UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-1/A
AMENDMENT NO. 1 TO
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
The Alkaline Water Company Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
2080
(Primary Standard Industrial
Classification Code Number)
99-0367049
(I.R.S. Employer Identification
Number)
7730 E Greenway Road Ste. 203
Scottsdale, AZ 85260
Telephone: (480) 656-2423
(Address, including zip code, and
telephone number, including area code, of registrants principal executive
offices)
InCorp Services, Inc.
2360 Corporate Circle Ste. 400
Henderson, NV 89074-7722
Telephone: (702) 866-2500
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copy of Communications To:
Clark Wilson LLP
Suite 900 - 885 West Georgia Street
Vancouver, British Columbia
V6C 3H1, Canada
Telephone: (604) 687-5700
Attention: Mr. Virgil Z.
Hlus
As soon as practicable after the effective date of this
registration statement.
(Approximate date of commencement of
proposed sale to the public)
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
[ ] |
Accelerated filer |
[ ] |
Non-accelerated filer |
[ ] |
Smaller reporting company |
[X] |
(Do not check if a smaller reporting company) |
|
|
|
Calculation of Registration Fee
Title of Each Class of
Securities to be Registered |
Proposed Maximum
Aggregate Offering Price(1) |
Amount of
Registration Fee |
Common stock |
$5,220,000(2) |
$525.65(3) |
Warrants to purchase shares of common
stock |
Shares of common stock issuable upon exercise
of the warrants |
(1) |
Pursuant to Rule 416 under the Securities Act of 1933,
there is also being registered hereby such indeterminate number of
additional shares of common stock of The Alkaline Water Company Inc. as
may be issued or issuable because of stock splits, stock dividends, stock
distributions, and similar transactions. |
|
|
(2) |
Estimated solely for the purpose of calculating the
amount of the registration fee in accordance with Rule 457(o) under the
Securities Act of 1933. |
|
|
(3) |
$463.22 was previously paid. |
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
ii
The information in this prospectus is not
complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted. |
Subject to Completion, Dated February 8, 2016
Prospectus
The Alkaline Water Company Inc.
9,000,000 Shares of Common Stock
Warrants to
Purchase up to 4,500,000 Shares of Common Stock
4,500,000 Shares of Common
Stock Underlying the Warrants
_________________________________
We are offering up to 9,000,000 shares of our common stock and
warrants to purchase up to 4,500,000 shares of our common stock. Each share of
common stock we sell in the offering will be accompanied by one-half of a
warrant to purchase one share of common stock. Each share of common stock and
accompanying one-half of a warrant will be sold at a price of $0.33. The
common stock and warrants are immediately separable and will be issued
separately. This offering will terminate on May 6, 2016, unless the offering is
fully subscribed before that date or we decide to terminate the offering prior
to that date. The offering price for the common stock and warrants and the
exercise price of the warrants will remain fixed for the duration of the
offering.
This is a best-efforts, self-underwritten offering. There is no
minimum offering amount required as a condition to closing, therefore we are not
required to sell any specific dollar amount or number of securities. Our
directors and officers will use their best efforts to sell the securities being
offered. No commission or other form of remuneration will be paid to our
directors and officers or any other party in connection with the sale of these
units. We will pay all expenses incurred in this offering.
We have not arranged to place the funds from this offering in
an escrow, trust, or similar account. Because there is no minimum offering
amount required as a condition to close this offering, we may not sell the
entire amount of the securities being offered.
Our common stock is quoted on the OTC Markets Groups OTCQB
under the symbol WTER. We do not intend to apply for listing of the warrants
on any securities exchange and we do not expect that the warrants will be quoted
on the OTCQB. On February 5, 2016, the closing price of our common stock on the OTCQB
was $0.85 per share.
Investing in our common stock involves risks. See Risk
Factors beginning on page 6.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is February 8, 2016.
Table of Contents
2
About This Prospectus
You should rely only on the information that we have provided
in this prospectus and any applicable prospectus supplement. We have not
authorized anyone to provide you with different information. No dealer,
salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus and any applicable
prospectus supplement. You must not rely on any unauthorized information or
representation. This prospectus is an offer to sell only the securities offered
hereby, but only under circumstances and in jurisdictions where it is lawful to
do so. You should assume that the information in this prospectus and any
applicable prospectus supplement is accurate only as of the date on the front of
the document, regardless of the time of delivery of this prospectus, any
applicable prospectus supplement, or any sale of a security.
For investors outside the United States: we have not taken any
action that would permit this offering, or the possession or distribution of
this prospectus, in any jurisdiction where action for that purpose is required,
other than in the United States. Persons outside the United States who come into
possession of this prospectus must inform themselves about, and observe any
restrictions relating to, the offering of securities and the distribution of
this prospectus outside the United States.
Except for the financial statements and notes to the financial
statements, all references in this prospectus to numbers of shares of common
stock and per share information give retroactive effect to the 50-for-1 reverse
stock split of our shares of common stock effected as of December 30, 2015,
unless otherwise specified.
As used in this prospectus, the terms we, us our and
Alkaline refer to The Alkaline Water Company Inc., a Nevada corporation, and
its wholly-owned subsidiary, Alkaline Water Corp., and Alkaline Water Corp.s
wholly-owned subsidiary, Alkaline 88, LLC (formerly Alkaline 84, LLC), unless
otherwise specified.
Prospectus Summary
The Offering |
|
|
|
Securities offered |
(i) Up to 9,000,000 shares of common stock; |
|
(ii) Warrants to purchase up to 4,500,000 shares of
common stock; and |
|
(iii) Up to 4,500,000 shares of common stock issuable
upon exercise of the warrants |
|
|
Common stock outstanding prior to offering |
5,719,039(1) |
|
|
Common stock to be outstanding after the offering |
14,719,039(2) |
|
|
Use of proceeds |
We expect to use the proceeds received from the offering
to repay loans, fund the purchase of blending machines, slotting fees,
supply chain raw material purchases, the purchase of alkaline generating
electrolysis system machines and for working capital and general corporate
purposes. See Use of Proceeds for more information. |
|
|
OTCQB Symbol |
WTER. There is no established trading market for the
warrants and we do not expect a market to develop. |
|
|
Risk Factors |
See Risk Factors beginning on page 6 and other
information in this prospectus for a discussion of the factors you should
consider before you decide to invest in our common stock and warrants.
|
(1) |
Excludes (i) 4,657,040 shares of common stock issuable upon
the exercise of outstanding stock options and (ii) 488,116 shares of
common stock issuable upon the exercise of outstanding
warrants. |
3
(2) |
Assumes the sale of all shares of common stock covered by
this prospectus. Excludes up to 4,500,000 shares of common stock that
could be issued upon exercise of the warrants sold as part of this
offering. |
Our Business
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.
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 and Director,
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., Vav Plastics Inc, Amcor Inc and Cactus Containers.
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 20,000 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.
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 September 30, 2015, we had an accumulated deficit of $14,201,657.
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.
4
The principal offices of our company are located at 7730 E
Greenway Road, Ste. 203, Scottsdale, AZ 85260. Our telephone number is (480)
656-2423.
Summary of Financial Data
The following information represents selected audited financial
information for our company for the years ended March 31, 2015 and March 31,
2014 and selected unaudited financial information for our company for the three
and six month periods ended September 30, 2015 and 2014. The summarized
financial information presented below is derived from and should be read in
conjunction with our audited and unaudited financial statements, as applicable,
including the notes to those financial statements which are included elsewhere
in this prospectus along with the section entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations beginning on page 29
of this prospectus.
Statements of
Operations Data |
Three Month
Period Ended September 30, 2015 |
Three Month
Period Ended September 30, 2014 |
Six Month Period
Ended September 30, 2015 |
Six Month Period
Ended September 30, 2014 |
Revenue |
$1,719,268 |
$1,022,823 |
$3,232,846 |
$1,594,872 |
Cost of Goods Sold |
$1,105,522 |
$648,818 |
$2,082,326 |
$1,054,943 |
Total Operating Expenses |
$1,576,077 |
$2,741,591 |
$3,425,327 |
$5,123,658 |
Net Loss |
$(994,677) |
$(2,277,061) |
$(2,549,307) |
$(4,714,269)
|
Statements of Operations
Data |
Year Ended March 31,
2015 |
Year Ended March 31,
2014 |
Revenue |
$3,700,476 |
$552,699 |
Cost of Goods Sold |
$2,532,436 |
$411,851 |
Total Operating Expenses |
$8,082,158 |
$4,421,353 |
Net Loss |
$(7,139,449) |
$(4,229,513) |
Balance Sheets Data |
As of September 30, 2015 |
As of March 31, 2015 |
As of March 31, 2014 |
Cash |
$38,695 |
$90,113 |
$2,665 |
Working Capital |
$(1,240,675) |
$(695,990) |
$(555,001) |
Total Assets |
$2,163,795 |
$1,917,241 |
$568,308 |
Total Liabilities |
$2,323,178 |
$1,647,101 |
$836,323 |
Total Stockholders Equity (Deficit) |
$(159,383) |
$270,140 |
$(351,835) |
Accumulated Deficit |
$(14,201,657) |
$(11,652,350) |
$(4,512,901) |
5
Risk Factors
An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating
our company and our business before purchasing our securities. Our business,
operating results and financial condition could be seriously harmed as a result
of the occurrence of any of the following risks. You could lose all or part of
your investment due to any of these risks. You should invest in our common stock
only if you can afford to lose your entire investment.
Risks Related to This Offering
You will experience immediate and substantial dilution as
a result of this offering and may experience additional dilution in the future.
You will incur immediate and substantial dilution as a result
of this offering. After giving effect to the sale by us of up to 9,000,000
shares of common stock and warrants to purchase an additional 4,500,000 shares
of our common stock, and after deducting placement agent commissions and
estimated offering expenses payable by us, investors in this offering can expect
an immediate dilution of $0.31 per share, or 94%, at the
offering price, assuming no exercise of the warrants. To the extent any of the
warrants we have issued in this offering, or any other warrants or options that
we have issued, are exercised, you will sustain future dilution. We may also
acquire other assets or businesses by issuing equity, which may result in
additional dilution to our stockholders.
We will have immediate and broad discretion over the use
of the net proceeds from this offering and we may use these proceeds in ways
with which you may not agree.
We have considerable discretion in the application of the
proceeds of this offering. We currently expect to use the net proceeds from this
offering for the repayment of loans, the purchase of blending machines, slotting
fees, supply chain raw material purchases, the purchase of alkaline generating
electrolysis system machines and for working capital and general corporate
purposes. However, there may be circumstances where, for sound business reasons,
a reallocation of funds may be necessary or advisable. You must rely on our
judgment regarding the application of the net proceeds of this offering. Our
judgment may not result in positive returns on your investment and you will not
have an opportunity to evaluate the economic, financial, or other information
upon which we base our decisions.
There is no public market for the warrants being offered
in this offering.
There is no established public trading market for the warrants
being offered in this offering, and we do not expect a trading market to
develop. In addition, we do not intend to apply for listing the warrants on any
securities exchange or expect the warrants to be quoted on the OTCQB. Without an
active trading market, the liquidity of the warrants will be limited.
Risks Related to Our Business
Because we have a limited operating history, our ability
to fully and successfully develop our business is unknown.
We were incorporated in June 6, 2011, and we have only 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.
6
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 September 30, 2015, we had an
accumulated deficit of $14,201,657. 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.
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.
7
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.
The loss of one or more of our major customers or a
decline in demand from one or more of these customers could harm our business.
We have 3 major customers that together account for 59% (31%,
18%, 10%, respectively) of accounts receivable at September 30, 2015, and 4
customers that together account for 58% (19% 15%, 14%, and 10%, respectively) of
the total revenues earned for the three months ended September 30, 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.
8
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.
Significant additional labeling or warning requirements
or limitations on the availability of our product may inhibit sales of affected
products.
Various jurisdictions may seek to adopt significant additional
product labeling or warning requirements or limitations on the availability of
our product relating to the content or perceived adverse health consequences of
our product. If these types of requirements become applicable to our product
under current or future environmental or health laws or regulations, they may
inhibit sales of our product.
9
Unfavorable general economic conditions in the United
States could negatively impact our financial performance.
Unfavorable general economic conditions, such as a recession or
economic slowdown, in the United States could negatively affect the
affordability of, and consumer demand for, our product in the United States.
