that align the interests of
employees, consultants and directors with those of the stockholders of our
company; and (c) promote the success of our companys business. The plan enables
us to grant awards of a maximum of 35,000,000 shares of our stock and awards
that may be granted under the plan includes incentive stock options,
non-qualified stock options, stock appreciation rights, restricted awards and
performance compensation awards.
Effective October 8, 2013, we issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven P. Nickolas and
Richard A. Wright (10,000,000 shares to each) in consideration for the past
services, at a deemed value of $0.001 per share. We valued these shares based on
the cost considering the time and average billing rate of these individuals and
recorded a $20,000 stock compensation cost for year ended March 31, 2014,
resulting in stock award compensation of $10,000 for Steven P. Nickolas and
Richard A. Wright each.
Effective October 9, 2013, we granted a total of 6,000,000
stock options to Steven A. Nickolas and Richard A. Wright (3,000,000 stock
options to each). The stock options were exercisable at the exercise price of
$0.605 per share for a period of ten years from the date of grant. The stock
options vested as follows: (i) 1,000,000 upon the date of grant; and (ii)
500,000 per quarter until fully vested. On October 31, 2014, we reduced the
exercise price of these stock options to $0.15 per share.
Effective May 12, 2014, we granted a total of 1,200,000 stock
options Steven A. Nickolas and Richard A. Wright (600,000 stock options to
each). The stock options are exercisable at the exercise price of $0.165 per
share for a period of five years from the date of grant. 600,000 stock options
vested upon the date of grant.
Effective May 21, 2014, we granted a total of 6,000,000 stock
options to Steven A. Nickolas and Richard A. Wright (3,000,000 stock options to
each). The stock options are exercisable at the exercise price of $0.1455 per
share for a period of ten years from the date of grant. 3,000,000 of these stock
options vested upon the date of grant and the other 3,000,000 stock options
vested on November 21, 2014.
Effective February 18, 2015, we granted a total of 1,600,000
stock options to Steven A. Nickolas and Richard A. Wright (800,000 stock options
each). The stock options are exercisable at the exercise price of $0.115 per
share for a period of five years from the date of grant. All of these stock
options vested upon the date of grant.
We estimated compensation expense of $2,225,736 on the stock
options granted that vested during the year ended March 31, 2014, divided
equally between Steven P. Nickolas and Richard A. Wright in the amount of
$1,112,868 each. The aggregate intrinsic value of these options was $0 at March
31, 2014.
We estimated compensation expense of $2,428,782 on the stock
options granted that vested during the year ended March 31, 2015, divided
equally between Steven P. Nickolas and Richard A. Wright in the amount of
$1,112,868 each. The aggregate intrinsic value of these options was $0 at March
31, 2015.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide
retirement or similar benefits for our directors or executive officers.
Resignation, Retirement, Other Termination, or Change in
Control Arrangements
We have no contract, agreement, plan or arrangement, whether
written or unwritten, that provides for payments to our directors or executive
officers at, following, or in connection with the resignation, retirement or
other termination of our directors or executive officers, or a change in control
of our company or a change in our directors or executive officers
responsibilities following a change in control.