Under difficult economic conditions, consumers may seek to reduce discretionary
spending by forgoing purchases of our products or by shifting away from our
beverages to lower-priced products offered by other companies, including
non-alkaline water. Consumers may also cease purchasing bottled water and
consume tap water. Lower consumer demand for our product in the United States
could reduce our profitability.
Adverse weather conditions could reduce the demand for
our products.
The sales of our products are influenced to some extent by
weather conditions in the markets in which we operate. Unusually cold or rainy
weather during the summer months may have a temporary effect on the demand for
our product and contribute to lower sales, which could have an adverse effect on
our results of operations for such periods.
Changes in, or failure to comply with, the laws and
regulations applicable to our products or our business operations could increase
our costs or reduce our net operating revenues.
The advertising, distribution, labeling, production, safety,
sale, and transportation in the United States of our product will be subject to:
the Federal Food, Drug, and Cosmetic Act; the Federal Trade Commission Act; the
Lanham Act; state consumer protection laws; competition laws; federal, state,
and local workplace health and safety laws, such as the Occupational Safety and
Health Act; various federal, state and local environmental protection laws; and
various other federal, state, and local statutes and regulations. Legal
requirements also apply in many jurisdictions in the United States requiring
that deposits or certain ecotaxes or fees be charged for the sale, marketing,
and use of certain non-refillable beverage containers. The precise requirements
imposed by these measures vary. Other types of statutes and regulations relating
to beverage container deposits, recycling, ecotaxes and/or product stewardship
also apply in various jurisdictions in the United States. We anticipate that
additional, similar legal requirements may be proposed or enacted in the future
at the local, state and federal levels in the United States. Changes to such
laws and regulations could increase our costs or reduce 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.
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.
10
Our executive officers are not subject to supervision or
review by an independent board or audit committee.
Our board of directors consists of Steven P. Nickolas and
Richard A. Wright, our executive officers. Accordingly, we do not have any
independent directors. Also we do not have an independent audit committee. As a
result, the activities of our executive officers are not subject to the review
and scrutiny of an independent board of directors or audit committee.
Risk Related to Our Stock
Because Steven P. Nickolas controls a large percentage of
our voting stock, he has the ability to influence matters affecting our
stockholders.
Steven P. Nickolas, our President, Chief Executive Officer and
Director, exercises voting and dispositive power with respect to 776,000 shares
of our common stock, which are beneficially owned by WiN Investments, LLC and
Lifewater Industries, LLC, and owns 10,000,000 shares of our 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 200,000,000 shares of common
stock and 100,000,000 shares of preferred stock, of which 5,719,039 shares of
common stock are issued and outstanding and 20,000,000 shares of Series A
Preferred Stock are issued and outstanding as of February 5, 2016. 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.
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.
11
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.
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.
Forward-Looking Statements
This prospectus contains forward-looking statements.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, intend, expect,
plan, anticipate, believe, estimate, predict, potential, or
continue or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks, including
the risks in the section entitled Risk Factors, uncertainties and other
factors, which may cause our companys or our industrys actual results, levels
of activity or performance to be materially different from any future results,
levels of activity or performance expressed or implied by these forward-looking
statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity or performance. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
12
Use of Proceeds
We expect to receive up to $2,870,000 in net proceeds from
the sale of the securities in this offering, based on a price of $0.33
per share of common stock and corresponding warrant and after deducting
estimated offering expenses payable by us and assuming the sale of all of the
securities offered in this offering. However, this is a best efforts offering
with no minimum, and we may not sell all or any of the securities; as a result,
we may receive significantly less in net proceeds, and the net proceeds received
may not be sufficient to continue to operate our business.
We currently expect to use the net proceeds from this offering
as specified in the following table, and we have ordered the specific uses of
proceeds in order of priority. We do not expect that our priorities for fund
allocation would change if the amount we raise in this offering is less than the
maximum proceeds to be potentially raised in this offering. The data in the
table set forth below excludes any proceeds we could receive from the exercise
of the warrants to be issued in this offering.
Description of Use |
|
25% of |
|
|
50% of |
|
|
75% of |
|
|
100% of |
|
|
|
Maximum |
|
|
Maximum |
|
|
Maximum |
|
|
Maximum |
|
|
|
Proceeds |
|
|
Proceeds |
|
|
Proceeds |
|
|
Proceeds |
|
|
|
Obtained |
|
|
Obtained |
|
|
Obtained |
|
|
Obtained |
|
Repayment of loans
(1) |
$ |
717,500 |
|
$ |
1,435,000 |
|
$ |
1,565,625 |
|
$ |
1,565,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of blending
machines(2) |
|
- |
|
|
- |
|
$ |
250,000 |
|
$ |
300,000 |
|
Slotting fees(3) |
|
- |
|
|
- |
|
$ |
150,000 |
|
$ |
300,000 |
|
Supply chain raw material
purchases |
|
- |
|
|
- |
|
$ |
150,000 |
|
$ |
400,000 |
|
Purchase of alkaline generating electrolysis
system machines (5) |
|
- |
|
|
- |
|
|
- |
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital including legal, audit,
accounting, investor relations & corporate communications, and
financing-related expenses |
|
- |
|
|
- |
|
$ |
36,875 |
|
$ |
54,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
$ |
717,500 |
|
$ |
1,435,000 |
|
$ |
2,152,500 |
|
$ |
2,870,000 |
|
Notes
(1) |
Pursuant to a loan agreement dated November 30, 2015, as
amended January 25, 2016, Neil Rogers loaned $750,000 to our company in
exchange for a non-negotiable promissory note in the principal amount of
$750,000. The note bears interest at the rate of 15% per annum and matures
March 31, 2016. Pursuant to a loan agreement dated January 25, 2016,
Turnstone Capital Inc. loaned $750,000 to our company in exchange for a
non-negotiable promissory note in the principal amount of $750,000. The
note bears interest at the rate of 15% per annum and matures on March 31,
2016. Upon completion of this offering, we intend to repay these loans,
including accrued interests. |
|
|
(2) |
We have received informal quotes for a blending system
that, when used in conjunction with their proprietary of alkaline
generating electrolysis system machines, should double production capacity
at each plant. Informal quotes have ranged from $32,000 to $120,000 per
machine. We believe that $50,000 per machine is a reasonable expectation
as to final pricing. |
13
(3) |
Slotting fees for the expansion into additional retail
establishments are estimated at $40,000 per new store per item. |
|
|
(4) |
Each plant is planned to be stocked at a par value for
raw material assuring continual flow of goods through production
facilities. It is estimated that approximately $50,000 to $75,000 of raw
materials will be in each facilities depending on volume and line-time
available. |
|
|
(5) |
Each machine costs approximately $250,000, including
shipping and installation, and is purchased from Water Engineering
Solutions, LLC (WES), an entity that is controlled and owned by
our President, Chief Executive Officer, Director and majority stockholder,
Steven P. Nickolas, and our Vice-President, Secretary, Treasurer and
Director, Richard A. Wright. Per the agreement with WES, the machine will
be manufactured and sold to us at a price that will allow WES a 40% gross
profit margin on all components and an $85.00/hour/man hour spent on
production and installation of each machine. The 40% gross profit margin
represents a 10% reduction from WESs standard margin. In addition, we
must provide a purchase order to WES with a 50% deposit for each machine,
an additional 40% upon WESs receipt of the electrolysis cells and the
balance of 10% due upon delivery. The new machine is expected to be
installed in a seventh co-packing plant located east of the Mississippi
river; site is yet to be determined. WES agreed to provide maintenance and
service on all the machines at a rate of $200 per day for a mechanic, $350
per day for a skilled mechanic, and $500 per day for WES
engineer. |
The (i) projected amount of proceeds to be spent on each
purpose set forth in the table above and (ii) the projected net proceeds to us
after deducting for applicable costs and expenses, are in each case estimates
based on our current expectations. Those estimates may prove to be wrong, and we
could require additional funding for any one of the purposes set forth in the
table above, which could consequently reduce the expenditures we use for another
purpose or be a lesser percentage of the total funds required for the particular
purpose.
If a warrant holder elects to exercise the warrants issued in
this offering, we may also receive proceeds from the exercise of the warrants.
We cannot predict when or if the warrants will be exercised. It is possible that
the warrants may expire and may never be exercised.
Determination of Offering Price
In determining the offering price of the common stock and the
warrants and the exercise price of the warrants, we have considered a number of
factors including, but not limited to, the current market price of our common
stock, trading prices of our common stock over time, the illiquidity and
volatility of our common stock, our current financial condition and the
prospects for our future cash flows and earnings, and market and economic
conditions at the time of the offering. The offering price for the common stock
and the warrants and the exercise price of the warrants will remain fixed for
the duration of the offering and such prices may be less than the market price
for our common stock.
Our common stock is traded on the OTCQB operated by the OTC
Markets Group under the symbol WTER. On February 5, 2016, the
closing price for one share of our common stock was $0.85.
Dilution
If you invest in the securities offered in this offering, and
assuming no value is attributed to the warrants, your interest will be diluted
immediately to the extent of the difference between the offering price per share
of our common stock and the pro forma net tangible book value per share of our
common stock after this offering. As of September 30, 2015, our net tangible
book value was $(159,383), or less than $(0.01) per share of common stock. Our
net tangible book value per share is equal to total assets less intangible
assets and total liabilities, divided by the number of shares of our outstanding
common stock.
Net tangible book value dilution per share represents the
difference between the amount per share of common stock paid by the new
investors who purchase securities in this offering and the pro forma net
tangible book value per share in common stock immediately after completion of
this offering, assuming no value is attributed to the warrants. After giving
effect to our sale of up to 9,000,000 shares of common stock at an offering
price of $0.33 per share, and after deducting placement agent fees and expenses
and estimated offering expenses payable by us, our pro forma net tangible book
value as of September 30, 2015 would have been $2,710,617, or $0.02 per share.
This represents an immediate increase of net tangible book value of $0.03 per
share to our existing stockholders and an immediate dilution in net tangible
book value of $0.31 per share to purchasers of securities in this offering. The
following table illustrates this per share dilution:
14
Offering price per
share |
$ |
0.33 |
|
|
|
|
|
Net tangible book value per
share as of September 30, 2015 |
$ |
(0.01 |
)
|
|
|
|
|
Increase in net tangible book
value per share attributable to this offering |
$ |
0.03 |
|
|
|
|
|
Pro forma net tangible book
value per share after this offering |
$ |
0.02 |
|
|
|
|
|
Dilution in net tangible book
value per share to new investors |
$ |
0.31 |
|
The above discussion and table do not include the following:
|
|
4,657,040 shares of common stock issuable upon the exercise
of outstanding stock options; |
|
|
|
|
|
488,116 shares of common stock issuable upon the exercise
of outstanding warrants; and |
|
|
|
|
|
Up to 4,500,000 shares of common stock issuable upon
exercise of warrants at an exercise price of $0.50 per share sold
as part of this offering. |
Plan of Distribution
We are offering up to 9,000,000 shares of our common stock and
warrants to purchase up to 4,500,000 shares of our common for an offering price
of $0.33 per combination of one share of common stock and one-half of a
warrant to purchase one share of common stock with an exercise price of
$0.50 per share, with aggregate gross proceeds of up to $2,970,000. The
common stock and warrants are immediately separable and will be issued
separately. This offering will terminate on May 6, 2016, unless the offering is
fully subscribed before that date or we decide to terminate the offering prior
to that date. The offering price for the common stock and warrants and the
exercise price of the warrants will remain fixed for the duration of the
offering.
This is a best-efforts, self-underwritten offering. There is no
requirement to sell any specific number or dollar amount of securities. Our
directors and officers will use their best efforts to sell the securities being
offered. No commission or other form of remuneration will be paid to our
directors and officers or any other party in connection with the sale of these
units. We will pay all expenses incurred in this offering.
We have not arranged to place the funds from this offering in
an escrow, trust, or similar account. Because there is no minimum offering
amount required as a condition to close this offering, we may not sell the
entire amount of the units being offered. All funds raised regardless of the
amount will be available to us. In the event that we do not raise sufficient
capital to implement our planned operations, your entire investment could be
lost.
We expect to enter into subscription agreements directly with
investors in connection with this offering, and we will only sell to investors
who have entered into such agreements with us.
Our officers and directors intend to rely on the exemption from
registration in reliance on Rule 3a4-1 of the Securities Exchange Act of 1934 in
connection with their participation in the offering. In that regard:
15
(1) |
None of the officers or directors is subject to a
statutory disqualification, as that terms is defined in Section 3(a)(39)
of the Securities Exchange Act of 1934, and it is not anticipated that any
will be subject to that statutory disqualification at the time of his
participation in the offering; |
|
|
(2) |
None of the officers or directors will be compensated in
connection with his participation in the offering by the payment of
commissions or other remunerations based either directly or indirectly on
transactions in securities; |
|
|
(3) |
None of the officers or directors is associated persons
of a broker or dealer, and it is not anticipated that any will be such at
the time of his or her participation in the offering; and |
|
|
(4) |
Each of the officers and directors meets the following
conditions: |
|
(a) |
Each of the officers and directors primarily performs, or
is intended primarily to perform at the end of the offering, substantial
duties for or on behalf of the issuer otherwise than in connection with
transactions in securities; |
|
|
|
|
(b) |
None of the officers or directors was a broker or dealer,
or an associated person of a broker or dealer, within the 12 months
preceding the offering; and |
|
|
|
|
(c) |
None of the officers or directors has participated in
selling an offering of securities for any issuer more than once every
twelve months otherwise than as described in paragraph (a)(4)(i) or (iii)
of Rule 3a4-1. |
State Blue Sky Information
We intend to offer and sell the securities offered hereby to
institutional investors in certain states. However, we will not make any offer
of these securities in any jurisdiction where the offer is not permitted or
exempted.
Description of Securities
Capital Stock
The aggregate number of shares that we have the authority to
issue is 300,000,000, of which 200,000,000 shares are common stock, with a par
value of $0.001 per share, and 100,000,000 shares are preferred stock, with a
par value of $0.001 per share. 20,000,000 shares of our authorized preferred
stock are designated as Series A Preferred Stock, which have 10 votes per
share and are not convertible into shares of our common stock. 1,000 shares of
our authorized preferred stock are designated as 10% Series B Convertible
Preferred Stock, which have a stated value of $1,000 per share and have
liquidation preferences, dividend rights, redemption rights and conversion
rights.
As of February 5, 2016, there were 5,719,039 shares of our
common stock issued and outstanding, 20,000,000 shares of Series A Preferred
Stock issued and outstanding and no shares of 10% Series B Convertible Preferred
Stock issued and outstanding.
Common Stock
Our common stock is entitled to one vote per share on all
matters submitted to a vote of our stockholders, including the election of
directors. Except as otherwise provided by law or as provided in any resolution
adopted by our board of directors providing for the issuance of any series of
preferred stock, the holders of our common stock possess all voting power. There
is no cumulative voting in the election of directors. Stockholders holding at
least 10% of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, will constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the articles of incorporation. When a quorum is
present or represented at any meeting, the vote of the stockholders of a
majority of the stock having voting power present in person or represented by
proxy will be sufficient to elect members of our board of directors or to decide
any question brought before such meeting, unless the question is one upon which
by express provision of statute or of the articles of incorporation, a different
vote is required in which case such express provision will govern and control
the decision of such question. Except as otherwise required by law, any action
required to be taken at a meeting of our stockholders, or any other action which may be taken at a meeting of our stockholders, may be
taken without a meeting, without prior notice and without a vote if written
consents are signed by our stockholders representing a majority of the shares
entitled to vote at such a meeting.
16
Our board of directors has the power to amend our bylaws. As a
result, our board of directors can change the quorum and voting requirements at
a meeting of our stockholders, subject to the applicable laws.
Subject to any preferential rights of any outstanding series of
preferred stock created by our board of directors from time to time, the holders
of our common stock are entitled to receive, when, as and if declared by our
board of directors, out of funds legally available therefore, dividends payable
in cash, stock or otherwise. Our board of directors is not obligated to declare
a dividend. Any future dividends will be subject to the discretion of our board
of directors and will depend upon, among other things, future earnings, the
operating and financial condition of our company, its capital requirements,
general business conditions and other pertinent factors. It is not anticipated
that dividends will be paid in the foreseeable future.
Upon any liquidation of our company, and after holders of any
outstanding series of preferred stock have been paid in full the amounts to
which they respectively are entitled or a sum sufficient for such payment in
full has been set aside, the remaining net assets of our company are to be
distributed pro rata to the holders of our common stock, to the exclusion of
holders of our preferred stock.
Our common stock is not convertible or redeemable and has no
preemptive, subscription or conversion rights. There are no conversions,
redemption, sinking fund or similar provisions regarding our common stock.
Preferred Stock
Our preferred stock may be divided into and issued in series.
Our board of directors is authorized to divide the authorized shares of
preferred stock into one or more series, each of which will be so designated as
to distinguish the shares thereof from the shares of all other series and
classes. Our board of directors is authorized to fix and determine the
designations, rights, qualifications, preferences, limitations and terms of the
shares of any series of preferred stock including but not limited to the
following.
|
(a) |
The rate of dividend, the time of payment of dividends,
whether dividends are cumulative, and the date from which any dividends
will accrue; |
|
(b) |
Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption; |
|
(c) |
The amount payable upon shares in the event of voluntary
or involuntary liquidation; |
|
(d) |
Sinking fund or other provisions, if any, for the
redemption or purchase of shares; |
|
(e) |
The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion; |
|
(f) |
Voting powers, if any, provided that if any of the
preferred stock or series thereof will have voting rights, such preferred
stock or series will vote only on a share for share basis with the common
stock on any matter, including but not limited to the election of
directors, for which such preferred stock or series has such rights;
and |
|
(g) |
Subject to the foregoing, such other terms,
qualifications, privileges, limitations, options, restrictions, and
special or relative rights and preferences, if any, of shares or such
series as our board of directors may, at the time so acting, lawfully fix
and determine under the laws of the State of
Nevada. |
We must not declare, pay or set apart for payment any dividend
or other distribution (unless payable solely in shares of common stock or other
class of stock junior to the preferred stock as to dividends or upon
liquidation) in respect of common stock, or other class of stock junior to the
preferred stock, nor must we redeem, purchase or otherwise acquire for
consideration shares of any of the foregoing, unless dividends, if any, payable
to holders of preferred stock for the current period (and in the case of
cumulative dividends, if any, payable to holders of preferred stock for the
current period and in the case of cumulative dividends, if any, for all past
periods) have been paid, are being paid or have been set aside for payment, in
accordance with the terms of the preferred stock, as fixed by our board of
directors.
17
In the event of the liquidation of our company, holders of
preferred stock are entitled to receive, before any payment or distribution on
the common stock or any other class of stock junior to the preferred stock upon
liquidation, a distribution per share in the amount of the liquidation
preference, if any, fixed or determined in accordance with the terms of such
preferred stock plus, if so provided in such terms, an amount per share equal to
accumulated and unpaid dividends in respect of such preferred stock (whether or
not earned or declared) to the date of such distribution. Neither the sale,
lease or exchange of all or substantially all of the property and assets of our
company, nor any consolidation or merger of our company, will be deemed to be a
liquidation for this purpose.
Series A Preferred Stock
20,000,000 shares of our authorized preferred stock are
designated as Series A Preferred Stock. Except with respect to matters which
adversely affect the holders of Series A Preferred Stock, as required by law, or
as required by the articles of incorporation, the holders of Series A Preferred
and the holders of common stock of our company, are entitled to notice of any
stockholders' meeting and to vote as a single class upon any matter submitted to
the stockholders for a vote, on the following basis: (a) holders of common stock
will have one vote per share of common stock held by them; and holders of Series
A Preferred Stock will have 10 votes per share of Series A Preferred Stock.
Shares of Series A Preferred Stock are not convertible into shares of our common
stock.
10% Series B Convertible Preferred Stock
1,000 shares of our authorized preferred stock are designated
as 10% Series B Convertible Preferred Stock, which have a stated value of
$1,000 per share.
Warrants Being Issued in This Offering
We are offering warrants to purchase up to 4,500,000 shares of
our common stock to purchasers in this offering. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of
$0.50 per share. The warrants are exercisable immediately upon issuance
and have an exercise term equal to two years.
The warrants provide for the adjustment of the exercise price
and number of shares issuable upon exercise of the warrants in connection with
stock dividends and splits, such that if and whenever the shares at any time
outstanding are subdivided into a greater or consolidated into a lesser number
of shares, the exercise price will be decreased or increased proportionately as
the case may be and the number of shares issuable upon exercise of the warrants
will be increased or decreased proportionately as the case may be.
In case of any capital reorganization or of any
reclassification of the capital of our company or in the case of the
consolidation, merger or amalgamation of our company with or into any other
company, each warrant will after such event confer the right to purchase the
number of shares or other securities of our company (or of the company resulting
from such event) which the warrant holder would have been entitled to if the
warrant holder had been a stockholder at the time of such event.
A warrant holder may not exercise the warrants if the number of
shares of our common stock to be issued pursuant to such exercise would exceed,
when aggregated with all other shares owned by such warrant holder at such time,
the number of shares of our common stock which would result in such warrant
holder beneficially owning (as determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934 in excess of 4.99% or 9.99% of all of the
shares of our common stock outstanding at such time; provided, however, that
upon such warrant holder providing us with 61 days notice that such warrant
holder would like to waive this exercise restriction, this exercise restriction
will not apply to all or a portion of the warrants as requested by the warrant
holder; provided, further, that this exercise restriction will not apply during
61 days immediately preceding the expiration of the term of the warrants.
Anti-Takeover Provisions
Some features of the Nevada Revised Statutes, which are further
described below, may have the effect of deterring third parties from making
takeover bids for control of our company or may be used to hinder or delay a
takeover bid.
18
This would decrease the chance that our stockholders would
realize a premium over market price for their shares of common stock as a result
of a takeover bid.
Combination with Interested Stockholder
The Nevada Revised Statutes contain provisions governing
combination of a Nevada corporation that has 200 or more stockholders of record
with an interested stockholder. As of February 5, 2016, we had approximately 43
stockholders of record. Therefore, we believe that these provisions governing
combination of a Nevada corporation do not apply to us and will not until such
time as these requirements have been met. At such time as they may apply to us,
these provisions may also have effect of delaying or making it more difficult to
effect a change in control of our company.
A corporation affected by these provisions may not engage in a
combination within three years after the interested stockholder acquires his,
her or its shares unless the combination or purchase is approved by the board of
directors before the interested stockholder acquired such shares. Generally, if
approval is not obtained, then after the expiration of the three-year period,
the business combination may be consummated with the approval of the board of
directors before the person became an interested stockholder or a majority of
the voting power held by disinterested stockholders, or if the consideration to
be received per share by disinterested stockholders is at least equal to the
highest of:
|
|
the highest price per share paid by the
interested stockholder within the three years immediately preceding the
date of the announcement of the combination or within three years
immediately before, or in, the transaction in which he, she or it became
an interested stockholder, whichever is higher; |
|
|
|
|
|
the market value per share on the date of
announcement of the combination or the date the person became an
interested stockholder, whichever is higher; or |
|
|
|
|
|
if higher for the holders of preferred stock,
the highest liquidation value of the preferred stock, if any.
|
Generally, these provisions define an interested stockholder as
a person who is the beneficial owner, directly or indirectly of 10% or more of
the voting power of the outstanding voting shares of a corporation. Generally,
these provisions define combination to include any merger or consolidation with
an interested stockholder, or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions
with an interested stockholder of assets of the corporation having:
|
|
an aggregate market value equal to 5% or more
of the aggregate market value of the assets of the corporation; |
|
|
|
|
|
an aggregate market value equal to 5% or more
of the aggregate market value of all outstanding shares of the
corporation; or |
|
|
|
|
|
representing 10% or more of the earning power
or net income of the corporation. |
Articles of Incorporation and Bylaws
There are no provisions in our articles of incorporation or our
bylaws that would delay, defer or prevent a change in control of our company and
that would operate only with respect to an extraordinary corporate transaction
involving our company, such as merger, reorganization, tender offer, sale or
transfer of substantially all of its assets, or liquidation.