33
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer
certain information concerning the outstanding equity awards as of March 31,
2015:
|
Option awards |
Stock awards |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
incentive |
|
|
|
|
|
|
|
|
Equity |
plan |
|
|
|
|
|
|
|
|
incentive |
awards: |
|
|
|
|
|
|
|
|
plan |
Market |
|
|
|
|
|
|
|
Market |
awards: |
or |
|
|
|
Equity |
|
|
|
value |
Number |
payout |
|
|
|
incentive |
|
|
Number |
of |
of |
value of |
|
|
|
plan |
|
|
of |
shares |
unearned |
unearned |
|
|
|
awards: |
|
|
shares |
of |
shares, |
shares, |
|
Number of |
Number of |
Number of |
|
|
or units |
units of |
units or |
units |
|
securities |
securities |
securities |
|
|
of stock |
stock |
other |
or other |
|
underlying |
underlying |
underlying |
|
|
that |
that |
rights |
rights |
|
unexercised |
unexercised |
unexercised |
Option |
|
have |
have |
that have |
that |
|
options |
options |
unearned |
exercise |
Option |
not |
not |
not |
have not |
|
(#) |
(#) |
options |
price |
expiration |
vested |
vested |
vested |
vested |
Name |
exercisable |
unexercisable |
(#) |
($) |
date |
(#) |
($) |
(#) |
($) |
Steven |
3,000,000 |
Nil |
Nil |
0.15 |
October 9, |
Nil |
Nil |
Nil |
Nil |
P. |
|
|
|
|
2023 |
|
|
|
|
Nickolas |
600,000 |
Nil |
Nil |
0.165 |
May 12, |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
2019 |
|
|
|
|
|
3,000,000 |
Nil |
Nil |
0.1455 |
May 21, |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
2024 |
|
|
|
|
|
800,000 |
Nil |
Nil |
0.115 |
February |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
18, 2020 |
|
|
|
|
Richard |
3,000,000 |
Nil |
Nil |
0.15 |
October 9, |
Nil |
Nil |
Nil |
Nil |
A. |
|
|
|
|
2023 |
|
|
|
|
Wright |
600,000 |
Nil |
Nil |
0.165 |
May 12, |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
2019 |
|
|
|
|
|
3,000,000 |
Nil |
Nil |
0.1455 |
May 21, |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
2024 |
|
|
|
|
|
800,000 |
Nil |
Nil |
0.115 |
February |
Nil |
Nil |
Nil |
Nil |
|
|
|
|
|
18, 2020 |
|
|
|
|
Compensation of Directors
During the fiscal year ended March 31, 2015, we had no
directors who were not our named executive officers.
We have no formal plan for compensating our directors for their
services in their capacity as directors. Our directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of our board of directors. Our board of
directors may award special remuneration to any director undertaking any special
services on their behalf other than services ordinarily required of a director.
34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of July 13, 2015, certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of any class
of our voting securities and by each of our current directors, our named
executive officers and by our current executive officers and directors as a
group.
Name of Beneficial Owner |
Title of Class |
Amount and Nature of
Beneficial Ownership(1) |
Percentage of
Class(2) |
Steven P. Nickolas 14301 North 87
St., Suite 109 Scottsdale, AZ 85260 |
Common Stock |
47,700,000(4) |
35.41% |
Series A Preferred
Stock (3) |
10,000,000
|
50%
|
Richard A. Wright 14301 N. 87th
Street, Suite 119 Scottsdale, AZ 85260 |
Common Stock |
7,400,000(5) |
5.49% |
Series A Preferred Stock(3) |
10,000,000
|
50%
|
All executive officers and
directors as a group (2 persons)
|
Common Stock |
55,100,000 |
38.78% |
Series A
Preferred Stock(3) |
20,000,000
|
100% |
Notes |
|
|
(1) |
Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with
respect to securities. Common stock subject to options or warrants
currently exercisable or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such option or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
|
|
|
(2) |
Percentage of common stock is based on 127,295,286 shares
of our common stock issued and outstanding as of July 13, 2015. Percentage
of Series A Preferred Stock is based on 20,000,000 shares of Series A
Preferred Stock issued and outstanding as of July 13, 2015. |
|
|
(3) |
The Series A Preferred Stock has 10 votes per share and
is not convertible into shares of our common stock. |
|
|
(4) |
Consists of 7,400,000 stock options exercisable within 60
days, 21,500,000 shares of our common stock owned by WiN Investments, LLC
and 18,800,000 shares of our common stock owned by Lifewater Industries,
LLC. Steven P. Nickolas exercises voting and dispositive power with
respect to the shares of our common stock that are beneficially owned by
WiN Investments, LLC and Lifewater Industries, LLC. |
|
|
(5) |
Consists of 7,400,000 stock options exercisable within 60
days. |
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change in control of our
company.