Experts and Counsel
The financial statements of our company included in this
prospectus have been audited by Seale and Beers, CPAs, to the extent and for the
period set forth in their report (which contains an explanatory paragraph
regarding our ability to continue as a going concern) appearing elsewhere in the
prospectus, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
19
Clark Wilson LLP has provided us with an opinion on the
validity of the shares of our common stock being offered pursuant to this
prospectus.
Interest of Named Experts and Counsel
No expert named in the registration statement of which this
prospectus forms a part as having prepared or certified any part thereof (or is
named as having prepared or certified a report or valuation for use in
connection with such registration statement) or counsel named in this prospectus
as having given an opinion upon the validity of the securities being offered
pursuant to this prospectus or upon other legal matters in connection with the
registration or offering such securities was employed for such purpose on a
contingency basis. Also at the time of such preparation, certification or
opinion or at any time thereafter, through the date of effectiveness of such
registration statement or that part of such registration statement to which such
preparation, certification or opinion relates, no such person had, or is to
receive, in connection with the offering, a substantial interest, direct or
indirect, in our company or any of its parents or subsidiaries. Nor was any such
person connected with our company or any of its parents or subsidiaries as a
promoter, managing or principal underwriter, voting trustee, director, officer
or employee.
Information with respect to Our Company
Description of
Business
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.
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.
20
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.
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. At the time, the Series A Preferred Stock had 10 votes per
share. The Series A Preferred Stock 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.
On December 30, 2015, we effected a 50-for-1 reverse stock
split of our authorized and issued and outstanding shares of common stock. As a
result of the reverse stock split, the number of authorized shares of common
stock of our company decreased from 1,125,000,000 to 22,500,000 and the number
of issued and outstanding shares of common stock of our company decreased
correspondingly. As a result of the reverse stock split, holders of our Series A
Preferred Stock had 0.2 votes per share of Series A Preferred Stock.
On January 21, 2016, we amended our Articles of Incorporation
to increase the number of authorized shares of our common stock from 22,500,000
to 200,000,000 by filing a Certificate of Amendment to Articles of Incorporation
with the Secretary of State of the State of Nevada. As a result, the aggregate
number of shares that we have the authority to issue is 300,000,000, of which
200,000,000 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 January 22, 2016, we amended the Certificate of Designation
for our Series A Preferred Stock by filing an Amendment to Certificate of
Designation with the Secretary of State of the State of Nevada. We amended the
Certificate of Designation for our Series A Preferred Stock by deleting Section
2.2 of the certificate of designation, which proportionately increases or
decreases the number of votes per share of Series A Preferred Stock in the event
of any divided or other distribution on our common stock payable in our common
stock or a subdivision or consolidation of the outstanding shares of our common
stock. Accordingly, holders of Series A Preferred Stock now have 10 votes per
share of Series A Preferred Stock, instead of 0.2 votes per share of Series A
Preferred Stock.
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 and Director,
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., Van Plastics Inc., Amcor Inc. and Cactus
Containers.
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 20,000 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.
21
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
2016 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. |
|
|
|
|
|
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.
|
22
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 3 major customers that together account for 59% (31%,
18%, 10%, respectively) of accounts receivable at September 30, 2015, and 4
customers that together account for 58% (19% 15%, 14%, and 10%, respectively) of
the total revenues earned for the three months ended September 30, 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.
23
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.
24
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 and Director, 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 managements relationships with manufacturers, distillers,
development/research companies, bottling concerns, and certain retail customers
will provide the foundation through which we expect to grow our business in the
future. We believe that the skill-set of our management team will be a primary
asset in the development of our brands and trademarks. We also plan to form an
independent network of contract sales and regional managers, a promotional
support team, and several market segment specialists who will be paid on a
variable basis.
Description of Property
We do not own any real estate or other property used in the
operation of our current business. Our principal offices are located at 7730 E
Greenway Road Ste. 203, Scottsdale, AZ 85260 with the size of 3,500 square feet.
We have recently entered into a new leasing arrangement with rent arrangement
with 7730 E Greenway Properties, an unrelated third party, for $5,000 per month.
We believe that the condition of our principal offices is satisfactory, suitable
and adequate for our current needs.
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.
25
We know of no material proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material
interest adverse to our company or any of our subsidiaries.
Market Price of and Dividends on Our Common Equity
and
Related Stockholder Matters
Market information
Our common stock is quoted on the OTC 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.
Quarter Ended |
|
High Bid |
|
|
Low Bid |
|
|
|
|
|
|
|
|
September 30, 2015 |
$ |
9.00 |
|
$ |
4.45 |
|
|
|
|
|
|
|
|
June 30, 2015 |
$ |
7.75 |
|
$ |
3.40 |
|
|
|
|
|
|
|
|
March 31, 2015 |
$ |
7.50 |
|
$ |
3.00 |
|
|
|
|
|
|
|
|
December 31, 2014 |
$ |
5.75 |
|
$ |
2.15 |
|
|
|
|
|
|
|
|
September 30, 2014 |
$ |
11.35 |
|
$ |
4.60 |
|
|
|
|
|
|
|
|
June 30, 2014 |
$ |
21.90 |
|
$ |
5.00 |
|
|
|
|
|
|
|
|
March 31, 2014 |
$ |
15.00 |
|
$ |
7.50 |
|
|
|
|
|
|
|
|
December 31, 2013 |
$ |
35.00 |
|
$ |
12.50 |
|
|
|
|
|
|
|
|
September 30, 2013 |
$ |
65.25 |
|
$ |
17.50 |
|
|
|
|
|
|
|
|
June 30, 2013 |
$ |
0 |
|
$ |
0 |
|
On February 5, 2016, the closing price of our common stock as
reported by the OTCQB was $0.85 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 February 5, 2016, there were approximately 43 holders of
record of our common stock. As of such date, 5,719,039 shares were issued and
outstanding.
26
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
stockholders who have preferential rights superior to those receiving the
distribution. |
27
Financial Statements
Financial Statements For the Years Ended March 31, 2015
and 2014 |
|
Report of Independent Registered Public Accounting firm
|
|
Consolidated Balance Sheets |
|
Consolidated Statement of Operations |
|
Consolidated Statement of Stockholders Equity (Deficit)
|
|
Consolidated Statements of Cash Flows |
|
Notes to Consolidated Financial Statements |
|
Financial Statements for the Three and Six Month Periods
Ended September 30, 2015 and 2014 |
|
Condensed Consolidated Balance Sheets |
|
Condensed Consolidated Statements of Operations |
|
Condensed Consolidated Statements of Cash Flows |
|
Notes to Condensed Consolidated Financial Statements
|
28
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
F-1
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
THE ALKALINE WATER COMPANY INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited) |
|
|
|
|
|
|
September 30, 2015 |
|
|
March 31, 2015 |
|
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
38,695 |
|
$ |
90,113 |
|
Accounts receivable |
|
664,554 |
|
|
416,373 |
|
Inventory |
|
257,428 |
|
|
193,355 |
|
Prepaid expenses |
|
2,500 |
|
|
17,500 |
|
|
|
|
|
|
|
|
Total current assets |
|
963,177 |
|
|
717,341 |
|
|
|
|
|
|
|
|
Fixed assets - net |
|
1,060,621 |
|
|
1,199,900 |
|
Equipment deposits - related party |
|
139,997 |
|
|
- |
|
|
|
|
|
|
|
|
Total assets |
$ |
2,163,795 |
|
$ |
1,917,241 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
Accounts payable |
$ |
903,008 |
|
$ |
562,499 |
|
Accounts payable - related
parties |
|
- |
|
|
43,036 |
|
Accrued expenses |
|
192,228 |
|
|
160,437 |
|
Revolving financing |
|
256,769 |
|
|
242,875 |
|
Current portion of
capital leases |
|
276,162 |
|
|
209,544 |
|
Note payable, net of debt
discount |
|
197,333 |
|
|
- |
|
Note payable with
original issue discount, net of debt discount |
|
90,750 |
|
|
- |
|
Convertible notes payable, net of
debt discount |
|
50,000 |
|
|
- |
|
Derivative
liability |
|
237,602 |
|
|
194,940 |
|
|
|
|
|
|
|
|
Total current
liabilities |
|
2,203,852 |
|
|
1,413,331 |
|
|
|
|
|
|
|
|
Long-term Liabilities |
|
|
|
|
|
|
Capitalized leases |
|
119,326 |
|
|
233,770 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
119,326 |
|
|
233,770 |
|
|
|
|
|
|
|
|
Total liabilities |
$ |
2,323,178 |
|
$ |
1,647,101 |
|
|
|
|
|
|
|
|
Stockholders'
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,
149,054,625 and 81,602,175 shares issued and outstanding at |
|
149,055 |
|
|
124,496 |
|
September 30, 2015
and March 31, 2015, respectively |
|
|
|
|
|
|
Additional paid in capital |
|
13,908,219 |
|
|
11,777,994 |
|
Common stock
issuable |
|
(35,000 |
) |
|
- |
|
Accumulated deficit |
|
(14,201,657 |
) |
|
(11,652,350 |
) |
|
|
|
|
|
|
|
Total stockholders' deficit |
|
(159,383 |
) |
|
270,140 |
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' deficit |
$ |
2,163,795 |
|
$ |
1,917,241 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-27
THE ALKALINE WATER COMPANY INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
1,719,268 |
|
$ |
1,022,823 |
|
$ |
3,232,846 |
|
$ |
1,594,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
1,105,522 |
|
|
648,818 |
|
|
2,082,326 |
|
|
1,054,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
613,746 |
|
|
374,005 |
|
|
1,150,520 |
|
|
539,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing expenses |
|
768,055 |
|
|
415,973 |
|
|
1,394,736 |
|
|
642,753 |
|
General and administrative |
|
736,922 |
|
|
2,284,084 |
|
|
1,888,462 |
|
|
4,422,837 |
|
Depreciation |
|
71,100 |
|
|
41,534 |
|
|
142,129 |
|
|
58,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
1,576,077 |
|
|
2,741,591 |
|
|
3,425,327 |
|
|
5,123,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
(962,331 |
) |
|
(2,367,586 |
) |
|
(2,274,807 |
) |
|
(4,583,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
10 |
|
|
- |
|
|
10 |
|
|
- |
|
Interest expense |
|
(11,875 |
) |
|
(9,803 |
) |
|
(15,000 |
) |
|
(12,326 |
) |
Interest expense on capital lease |
|
(51,300 |
) |
|
- |
|
|
(103,866 |
) |
|
(40,383 |
) |
Fees paid on
credit line |
|
(13,183 |
) |
|
(11,485 |
) |
|
(24,899 |
) |
|
(18,542 |
) |
Amortization of debt discount and accretion |
|
(81,500 |
) |
|
- |
|
|
(88,083 |
) |
|
(414,370 |
) |
Other expenses |
|
- |
|
|
6 |
|
|
- |
|
|
(5 |
) |
Loss on sale leaseback |
|
- |
|
|
20,773 |
|
|
- |
|
|
- |
|
Change in
derivative liability |
|
125,502 |
|
|
91,034 |
|
|
(42,662 |
) |
|
355,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
(expense) |
|
(32,346 |
) |
|
90,525 |
|
|
(274,500 |
) |
|
(130,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(994,677 |
) |
$ |
(2,277,061 |
) |
$ |
(2,549,307 |
) |
$ |
(4,714,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE (Basic) |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
$ |
(0.02 |
) |
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING (Basic) |
|
144,990,669 |
|
|
107,731,694 |
|
|
138,438,468 |
|
|
100,877,507 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-28
THE ALKALINE WATER COMPANY INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Six Months Ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net loss |
$ |
(2,549,307 |
) |
$ |
(4,714,269 |
) |
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in
operating |
|
|
|
|
|
|
Depreciation expense |
|
142,129 |
|
|
58,068 |
|
Stock compensation expense |
|
918,584 |
|
|
3,014,306 |
|
Amortization of debt discount and accretion |
|
88,083 |
|
|
414,370 |
|
Interest expense relating to
amortization of capital lease discount |
|
51,277 |
|
|
- |
|
Change in derivative liabilities |
|
42,662 |
|
|
(355,086 |
) |
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
(248,181 |
) |
|
(286,271 |
) |
Inventory |
|
(64,073 |
) |
|
(385,241 |
) |
Prepaid expenses and other current
assets |
|
15,000 |
|
|
(18,304 |
) |
Accounts payable |
|
340,509 |
|
|
291,176 |
|
Accounts payable - related party |
|
(43,036 |
) |
|
(18,403 |
) |
Accrued expenses |
|
31,791 |
|
|
(5,679 |
) |
Accrued interest |
|
- |
|
|
(17,429 |
) |
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
(1,274,562 |
) |
|
(2,022,762 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Purchase of fixed assets |
|
(2,850 |
) |
|
(317,673 |
) |
Proceeds from sale lease-back |
|
- |
|
|
208,773 |
|
Equipment deposits - related party |
|
(139,997 |
) |
|
(668,772 |
) |
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES |
|
(142,847 |
) |
|
(777,672 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
|
|
Proceeds from notes payable |
|
430,000 |
|
|
- |
|
Proceeds from convertible note payable |
|
275,000 |
|
|
- |
|
Proceeds from revolving financing |
|
13,894 |
|
|
229,643 |
|
Proceeds from sale of common stock, net |
|
746,200 |
|
|
2,361,999 |
|
Proceeds for the exercise of warrants, net |
|
- |
|
|
874,650 |
|
Repayment of capital lease |
|
(99,103 |
) |
|
(20,870 |
) |
Repayment of redeemable preferred shares |
|
- |
|
|
(247,170 |
) |
|
|
|
|
|
|
|
CASH PROVIDED BY FINANCING ACTIVITIES |
|
1,365,991 |
|
|
3,198,252 |
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
(51,418 |
) |
|
397,818 |
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
|
90,113 |
|
|
2,665 |
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
$ |
38,695 |
|
$ |
400,483 |
|
|
|
|
|
|
|
|
INTEREST PAID |
$ |
67,362 |
|
$ |
- |
|
|
|
|
|
|
|
|
Preferred stock conversion to common stock |
|
- |
|
|
252,830 |
|
Deferred discount on conversion of preferred stock |
|
- |
|
|
56,098 |
|
Fair
value of derivative liability at issuance of warrants |
|
- |
|
|
389,710 |
|
Fair value of derivative liability at exercise of warrants |
|
- |
|
|
150,566 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-29
THE ALKALINE WATER COMPANY INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim condensed consolidated financial statements
included herein, presented in accordance with United States generally accepted
accounting principles and stated in U.S. dollars, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management, are necessary for
fair presentation of the information contained therein. It is suggested that
these condensed interim consolidated financial statements be read in conjunction
with the financial statements of the Company on Form 10-K for the period ended
March 31, 2015 as filed on July 14, 2015. The Company follows the same
accounting policies in the preparation of interim reports. Results of operations
for the interim period are not indicative of annual results.
Principles of Consolidation
For the period from June 19, 2012 to September 30, 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
December 31, 2013 the consolidated financial statements include the accounts of
The Alkaline Water Company Inc. (a Nevada Corporation), Alkaline Water Corp. (an
Arizona Corporation) and Alkaline 84, LLC (an Arizona Limited Liability
Company).
All significant intercompany balances and transactions have
been eliminated. The Alkaline Water Company Inc. (a Nevada Corporation),
Alkaline Water Corp. (an Arizona Corporation) and Alkaline 88, LLC (an Arizona
Limited Liability Company) will be collectively referred herein to as the
Company. Any reference herein to The Alkaline Water Company Inc., the
Company, we, our or us is intended to mean The Alkaline Water Company
Inc., including the subsidiaries indicated above, unless otherwise indicated.
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. We had $38,695 and
$90,113 in cash and cash equivalents at September 30, 2015 and March 31, 2015,
respectively.
Accounts Receivable and Allowance for Doubtful Accounts
The Company generally does not require collateral, and the
majority of its trade receivables are unsecured. The carrying amount for
accounts receivable approximates fair value. Accounts receivable consisted of
the following as of September 30, 2015 and March 31, 2015:
F-30
|
|
September 30, |
|
|
March 31, |
|
|
|
2015 |
|
|
2015 |
|
Trade receivables |
$ |
675,043 |
|
$ |
426,862 |
|
Less: Allowance for doubtful accounts |
|
(10,889 |
) |
|
(10,889 |
) |
Net accounts receivable |
$ |
664,554 |
|
$ |
416,373 |
|
Accounts receivable are periodically evaluated for
collectability based on past credit history with clients. Provisions for losses
on accounts receivable are determined on the basis of loss experience, known and
inherent risk in the account balance and current economic conditions.
Inventory
Inventory represents packaging items, empty bottles, finished
goods and other items valued at the lower of cost or market with cost determined
using the weight average method which approximates first-in first-out method,
and with market defined as the lower of replacement cost or realizable value. As
of September 30, 2015 and March 31, 2015 inventory consisted of the following:
|
|
September 30, |
|
|
March 31 , |
|
|
|
2015 |
|
|
2015 |
|
Raw materials |
$ |
219,825 |
|
$ |
145,329 |
|
Finished goods |
|
37,603 |
|
|
48,026 |
|
Total inventory |
$ |
257,428 |
|
$ |
193,355 |
|
Property and Equipment
The Company records all property and equipment at cost less
accumulated depreciation. Improvements are capitalized while repairs and
maintenance costs are expensed as incurred. Depreciation is calculated using the
straight-line method over the estimated useful life of the assets or the lease
term, whichever is shorter. Depreciation periods are as follows for the relevant
fixed assets:
Equipment |
5 years |
Equipment under capital lease |
3 years or term of the lease
|
Stock-based Compensation
The Company accounts for stock-based compensation to employees
in accordance with Accounting Standard Codification (ASC) 718. Stock-based
compensation to employees is measured at the grant date, based on the fair value
of the award, and is recognized as expense over the requisite employee service
period. The Company accounts for stock-based compensation to other than
employees in accordance with ASC 505-50. Equity instruments issued to other than
employees are valued at the earlier of a commitment date or upon completion of
the services, based on the fair value of the equity instruments and is
recognized as expense over the service period. The Company estimates the fair
value of stock-based payments using the Black-Scholes option-pricing model for
common stock options and warrants and the closing price of the Companys common
stock for common share issuances.
Revenue Recognition
We recognize 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. We do not accept returns due to the
nature of the product. However, we will provide credit to our customers for
damaged goods.
Fair Value Measurements
F-31
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 3 major customers that together account for 58%
(31%, 18%, 10%, respectively) of accounts receivable at September 30, 2015, and
4 customers that together account for 58% (19% 15%, 14%, and 10%, respectively)
of the total revenues earned for the three months ending September 30, 2015.
The Company has 4 vendors that accounted for 84% (29%, 20%,
19%, and 16%, respectively) of purchases for the three months ending September
30, 2015.
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.
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.
F-32
Reclassification
Certain accounts in the prior period were reclassified to
conform to the current period financial statements presentation.
Recent Pronouncements
During the six months ended September 30, there were several
new accounting pronouncements issued by the Financial Accounting Standards
Board. Each of these pronouncements, as applicable, has been or will be adopted
by the Company. Management does not believe the adoption of any of these
accounting pronouncements has had or will have a material impact on the
Companys condensed consolidated financial statements.
NOTE 2 GOING CONCERN
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the recoverability and/or acquisition and sale of assets and the satisfaction of
liabilities in the normal course of business. Since its inception, the Company
has been engaged substantially in financing activities, developing its business
plan and building its initial customer and distribution base for its products.
As a result, the Company incurred accumulated net losses from Inception (June
19, 2012) through the period ended September 30, 2015 of $(14,201,657). In
addition, the Companys development activities since inception have been
financially sustained through debt and equity financing.
The ability of the Company to continue as a going concern is
dependent upon its ability to raise additional capital from the sale of common
stock and, ultimately, the achievement of significant operating revenues. These
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might result from this uncertainty.
NOTE 3 PROPERTY AND EQUIPMENT
Fixed assets consisted of the following at:
|
|
September 30, |
|
|
March 31, |
|
|
|
2015 |
|
|
2015 |
|
Machinery and Equipment |
$ |
628,616 |
|
$ |
625,766 |
|
Machinery under Capital Lease |
|
735,781 |
|
|
735,781 |
|
Office Equipment |
|
53,631 |
|
|
53,631 |
|
Leasehold Improvements |
|
3,979 |
|
|
3,979 |
|
Less: Accumulated Depreciation |
|
(361,369 |
) |
|
(219,257 |
) |
Fixed Assets, net |
$ |
1,060,621 |
|
$ |
1,199,900 |
|
Depreciation expense for the six months ending September 30,
2015 and 2014 was $142,129 and $58,068, respectively.
NOTE 4 EQUIPMENT DEPOSITS RELATED PARTY
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 $274,769 and reduced the deposit on
equipment. During the six months ended September 30, 2015 the company made a net
deposit on equipment of $139,997 to Water Engineering Solutions
LLC. 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.
F-33
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. The amount borrowed on
this facility as of September 30, 2015 was $256,769 and as of March 31, 2015 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-34
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-35
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-36
During the period ended September 30, 2015 the Company issued
shares of stock at $0.07 which reduced the exercise price of the Existing
Warrants.
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at September 30,
2015 is as follows:
|
|
Warrants (including placement agent) |
|
Stock price |
$ |
0.098 |
|
Term (Years) |
|
4 to 5 |
|
Volatility |
|
126% |
|
Exercise prices |
$ |
0.55 to 0.07 |
|
Dividend yield |
|
0% |
|
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 March 31, 2015.
|
|
|
|
|
Fair Value Measurement at March 31, 2015 |
|
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
Value at |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Derivative warrant liability convertible preferred stock |
$ |
176,486 |
|
$ |
- |
|
$ |
- |
|
$ |
176,486 |
|
Derivative warrants liability on common
stock issuance including placement agent warrants |
$ |
18,454 |
|
$ |
- |
|
$ |
- |
|
$ |
18,454 |
|
Total derivative liability |
$ |
194,940 |
|
$ |
- |
|
$ |
- |
|
$ |
194,940 |
|
F-37
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 September 30, 2015.
|
|
|
|
|
Fair Value Measurement at September 30, 2015 |
|
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
Value at |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Derivative warrant liability convertible preferred stock |
$ |
215,327 |
|
$ |
- |
|
$ |
- |
|
$ |
215,327 |
|
Derivative warrants liability on common
stock issuance including placement agent warrants |
$ |
22,275 |
|
$ |
- |
|
$ |
- |
|
$ |
22,275 |
|
Total derivative liability |
$ |
237,602 |
|
$ |
- |
|
$ |
- |
|
$ |
237,602 |
|
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 September 30, 2015 the fair value of these warrant liabilities was
$237,602 and the conversion feature liability was $0. Changes in the derivative
liability for the period ended September 30, 2015 consist of:
|
|
Six Months |
|
|
|
Ended |
|
|
|
September 30, 2015 |
|
Derivative liability at March 31, 2015 |
$ |
194,940
|
|
Change in derivative liability mark to market |
|
42,662 |
|
Derivative liability at September 30, 2015
|
$ |
237,602 |
|
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 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.
F-38
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.
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
During the period from May 7, 2015 through September 30, 2015
the Company sold units of our securities at a price of $0.07 per unit. Each unit
consists of one share of our common stock and one non-transferable common stock
purchase warrant, with each common stock purchase warrant entitling the holder
to acquire one additional share of our common stock at a price of $0.10 per
share for a period of two years. The Company sold 11,160,002 units during the
period ended September 30, 2015 consisting of 11,160,002 shares of common stock
and 11,160,002 warrants for gross proceeds of $781,200.
The evaluated these transaction using ASC 480-10
Distinguishing liabilities from equity and ASC 505 -10 Equity.
The Company sold 11,160,002 units and issued 11,160,002 shares of common stock
and issued 11,160,002 warrants. The warrants were valued using the Black-Scholes
option pricing model with the following assumptions:
F-39
Market value of stock on purchase date |
$0.075 |
to |
$0.142 |
Risk-free interest rate |
26% |
to |
1.42% |
Dividend yield |
|
0.00% |
|
Volatility factor |
116% |
to |
161% |
Weighted average expected life (years) |
|
2 |
|
The proceeds were allocated as follows:
Common stock |
$ |
414,036
|
|
Warrant |
|
367,164 |
|
Total proceeds |
$ |
781,200 |
|
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 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.
Common Stock Issued for Services
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 Companys 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 Companys 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.
F-40
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.
On February 18, 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.