35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with Related Persons
Other than as disclosed below, there has been no transaction,
since April 1, 2013, or currently proposed transaction, in which our company was
or is to be a participant and the amount involved exceeds $12,427.75, being the
lesser of $120,000 or one percent of the average of our total assets at year end
for the last two completed fiscal years, and in which any of the following
persons had or will have a direct or indirect material interest:
|
(a) |
Any director or executive officer of our
company; |
|
|
|
|
(b) |
Any person who beneficially owns, directly or indirectly,
more than 5% of any class of our voting securities; |
|
|
|
|
(c) |
Any person who acquired control of our company when it
was a shell company or any person that is part of a group, consisting of
two or more persons that agreed to act together for the purpose of
acquiring, holding, voting or disposing of our common stock, that acquired
control of our company when it was a shell company; and |
|
|
|
|
(d) |
Any member of the immediate family (including spouse,
parents, children, siblings and in- laws) of any of the foregoing
persons. |
On April 2, 2014, the Company entered into a sale-leaseback
transaction with Water Engineering Solutions LLC, an entity that is controlled
and majority owned by Steven P. Nickolas and Richard A. Wright, 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 majority owned by Steven P. Nickolas and
Richard A. Wright. 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 majority owned by Steven P. Nickolas and Richard
A. Wright. 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 Steven P. Nickolas and Richard A. Wright.
On January 17, 2014 the Company entered into an equipment lease
with Water Engineering Solutions LLC, an entity that is controlled and majority
owned by Steven P. Nickolas and Richard A. Wright, 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 Steven P. Nickolas, the Companys 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. 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.
36
During the year ended March 31, 2014, the Company had a total
of $62,092, in general and administrative expenses with related parties. Of that
total for year ended March 31, 2014, $33,592 was consulting fees to Steven P.
Nickolas, $12,000 was rent to an entity that is controlled and owned by Steven
P. Nickolas and $16,500 was professional fees to an entity that is controlled
and owned by Ricky A. Wright.
During the year ended March 31, 2014, the Company recorded as
other related party income a total of $40,029 to an entity that is controlled
and majority owned by Steven P. Nickolas and Richard A. Wright. The income
reflects the Companys estimate of vehicle rent and labor of an employee when
utilized by the related party.
Compensation for Executive Officers and Directors
For information regarding compensation for our executive
officers and directors, see Executive Compensation.
Director Independence
We currently act with two directors consisting of Steven P.
Nickolas and Richard A. Wright. Our common stock is quoted on the OTCQB operated
by the OTC Markets Group, which does not impose any director independence
requirements. Under NASDAQ rule 5605(a)(2), a director is not independent if he
or she is also an executive officer or employee of the corporation or was, at
any time during the past three years, employed by the corporation. Using this
definition of independent director, we do not have any independent director.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed to our company
for the years ended March 31, 2015 and 2014 for professional services rendered
by Seale and Beers, CPAs, our independent registered public accounting firm:
Fees
|
|
2015 |
|
|
2014 |
|
Audit Fees |
$ |
- |
|
$ |
25,000 |
|
Audit Related Fees
|
|
26,250 |
|
|
- |
|
Tax Fees |
|
- |
|
|
- |
|
Other Fees |
|
1,657
|
|
|
- |
|
Total Fees |
$ |
27,907 |
|
$ |
25,000 |
|
Pre-Approval Policies and Procedures
Our entire board of directors, which acts as our audit
committee, pre-approves all services provided by our independent registered
public accounting firm. All of the above services and fees were reviewed and
approved by our board of directors before the respective services were rendered.
Our board of directors has considered the nature and amount of
fees billed by Seale and Beers, CPAs and believes that the provision of services
for activities unrelated to the audit is compatible with maintaining its
respective independence.
37
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit |
|
Number |
Description |
|
|
(1) |
Underwriting Agreement |
1.1 |
Engagement Agreement dated October 7, 2013 with H.C.