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 $0.070 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 $0.080 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 $0.080 per share.
On May 6, 2015, the Company issued 300,000 restricted common
shares to consultant for services rendered that were valued at the market value
on that date of $0.097 per share.
On June 15, 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 $0.094 per share.
On August 25, 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 $0.109 per share.
On August 27, 2015 the Company issued 300,000 restricted common
shares to consultant for services rendered that were valued at the market value
on that date of $0.101 per share.
On August 28, 2015 the Company issued 200,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $0.100 per share.
September 30, 2015 the Company issued 500,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $0.098 per share.
Common Stock Issued in Conjunction with Notes
On May 22, 2015, the Company issued 1,000,000 restricted common
shares in conjunction with a $250,000 note payable that were valued at the
market value on that date of $0.079 per share.
On August, 20, 2015, the Company issued 1,000,000 restricted
common shares in conjunction with a $240,000 note payable that were valued at
the market value on that date of $0.115 per share.
F-41
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.
For the six months ended September 30, 2015 and September 30,
2014 the Company has recognized compensation expense of $892,760 and $2,198,838
respectively, on the stock options granted that vested. The fair value of the
unvested shares is $12,192 as of September 30, 2015. The aggregate intrinsic
value of these options was $0 at September 30, 2015. Stock option activity
summary covering options is presented in the table below:
F-42
|
|
|
|
|
|
|
|
|
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 |
|
|
Granted |
|
- |
|
|
- |
|
|
- |
|
|
Exercised |
|
- |
|
|
- |
|
|
- |
|
|
Expired/Forfeited |
|
- |
|
$ |
- |
|
|
- |
|
|
Outstanding at September 30, 2015 |
|
17,170,000 |
|
|
0.14 |
|
|
7.7 |
|
|
|
|
17,170,000 |
|
|
|
|
|
|
|
|
Exercisable at September 30, 2015 |
|
|
|
$ |
0.14 |
|
|
8.5 |
|
Warrants
The following is a summary of the status of all of our warrants
as of September 30, 2015 and changes during the period 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 |
|
Granted |
|
15,260,014 |
|
|
0.10 |
|
Exercised |
|
(1,348,797 |
)- |
|
- |
|
Cancelled or Expired |
|
(3,173,568 |
)- |
|
- |
|
Outstanding at September 30, 2015 |
|
33,768,061 |
|
|
0.11 |
|
Warrants exercisable at September 30, 2015 |
|
32,051,321 |
|
$ |
0.11 |
|
The following table summarizes information about stock warrants
outstanding and exercisable at September 30, 2015:
|
STOCK WARRANTS OUTSTANDING AND EXERCISABLE |
|
|
Weighted- |
|
|
Average |
|
Number of |
Remaining |
|
Warrants |
Contractual |
Exercise Price |
Outstanding |
Life in Years |
$0.1000 |
20,360,014 |
2 |
$ 0.12500 |
12,332,472 |
3.5 |
$ 0.1875 |
953,333 |
3.5 |
|
|
|
$ 0.5500 |
116,279 |
3.3 |
$ 0.6000 |
5,963 |
3.3 |
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-43
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.
On June 29, 2015 the Company entered into a $50,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 714,286 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $50,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $12,500 was amortized.
F-44
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 7, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 13, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 17, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On September 28, 2015 the Company entered into a $75,000
Convertible promissory note was convertible into Common stock at $0.07 per
share. The Convertible promissory note had an 15% annual interest rate, 7-month
term and rights to 1,600,000 warrants with a two year term an exercise price of
$0.10 per share and 500,000 shares of restricted stock The Company evaluated
this transaction under ASC 470-20 Debt with Conversion and Other Options and
determined that a discount of $75,000 was provided and will be amortized over
the 7 month term of the note. As of September 30, 2015 $0 was amortized. The
fair value of the warrants granted during the period ended September 30, 2015
was estimated at the date of agreement using the Black-Scholes option-pricing
model and a level 3 valuation measure, with the following assumptions:
|
Market value of stock on purchase date |
$0.075 |
to |
$0.142 |
|
Risk-free interest rate |
26% |
to |
1.42% |
|
Dividend yield |
|
0.00% |
|
|
Volatility factor |
116% |
to |
161% |
|
Weighted average expected life (years) |
|
2 |
|
F-45
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.
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.
F-46
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. During the six months ended September 30, 2015 the company made a net
deposit on equipment of $139,997 to Water Engineering Solutions. Water
Engineering Solutions, LLC is an entity that is controlled and majority owned by
Steven P. Nickolas and Richard A. Wright for the production of our alkaline
water.
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, 2014, 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 September
30, 2015, the Company has no unrecognized uncertain tax positions, including
interest and penalties.
NOTE 12 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.
F-47
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.
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.
F-48
NOTE 13 NOTES PAYABLE
On May 11, 2015, the Company entered into a securities purchase
agreement with Assurance Funding Solutions LLC, pursuant to which the Company
issued a secured term note of our company in the aggregate principal amount of
$250,000, together with 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 Company evaluated this transaction under ASC 470-20-30
Debt liability and equity component determine that a Debt Discount of
$79,000 was provided and will be amortized over the 1 year term of the note. As
of September 30, 2015 $52,667 was unamortized and amortization of debt discount
for the six months period was $26,333.
On August 19, 2015, the Company entered into a securities
purchase agreement pursuant to which the Company issued a secured term note of
our company in the aggregate principal amount of $240,000, together with
1,000,000 shares of our common stock, in consideration for $200,000. The secured
term note bears requires months payments of $20,000 per month and final payment
is due on August 20, 2016.
F-49
NOTE 14 CONVERTIBLE NOTES PAYABLE
On June 29, 2015 the Company entered into a $50,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1-year term and
rights to 714,286 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 50,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $12,500 was amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250was amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 1, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 7, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 13, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1-year term of the note. As of September
30, 2015 $6,250 was amortized.
On July 17, 2015 the Company entered into a $25,000 Convertible
promissory note was convertible into Common stock at $0.07 per share. The
Convertible promissory note had an 8% annual interest rate, 1 year term and
rights to 357,143 warrants with a two year term an exercise price of $0.10 per
share. The Company evaluated this transaction under ASC 470-20 Debt with
Conversion and Other Options and determined that a discount of $ 25,000 was
provided and will be amortized over the 1 year term of the note. As of September
30, 2015 $6,250 was amortized.
On September 28, 2015 the Company entered into a $75,000
Convertible promissory note was convertible into Common stock at $0.07 per
share. The Convertible promissory note had an 15% annual interest rate, 7 month
term and rights to 1,600,000 warrants with a two year term an exercise price of
$0.10 per share and 500,000 shares of restricted stock The Company evaluated
this transaction under ASC 470-20 Debt with Conversion and Other Options and
determined that a discount of $ 75,000 was provided and will be amortized over
the 7 month term of the note. As of September 30, 2015 $0 was amortized.
NOTE 15 SUBSEQUENT EVENTS
Between October 1, 2015 through November 13, 2015, the Company
entered into $160,000 of convertible promissory notes that were convertible into
common stock at $0.07 per share. The convertible promissory notes had an 8%
annual interest rate, seven month term and rights to 2,285,715 warrants with a
two year term an exercise price of $0.07 per share.
F-50
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Our managements discussion and analysis provides a narrative
about our financial performance and condition that should be read in conjunction
with the audited and unaudited consolidated financial statements and related
notes thereto included in this prospectus. This discussion contains forward
looking statements reflecting our current expectations and estimates and
assumptions about events and trends that may affect our future operating results
or financial position. Our actual results and the timing of certain events could
differ materially from those discussed in these forward-looking statements due
to a number of factors, including, but not limited to, those set forth in the
sections of this prospectus titled Risk Factors beginning at page 6 above and
Forward-Looking Statements beginning at page 12 above.
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 September 30, 2015, we had an
accumulated deficit of $14,201,657. 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 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 prospectus and
eventually secure other sources of financing and attain profitable operations.
29
Results of Operations
Our results of operations for the three and six months ended
September 30, 2015 and September 30, 2014 are as follows:
|
|
For the three |
|
|
For the three |
|
|
For the six |
|
|
For the six |
|
|
|
months ended |
|
|
months ended |
|
|
months ended |
|
|
months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenue |
$ |
1,719,268
|
|
$ |
1,022,823
|
|
$ |
3,232,846
|
|
$ |
1,594,872
|
|
Cost of goods sold |
|
1,105,522 |
|
|
648,818 |
|
|
2,082,326 |
|
|
1,054,943 |
|
Gross profit |
|
613,746 |
|
|
374,005 |
|
|
1,150,520 |
|
|
539,929 |
|
Net loss (after operating expenses and other
expenses) |
$ |
(994,677 |
) |
$ |
(2,277,061 |
) |
$ |
(2,549,307 |
) |
$ |
(4,714,269 |
) |
Our results of operations for the years ended March 31, 2015
and March 31, 2014 are as follows:
|
|
For the year |
|
|
For the year |
|
|
|
ended |
|
|
ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
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 three months
ended September 30, 2015 of $1,719,268, as compared to $1,022,823 for the three
months ended September 30, 2014, an increase of 68%, generated by sales of our
alkaline water. We had revenue from sales of our product for the six months
ended September 30, 2015 of $3,232,846, as compared to $1,594,872 for the six
months ended September 30, 2014, an increase of 202%, generated by sales of our
alkaline water. 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 September 30, 2015, the product is now available in all
50 states at an estimated 20,000 retail locations. This increase has occurred
primarily through the addition of 37 of the top national grocery retailers as
customer. Our company distributes its product through several channels. Our
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. Our 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 three months ended September 30, 2015, we had cost
of goods sold of $1,105,522, or 64.3% of net sales, as compared to cost of goods
sold of $648,818 or 63.4% of net sales, for three months ended September 30,
2014. The increase in gross profit is a result of reduced raw material cost through greater volume
purchases from our suppliers. For the six months ended September 30, 2015, we
had cost of goods sold of $2,082,326, or 64.4% of net sales, as compared to cost
of goods sold of $1,054,943 or 66.1% of net sales, for the six months ended
September 30, 2014.
30
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 three and six months ended
September 30, 2015 and September 30, 2014 are as follows:
|
|
For the three |
|
|
For the three |
|
|
For the six |
|
|
For the six |
|
|
|
months ended |
|
|
months ended |
|
|
months ended |
|
|
months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Sales and marketing expenses
|
$ |
768,055
|
|
$ |
415,973
|
|
$ |
1,394,736
|
|
$ |
642,753
|
|
General and administrative expenses |
|
736,922 |
|
|
2,284,084 |
|
|
1,888,462 |
|
|
4,422,837 |
|
General and administrative
expenses related party |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Depreciation expenses |
|
71,100 |
|
|
41,534 |
|
|
142,129 |
|
|
58,068 |
|
Total operating expenses |
$ |
1,576,077 |
|
$ |
2,741,591 |
|
$ |
3,425,327 |
|
$ |
5,123,658 |
|
Our operating expenses for the years ended March 31, 2015 and
March 31, 2014 are as follows:
|
|
For the year |
|
|
For the year |
|
|
|
ended |
|
|
ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
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 |
|
For the three months ended September 30, 2015, our total
operating expenses were $1,576,077, as compared to $2,741,591 for the three
months ended September 30, 2014.
For the three months ended September 30, 2015, the total
included $768,055 of sales and marketing expenses and $736,922 of general and
administrative expenses, consisting primarily of approximately $262,800 of stock
option compensation expense, and $168,500 of professional fees. Our stock and
stock option compensation expense was incurred as a part of our issuance of
certain stock options and stock grants to employees and key consultants to
develop our business. Although a non-cash expense, the value of such issuances
had a material impact on our general and administrative expenses for the three
months ended September 30, 2015.
For the three months ended September 30, 2014 the total
included $415,973 of sales and marketing expenses and $2,284,084 of general and
administrative expenses, consisting primarily of approximately $991,961 of
shares stock option compensation expense, and $219,396 of professional fees. Our
stock and stock option compensation expense was incurred as a part of our issuance of certain stock options
and stock grants to employees and key consultants to develop our business.
Although a non-cash expense, the value of such issuances had a material impact
on our general and administrative expenses for the three months ended September
30, 2014.
31
For the six months ended September 30, 2015, our total
operating expenses were $3,425,327, as compared to $5,123,658 for the six months
ended September 30, 2014.
For the six months ended September 30, 2015, the total included
$1,394,736 of sales and marketing expenses and $1,888,462 of general and
administrative expenses, consisting primarily of approximately $892,760 of stock
option compensation expense, and $203,540 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 six
months ended September 30, 2015.
For the six months ended September 30, 2014 the total included
$642,753 of sales and marketing expenses and $4,422,837 of general and
administrative expenses, consisting primarily of approximately $2,198,838 of
shares stock option compensation expense, and $272,040 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 six months ended September 30, 2014.
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.
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 $464,081
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
Our working capital as of September 30, 2015, March 31, 2015
and March 31, 2014 was as follows:
|
|
September 30, 2015 |
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
Current assets |
$ |
963,177
|
|
$ |
717,341
|
|
$ |
281,322
|
|
Current liabilities |
|
2,203,852 |
|
|
1,413,331 |
|
|
836,323 |
|
Working capital (deficiency)
|
$ |
(1,240,675 |
)
|
$ |
(695,990 |
)
|
$ |
(555,001 |
)
|
32
Current Assets
Current assets as of September 30, 2015 primarily relate to
$38,695 in cash, $664,554 in accounts receivable and $257,428 in inventory.
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 September 30, 2015 primarily relate
to $903,008 in accounts payable, revolving financing of $256,769 and $237,602 in
derivative liability, notes payable of $338,083, current portion of capital
leases of $276,162 and accrued expenses of $192,228. Current liabilities as of
March 31, 2015 and March 31, 2014 primarily relate to $562,499 and $320,154 in
accounts payable, revolving financing of $242,875 and $83,348 and $194,940 and
$337,988 in derivative liability, respectively.
Cash Flow
Our cash flows for the six months ended September 30, 2015 and
2014 are as follows:
|
|
Six months ended |
|
|
Six months ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
Net cash used in operating
activities |
$ |
(1,274,562 |
)
|
$ |
(2,022,762 |
)
|
Net cash used in investing activities |
|
(142,847 |
) |
|
(777,672 |
) |
Net cash provided by
financing activities |
|
1,365,991 |
|
|
3,198,252 |
|
Net increase in cash and cash equivalents |
$ |
(51,418 |
) |
$ |
397,818 |
|
Our cash flows for the years ended March 31, 2015 and March 31,
2014 are as follows:
|
|
Year ended |
|
|
Year ended |
|
|
|
March 31, 2015 |
|
|
March 31, 2014 |
|
Net cash used in operating activities |
$ |
(3,152,781 |
) |
$ |
(1,390,980 |
) |
Net cash used in investing activities |
|
(352,169 |
) |
|
(276,310 |
) |
Net cash provided by financing activities |
|
3,592,398 |
|
|
1,605,348 |
|
Net increase in cash and cash equivalents |
$ |
87,448 |
|
$ |
(61,942 |
) |
Operating Activities
Net cash used in operating activities was $1,274,562 for the
six months ended September 30, 2015, as compared to $2,022,762 used in operating
activities for the six months ended September 30, 2014. The decrease in net cash
used in operating activities was primarily due to reduction in inventory build,
and better overall cash management.
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.
Investing Activities
Net cash used in investing activities was $142,847 for the six
months ended September 30, 2015, as compared to $777,672 used in investing
activities for the six months ended September 30, 2014. The decrease in net cash
used by investing activities was the result of no purchases of production
equipment during the six months ended September 30, 2015.
Net cash used in investing activities was $352,169 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.
33
Financing Activities
Net cash provided by financing activities for the six months
ended September 30, 2015 was $1,365,991, as compared to $3,198,252 for the six
months ended September 30, 2014. The decrease of net cash provided by financing
activities was mainly attributable to reduced sales of our common stock.
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.
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 $3,000,000 to
$5,000,000. We will require additional cash resources to, among other things,
increase manufacturing capacity, expand retail distribution and add support
staff. If our own financial resources and future 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
investors.
Changes in and Disagreements with Accountants
on
Accounting and Financial Disclosure
In connection with the closing of the share exchange agreement
with Alkaline Water Corp. on May 31, 2013, we changed our independent registered
public accounting firm from Sadler, Gibb & Associates to Seale and Beers,
CPAs. The appointment of Seale and Beers, CPAs was approved by our board of
directors.
Sadler, Gibb & Associates report on our financial
statements for the fiscal year ended August 31, 2012 and for the period from
inception on June 6, 2011 through August 31, 2011 did not contain an adverse
opinion or disclaimer of opinion, or qualification or modification as to
uncertainty, audit scope, or accounting principles, except that such report on
our financial statements contained an explanatory paragraph in respect to the
substantial doubt about our ability to continue as a going concern.
During the fiscal year ended August 31, 2012 and the period
from inception on June 6, 2011 through August 31, 2011 and in the subsequent
interim period through the date of resignation, there were no disagreements,
resolved or not, with Sadler, Gibb & Associates on any matter of accounting
principles or practices, financial statement disclosure, or audit scope and
procedures, which disagreement(s), if not resolved to the satisfaction of
Sadler, Gibb & Associates, would have caused Sadler, Gibb & Associates
to make reference to the subject matter of the disagreement(s) in connection
with its report.
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.
34
During the fiscal year ended August 31, 2012 and the period
from inception on June 6, 2011 through August 31, 2011 and in the subsequent
interim period through the date of appointment, we have not consulted with Seale
and Beers, CPAs regarding either the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, nor has Seale and
Beers, CPAs provided to us a written report or oral advice that Seale and Beers,
CPAs concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue. In addition, during
such periods, we have not consulted with Seale and Beers, CPAs regarding any
matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) and the related instructions) or a reportable event (as described
in Item 304(a)(1)(v) of Regulation S-K).
Directors and Executive Officers
Directors and Executive Officers
All directors of our company hold office until the next annual
meeting of our stockholders or until their successors have been elected and
qualified, or until their death, resignation or removal. The executive officers
of our company are appointed by our board of directors and hold office until
their death, resignation or removal from office.
Our directors and executive officers, their ages, positions
held, and duration of such, are as follows:
Name |
Position Held with Our
Company |
Age |
Date First
Elected or Appointed |
Steven P. Nickolas |
Chairman, President, Chief
Executive Officer and Director |
60 |
May 31, 2013 |
Richard A. Wright |
Vice-President, Secretary,
Treasurer and Director |
58 |
May 31, 2013
|
Business Experience
The following is a brief account of the education and business
experience of directors and executive officers during at least the past five
years, indicating their principal occupation during the period, and the name and
principal business of the organization by which they were employed:
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 Mens 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.
35
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.
Involvement in Certain Legal Proceedings
Except as disclosed below, 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; |
36
|
(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. |
In 2010 Steven P. Nickolas discovered, by way of a forensic
audit, that he had been paying the wrong bank for holding his principal home
mortgage. Mr. Nickolas initiated a lawsuit in the Federal Court, District of
Arizona, seeking to determine the appropriate lender holding the note on his
first mortgage. Litigation in this suit continued into 2014 at which time a
settlement was reached but no resolution occurred. Nationstar, a mortgage
servicing company began foreclosure proceedings once again putting Mr.
Nickolass prime residence in jeopardy. To force resolution of ownership and
upon advice from legal counsel, Mr. Nickolas filed a Chapter 13 bankruptcy
petition in the State of Arizona on July 22, 2015. Currently, the proceeding is
underway in the bankruptcy court continuing to attempt to identify the proper
lender and holder of the note on Mr. Nickolass home property.
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, |
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:
37
Summary Compensation Table Years ended March 31, 2015 and
2014
Name and
Principal Position |
Year |
Salary ($) |
Bonus
($) |
Stock
Awards ($) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings
($) |
All Other
Compensation ($) |
Total
($) |
Steven P. Nickolas President,
Chief Executive Officer,
Chairman and
Director(1) |
2015 2014 |
124,531 39,119 |
23,937 Nil |
Nil 10,000
|
1,092,090 1,112,868 |
Nil Nil |
Nil Nil |
24,054 21,291 |
1,264,612
1,183,278 |
Richard A. Wright Vice-
President, Secretary, Treasurer
and Director(2) |
2015 2014 |
118,024 24,948
|
23,937 Nil |
Nil 10,000 |
1,092,090 1,112,868 |
Nil Nil |
Nil Nil |
4,379 3,385 |
1,238,430
1,151,201
|
Notes
(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.
We have not entered into any written employment agreement or
consulting agreement with our directors or executive officers.
38
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. Effective as of
December 30, 2015, we effected a 50-for-1 reverse stock split of our authorized
and issued and outstanding shares of common stock which decreased the number of
shares of stock of our company available for the grant of awards under the plan
from 35,000,000 shares to 700,000 shares. Effective as of January 20, 2016, our
board of directors amended the plan to increase the number of shares of stock of
our company available for the grant of awards under the plan from 700,000 to
7,700,000. The plan enables us to grant awards of a maximum of 7,700,000 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 the 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 120,000 stock
options to Steven A. Nickolas and Richard A. Wright (60,000 stock options to
each). The stock options were exercisable at the exercise price of $30.25 per
share for a period of ten years from the date of grant. The stock options vested
as follows: (i) 20,000 upon the date of grant; and (ii) 10,000 per quarter until
fully vested. On October 31, 2014, we reduced the exercise price of these stock
options to $7.50 per share.
Effective May 12, 2014, we granted a total of 24,000 stock
options to Steven A. Nickolas and Richard A. Wright (12,000 stock options to
each). The stock options are exercisable at the exercise price of $8.25 per
share for a period of five years from the date of grant. 12,000 stock options
vested upon the date of grant.
Effective May 21, 2014, we granted a total of 120,000 stock
options to Steven A. Nickolas and Richard A. Wright (60,000 stock options to
each). The stock options are exercisable at the exercise price of $7.275 per
share for a period of ten years from the date of grant. 60,000 of these stock
options vested upon the date of grant and the other 60,000 stock options vested
on November 21, 2014.
Effective February 18, 2015, we granted a total of 32,000 stock
options to Steven A. Nickolas and Richard A. Wright (16,000 stock options each).
The stock options are exercisable at the exercise price of $5.75 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 $2,184,180 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
$1,092,090 each. The aggregate intrinsic value of these options was $0 at March
31, 2015.
Effective January 29, 2016, we granted a total of 3,000,000
stock options to Steven A. Nickolas and Richard A. Wright (1,500,000 stock
options each). The stock options are exercisable at the exercise price of $0.52
per share until October 7, 2023. All of these stock options vested effective
January 29, 2016.
Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide
retirement or similar benefits for our directors or executive officers.
39
Resignation, Retirement, Other Termination, or Change in
Control Arrangements
We have no contract, agreement, plan or arrangement, whether
written or unwritten, that provides for payments to our directors or executive
officers at, following, or in connection with the resignation, retirement or
other termination of our directors or executive officers, or a change in control
of our company or a change in our directors or executive officers
responsibilities following a change in control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer
certain information concerning the outstanding equity awards as of March 31,
2015:
|
Option awards |
Stock awards |
Name
|
Number of
securities underlying unexercised
options (#) exercisable |
Number of
securities underlying
unexercised options
(#) unexercisable |
Equity incentive
plan awards: Number of
securities underlying
unexercised unearned options
(#) |
Option
exercise price ($) |
Option
expiration date |
Number of
shares or units of stock that
have not vested (#)
|
Market value
of shares of units of
stock that have not
vested ($) |
Equity
incentive plan awards:
Number of unearned
shares, units or other
rights that have not
vested (#) |
Equity
incentive plan
awards: Market or
payout value of
unearned shares, units
or other rights that have not
vested ($) |
Steven P.
Nickolas
|
60,000 |
Nil |
Nil |
7.50 |
October 9, 2023 |
Nil |
Nil |
Nil |
Nil |
12,000 |
Nil |
Nil |
8.25 |
May 12, 2019 |
Nil |
Nil |
Nil |
Nil |
60,000 |
Nil |
Nil |
7.275 |
May 21, 2024 |
Nil |
Nil |
Nil |
Nil |
16,000 |
Nil |
Nil |
5.75 |
February 18, 2020 |
Nil |
Nil |
Nil |
Nil |
Richard A.