Wainwright & Co., LLC (incorporated by reference from our Registration
Statement on Form S-1, filed on November 27, 2013) |
1.2 |
Amendment Agreement to Engagement Agreement dated
November 1, 2013 with H.C. Wainwright & Co., LLC (incorporated by
reference from our Registration Statement on Form S-1/A, filed on January
9, 2014) |
1.3 |
Amendment Agreement to Engagement Agreement dated
November 25, 2013 with H.C. Wainwright & Co., LLC (incorporated by
reference from our Registration Statement on Form S-1, filed on November
27, 2013) |
1.4 |
Termination Agreement for Engagement Agreement dated
March 12, 2014 with H.C. Wainwright & Co., LLC (incorporated by
reference from our Registration Statement on Form S-1, filed on March 12,
2014) |
1.5 |
Engagement Agreement dated March 12, 2014 with H.C.
Wainwright & Co., LLC (incorporated by reference from our Registration
Statement on Form S-1, filed on March 12, 2014) |
(2) |
Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession |
2.1 |
Share Exchange Agreement dated May 31, 2013 with Alkaline
Water Corp. and its shareholders (incorporated by reference from our
Current Report on Form 8-K, filed on June 5, 2013) |
(3) |
Articles of Incorporation and Bylaws |
3.1 |
Articles of Incorporation (incorporated by reference from
our Form S-1 Registration Statement, filed on October 28, 2011) |
3.2 |
Certificate of Change (incorporated by reference from our
Quarterly Report on Form 10-Q, filed on August 13, 2013) |
3.3 |
Articles of Merger (incorporated by reference from our
Quarterly Report on Form 10-Q, filed on August 13, 2013) |
3.4 |
Certificate of Amendment (incorporated by reference from
our Current Report on Form 8-K, filed on October 11, 2013) |
3.5 |
Certificate of Designation (incorporated by reference
from our Current Report on Form 8-K, filed on October 11, 2013) |
3.6 |
Certificate of Designation (incorporated by reference
from our Current Report on Form 8-K, filed on November 12, 2013)
|
3.7 |
Amended and Restated Bylaws (incorporated by reference
from our Current Report on Form 8-K, filed on March 15, 2013) |
(10) |
Material Contracts |
10.1 |
Contract Packer Agreement dated November 14, 2012 between
Alkaline 84, LLC and AZ Bottled Water, LLC (incorporated by
reference from our Current Report on Form 8-K, filed on June 5, 2013)
|
10.2 |
Private Placement Subscription Agreement dated February
21, 2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on May 17, 2013)
|
10.3 |
Private Placement Subscription Agreement dated April 17,
2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on May 17, 2013)
|
10.4 |
Private Placement Subscription Agreement dated May 17,
2013 with Alkaline 84, LLC and Bank Gutenberg AG (incorporated by
reference from our Current Report on Form 8-K, filed on June 5, 2013)
|
10.5 |
Private Placement Subscription Agreement dated May 29,
2013 with Bank Gutenberg AG (incorporated by reference from our Current
Report on Form 8-K, filed on June 5, 2013) |
10.6 |
2013 Equity Incentive Plan (incorporated by reference
from our Current Report on Form 8-K, filed on October 11, 2013) |
10.7 |
Form of Securities Purchase Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013) |
10.8 |
Form of Registration Rights Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013) |
38
10.9 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on November 5,
2013) |
10.11 |
Stock Option Agreement dated October 9, 2013 with Steven
P. Nickolas (incorporated by reference from our Quarterly Report on Form
10-Q, filed on November 13, 2013) |
10.12 |
Stock Option Agreement dated October 9, 2013 with Richard
A. Wright (incorporated by reference from our Quarterly Report on Form
10-Q, filed on November 13, 2013) |
10.13 |
Contract Packer Agreement dated October 7, 2013 with
White Water, LLC (incorporated by reference from our Quarterly Report on
Form 10-Q, filed on November 13, 2013) |
10.14 |
Manufacturing Agreement dated August 15, 2013 with Water
Engineering Solutions, LLC (incorporated by reference from our
Registration Statement on Form S-1, filed on November 27, 2013) |
10.15 |
Equipment Lease Agreement dated January 17, 2014
(incorporated by reference from our Current Report on Form 8-K, filed on
January 27, 2014) |
10.16 |
Revolving Accounts Receivable Funding Agreement dated
February 20, 2014 (incorporated by reference from our Current Report on
Form 8-K, filed on February 25, 2014) |
10.17 |
Form of Securities Purchase Agreement dated as of April
28, 2014, between The Alkaline Water Company Inc. and the purchasers named
therein (incorporated by reference from our Current Report on Form 8-K,
filed on May 6, 2014) |
10.18 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on May 6,
2014) |
10.19 |
Form of Placement Agent Common Stock Purchase Warrant
(incorporated by reference from our Current Report on Form 8-K, filed on
May 6, 2014) |
10.20 |
Stock Option Agreement dated May 12, 2014 with Steven P.
Nickolas (incorporated by reference from our Current Report on Form 8-K,
filed on May 14, 2014) |
10.21 |
Stock Option Agreement dated May 12, 2014 with Richard A.
Wright (incorporated by reference from our Current Report on Form 8-K,
filed on May 14, 2014) |
10.22 |
Stock Option Agreement dated May 21, 2014 with Steven P.
Nickolas (incorporated by reference from our Current Report on Form 8-K,
filed on May 23, 2014) |
10.23 |
Stock Option Agreement dated May 21, 2014 with Richard A.
Wright (incorporated by reference from our Current Report on Form 8-K,
filed on May 23, 2014) |
10.24 |
Amendment #1 dated February 12, 2014 to Equipment Lease
Agreement (incorporated by reference from our Quarterly Report on Form
10-Q, filed on August 13, 2014) |
10.25 |
Equipment Sale/Lease Back Agreement dated April 2, 2014
(incorporated by reference from our Quarterly Report on Form 10-Q, filed
on August 13, 2014) |
10.26 |
Agreement dated August 12, 2014 with H.C. Wainwright
& Co., LLC (incorporated by reference from our Current Report on Form
8-K, filed on August 21, 2014) |
10.27 |
Form of Warrant Amendment Agreement (incorporated by
reference from our Current Report on Form 8-K, filed on August 21,
2014) |
10.28 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on August 21,
2014) |
10.29 |
Form of Warrant Amendment Agreement (incorporated by
reference from our Current Report on Form 8-K, filed on October 9,
2014) |
10.30 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on October 9,
2014) |
10.31 |
Master Lease Agreement dated October 28, 2014 with
Veterans Capital Fund, LLC (incorporated by reference from our Current
Report on Form 8-K, filed on November 4, 2014) |
10.32 |
Warrant Agreement dated October 28, 2014 with Veterans
Capital Fund, LLC (incorporated by reference from our Current Report on
Form 8-K, filed on November 4, 2014) |
10.33 |
Registration Rights Agreement dated October 28, 2014 with
Veterans Capital Fund, LLC (incorporated by reference from our Current
Report on Form 8-K, filed on November 4, 2014) |
10.34 |
2013 Equity Incentive Plan (incorporated by reference
from our Current Report on Form 8-K, filed on November 4, 2014) |
10.35 |
Form of Amending Agreement to Stock Option Agreement
(incorporated by reference from our Current Report on Form 8-K, filed on
November 4, 2014) |
10.36 |
Stock Option Agreement dated February 18, 2015 with
Steven P. Nickolas (incorporated by reference from our Current Report on
Form 8-K, filed on April 14, 2015) |
39
10.37 |
Stock Option Agreement dated
February 18, 2015 with Richard A. Wright (incorporated by reference from
our Current Report on Form 8-K, filed on April 14, 2015) |
10.38* |
Securities Purchase Agreement dated as of May
11, 2015 with Assurance Funding Solutions LLC |
10.39* |
Secured Term Note dated May
2015 issued to Assurance Funding Solutions LLC |
10.40* |
General Security Agreement dated as of May 11,
2015 with Assurance Funding Solutions LLC |
(16) |
Letter re Change in
Certifying Accountant |
16.1 |
Letter from Sadler, Gibb & Associates dated
June 14, 2013 (incorporated by reference from our Current Report on Form
8-K/A, filed on June 14, 2013) |
(21) |
Subsidiaries |
21.1 |
Subsidiaries of The Alkaline Water Company Inc. |
|
Alkaline Water Corp., Arizona
corporation |
|
Alkaline 88, LLC, Arizona limited liability
company |
(23) |
Consents of Experts and
Counsel |
23.1* |
Consent of Seale and Beers, CPAs |
(31) |
Rule 13a-14
Certifications |
31.1* |
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
Certification of Principal
Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 |
(32) |
Section 1350 Certifications |
32.1* |
Certification of Principal
Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
32.2* |
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(101) |
Interactive Data File |
101.INS* |
XBRL Instance Document |
101.SCH* |
XBRL Taxonomy Extension Schema |
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* |
XBRL Taxonomy Extension
Definition Linkbase |
101.LAB* |
XBRL Taxonomy Extension Label Linkbase |
101.PRE* |
XBRL Taxonomy Extension
Presentation Linkbase |
* Filed herewith.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
The Alkaline Water Company Inc. |
|
|
|
By: /s/ Steven P.
Nickolas |
|
Steven P. Nickolas |
|
President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
|
Date: July 14, 2015 |
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/ Steven P.
Nickolas |
|
Steven P. Nickolas |
|
President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
|
Date: July 14, 2015 |
|
|
|
|
|
By: /s/ Richard A.
Wright |
|
Richard A. Wright |
|
Vice-President, Secretary, Treasurer and Director |
|
(Principal Financial Officer and Principal Accounting |
|
Officer) |
|
Date: July 14, 2015 |
|
41
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We consent to the incorporation by reference in the
registration statement on Form S-8 (No. 333-200837) of The Alkaline Water
Company Inc., of our report dated July 13, 2015 on our audit of the financial
statements of The Alkaline Water Company Inc. as of March 31, 2015, and the
related statements of operations, stockholders equity and cash flows for the
years ended March 31, 2015 and 2014, which is included in this annual report on
Form 10-K.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
July 13, 2015
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Steven P. Nickolas, certify that:
1. |
I have reviewed this annual report on Form 10-K of The
Alkaline Water Company Inc.; |
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the
equivalent functions): |
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
|
|
(b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
July 14, 2015
/s/ Steven P.
Nickolas |
Steven P. Nickolas |
President, Chief Executive Officer and Director |
(Principal Executive Officer)
|
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard A. Wright, certify that:
1. |
I have reviewed this annual report on Form 10-K of The
Alkaline Water Company Inc.; |
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
4. |
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
(b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the
equivalent functions): |
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
|
|
(b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
July 14, 2015
/s/ Richard A.
Wright |
Richard A. Wright |
Vice-President, Secretary, Treasurer and Director |
(Principal Financial Officer and Principal Accounting
Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The undersigned, Steven P. Nickolas, hereby certifies, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that
1. |
the annual report on Form 10-K of The Alkaline Water
Company Inc. for the year ended March 31, 2015 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
|
|
2. |
the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of The Alkaline Water Company Inc. |
July 14, 2015
/s/ Steven P.
Nickolas |
Steven P. Nickolas |
President, Chief Executive Officer and Director |
(Principal Executive Officer)
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The undersigned, Richard A. Wright, hereby certifies, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that
1. |
the annual report on Form 10-K of The Alkaline Water
Company Inc. for the year ended March 31, 2015 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
|
|
2. |
the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of The Alkaline Water Company Inc. |
July 14, 2015
/s/ Richard A.
Wright |
Richard A. Wright |
Vice-President, Secretary, Treasurer and Director |
(Principal Financial Officer and Principal |
Accounting |
Officer) |
Alkaline Water (NASDAQ:WTER)
Historical Stock Chart
From Aug 2024 to Sep 2024
Alkaline Water (NASDAQ:WTER)
Historical Stock Chart
From Sep 2023 to Sep 2024