Wright
|
60,000 |
Nil |
Nil |
7.50 |
October 9, 2023 |
Nil |
Nil |
Nil |
Nil |
12,000 |
Nil |
Nil |
8.25 |
May 12, 2019 |
Nil |
Nil |
Nil |
Nil |
60,000 |
Nil |
Nil |
7.275 |
May 21, 2024 |
Nil |
Nil |
Nil |
Nil |
16,000 |
Nil |
Nil |
5.75 |
February 18, 2020 |
Nil |
Nil |
Nil |
Nil |
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.
40
Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of February 5, 2016, 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 directors, our executive officers
and by our 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 |
2,424,000(4) |
32.9% |
Series A Preferred
Stock(3) |
10,000,000 |
50% |
Richard A. Wright
14301 N. 87th Street, Suite 119 Scottsdale, AZ 85260
|
Common Stock |
1,648,000(5) |
22.4% |
Series A Preferred Stock
(3) |
10,000,000 |
50% |
All executive
officers and directors as a group (2 persons) |
Common Stock
|
4,072,000 |
45.2% |
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 Securities and Exchange Commission 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 5,719,039 shares
of our common stock issued and outstanding as of February 5, 2016.
Percentage of Series A Preferred Stock is based on 20,000,000 shares of
Series A Preferred Stock issued and outstanding as of February 5,
2016. |
|
|
(3) |
The Series A Preferred Stock has 10 votes per share and
is not convertible into shares of our common stock. |
|
|
(4) |
Consists of 1,648,000 stock options exercisable within 60
days, 430,000 shares of our common stock owned by WiN Investments, LLC and
346,000 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 1,648,000 stock options exercisable within 60
days. |
Changes in Control
We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change in control of our
company.
Transactions with Related Persons, Promoters and Certain
Control Persons and Corporate Governance
Other than as disclosed below, there has been no transaction,
since April 1, 2012, 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:
41
|
(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 of our promoters and control persons; and |
|
|
|
|
(d) |
Any member of the immediate family (including spouse,
parents, children, siblings and in- laws) of any of the foregoing
persons. |
Related Party Transactions with Water Engineering Solutions,
LLC
On February 27, 2013, we paid a $15,000 deposit on equipment
that we purchased for approximately $208,773. The equipment was manufactured by
and purchased under an exclusive manufacturing contract from Water Engineering
Solutions, LLC, an entity that is controlled and majority owned by Steven P.
Nickolas and Richard A. Wright, for the production of our alkaline water.
During the period from June 19, 2012 to March 31, 2014, we
purchased $219,000 in equipment from Water Engineering Solutions, LLC.
On January 17, 2014, we entered into an equipment lease with
Water Engineering Solutions LLC for specialized equipment used to make our
alkaline water. On February 12, 2014, we entered into an amendment #1 to the
equipment lease agreement dated January 17, 2014 with Water Engineering
Solutions, LLC. The amendment provides that the term of the lease will commence
upon the actual installation and commercial operation of the equipment and
continue for 60 months. The amendment also provides that the equipment will be
leased for $190,756 at a rate of 8% per annum with the residual amount of $1.00.
For the term of the agreement, we agreed to deliver to Water Engineering
Solutions, LLC lease payments in the amount of $3,864 per month, commencing 30
days after the equipment is commercially operating but no later than July 1,
2014. In addition, the amendment provides that the title will pass to us upon
completion of the term and payment of $1.00 residual amount.
On April 2, 2014, we entered into an equipment sale/lease back
agreement with Water Engineering Solutions, LLC for specialized equipment with
an original cost of $208,773 acquired in August 2013. Under the terms of the
agreement, Water Engineering Solutions, LLC bought back the equipment for
$188,000 in April 2014 and the equipment was leased back to us for $188,000 at a
rate of 8% per annum for a term of 60 months with the residual amount of $1.00.
For the term of the agreement, we agreed to deliver to Water Engineering
Solutions, LLC lease payments in the amount of $3,811.96 per month, commencing
on May 2, 2014. In addition, the agreement provides that the title will pass to
us upon completion of the term and payment of $1.00 residual amount.
As of March 31, 2014, our company had $0 in equipment deposits
with Water Engineering Solutions, LLC. During the year ended March 31, 2014, our
company provided $201,900 of deposits on equipment used to produce our alkaline
water to Water Engineering Solutions, LLC. During the month of March 2014, these
funds were returned to our company.
Under the terms of the exclusive manufacturing agreement
entered into on April 15, 2013 between our company and Water Engineering
Solutions LLC, we paid $690,000 on May 1, 2014 and $21,500 on June 27, 2014,
$115,000 on July 1, 2014, $10,000 on August 2, 2014 and $100,000 on August 22,
2014 for specialized equipment used in the production of our alkaline water.
Other Related Party Transactions
On August 1, 2013 we 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. Our
company or the landlord can cancel the lease with 30 days
notice. The sub-lessor is an entity owned by Steven P. Nickolas, our chief
executive officer and president.
42
During the period from June 19, 2012 to June 30, 2014, we had a
total of $65,378 in general and administrative expenses with related parties. Of
the total, $33,592 was to four different entities consisting of consulting fees
to Beverage Science Laboratories ($25,000), Water Enhanced Technologies, Inc.
($3,000) and WiN Investments, LLC ($2,000), entities controlled and owned by
Steven P. Nickolas, and Water Engineering Solutions, LLC ($3,592), an entity
controlled and owned by Steven P. Nickolas and Richard A. Wright. In addition,
$12,000 was rent to Steven P. Nickolas and $16,500 was professional fees to
Wright Tax Solutions, LLC ($12,500) and Wright Investment Group ($4,000),
entities controlled and owned by Richard A. Wright and $7,638 for health
insurance for Steven P. Nickolas $9,000 auto allowance for Steve A Nickolas and
$3,385 auto allowance for Richard A. Wright.
Alkaline Water Corp. has a month-to-month sub-rental
arrangement with Beverage Science Laboratories for $1,914 per month.
During the year ended March 31, 2014, our 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 our 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.
Where You Can Find More Information
We are not required to deliver an annual report to our
stockholders unless our directors are elected at a meeting of our stockholders
or by written consents of our stockholders. If our directors are not elected in
such manner, we are not required to deliver an annual report to our stockholders
and will not voluntarily send an annual report.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Such filings
are available to the public over the Internet at the Securities and Exchange
Commissions website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933 with respect
to the securities offered under this prospectus. This prospectus, which forms a
part of that registration statement, does not contain all information included
in the registration statement. Certain information is omitted and you should
refer to the registration statement and its exhibits.
You may review a copy of the registration statement at the
Securities and Exchange Commissions public reference room at 100 F Street, N.E.
Washington, D.C. 20549 on official business days during the hours of 10 a.m. to
3 p.m. You may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also read and copy any materials we file with the Securities and Exchange
Commission at the Securities and Exchange Commissions public reference room.
Our filings and the registration statement can also be reviewed by accessing the
Securities and Exchange Commissions website at http://www.sec.gov.
43
|
The Alkaline Water Company Inc. |
|
Prospectus |
|
9,000,000 Shares of Common Stock |
Warrants to Purchase up to 4,500,000 Shares of Common
Stock |
4,500,000 Shares of Common Stock Underlying the Warrants |
|
February 8, 2016 |
|
|
44
Information Not Required in Prospectus
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable
by us in connection with the issuance and distribution of the securities being
registered hereunder. All of the amounts shown are estimates, except for the
Securities and Exchange Commission registration fees.
Securities and
Exchange Commission registration fees |
$ |
525.65 |
|
|
|
|
|
Accounting fees and expenses
|
$ |
25,000 |
|
|
|
|
|
Legal fees and expenses |
$ |
70,000 |
|
|
|
|
|
Miscellaneous fees and
expenses |
$ |
4,474.35 |
|
|
|
|
|
Total |
$ |
100,000
|
|
Indemnification of Directors and Officers
The Nevada Revised Statutes provide that:
|
|
a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful; |
|
|
|
|
|
a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys fees actually and reasonably incurred by him or
her in connection with the defense or settlement of the action or suit if
he or she acted in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation
or for amounts paid in settlement to the corporation, unless and only to
the extent that the court in which the action or suit was brought or other
court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper; and
|
|
|
|
|
|
to the extent that a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding, or in defense of
any claim, issue or matter therein, the corporation must indemnify him or
her against expenses, including attorneys fees, actually and reasonably
incurred by him or her in connection with the defense.
|
45
The Nevada Revised Statutes provide that we may make any
discretionary indemnification only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. The determination must be made:
|
|
by our stockholders; |
|
|
|
|
|
by our board of directors by majority vote of a
quorum consisting of directors who were not parties to the action, suit or
proceeding; |
|
|
|
|
|
if a majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding so
orders, by independent legal counsel in a written opinion; |
|
|
|
|
|
if a quorum consisting of directors who were
not parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion; or |
|
|
|
|
|
by court order. |
Our bylaws provide for the mandatory indemnification of our
directors and officers to the fullest extent legally permissible under the
Nevada Revised Statutes from time to time against all expenses, liability and
loss reasonably incurred or suffered by such person in connection with he or she
having been or being a party to, threatening to be made a party to, or involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or an
officer of the company. Advance payment of expenses by the company to such
director or officer, as these expenses are incurred in defending a civil or
criminal action, suit or proceeding, are subject to an undertaking by or on
behalf of the director or officer to repay the amount of such payment if it is
ultimately determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by our company. The right of indemnification under
our bylaws is not exclusive of any other right to indemnification a director or
an officer may have.
Our bylaws allow us to purchase and maintain insurance on
behalf of any person who is or was a director or officer of our company against
any liability asserted against such person and incurred in any such capacity or
arising out of such status, whether or not we would have the power to indemnify
such person. We have not purchased such insurance.
Recent Sales of Unregistered Securities
All references to numbers of shares of common stock and per
share information in this section do not give retroactive effect to the 50-for-1
reverse stock split of our shares of common stock effected as of December 30,
2015.
Pursuant to a share exchange agreement dated May 31, 2013
between our company, Alkaline Water Corp. and all of the stockholders of
Alkaline Water Corp., we closed the share exchange agreement and completed the
acquisition of all of the issued and outstanding shares of Alkaline Water Corp.
on May 31, 2013. Pursuant to the terms of the share exchange agreement, and on
the closing date thereof, two stockholders of Alkaline Water Corp. sold all
100,000 issued and outstanding shares of common stock in the capital of Alkaline
Water Corp. to our company in consideration for the issuance of 43,000,000
shares of our common stock (21,500,000 shares each) in the capital of our
company. The securities were issued to two U.S. persons (as that term is defined
in Regulation S of the Securities Act of 1933) relying on Rule 506 of Regulation
D and/or Section 4(a)(2) of the Securities Act of 1933.
In connection with the closing of the share exchange agreement,
on May 31, 2013, we completed a non-brokered private placement with Bank
Gutenberg AG of 1,312,500 units of our company at a price $0.40 per unit for
gross proceeds of $525,000, with each unit consisting of one share of our
company, one share purchase warrant (each, a First Warrant) and
one-half of one share purchase warrant (each whole warrant, a Second
Warrant). The First Warrant entitles the holder to purchase, for a period
of two years from issuance, one additional share of our common stock at an
exercise price of $0.50 per share and each whole Second Warrant entitles the
holder to purchase, for a period of two years from issuance, one additional
share of our common stock at an exercise price of $0.60 per share.
46
Also in connection with the closing of the share exchange
agreement, on May 31, 2013, we converted three secured convertible notes issued
by Alkaline 88, LLC to Bank Gutenberg AG into 574,675 units of our company at a
price of $0.40 per unit. The convertible notes had an aggregate principal amount
of $225,000 and bore interest at 10% per annum ($4,869.86) . The units had the
same terms as the units issued in connection with the private placement
described above.
Pursuant to the private placement and loan conversions, we
issued 1,887,175 shares, 1,887,175 First Warrants, and 943,588 Second Warrants.
The securities were issued to one non-U.S. person (as that term is defined in
Regulation S of the Securities Act of 1933) in an offshore transaction relying
on Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.
Effective August 14, 2013, we issued 250,000 shares of our
common stock to one consultant in consideration for services rendered by the
consultant to our company. The consultant is a U.S. Person (as that term is
defined in Regulation S of the Securities Act of 1933) and in issuing securities
to the consultant we relied on the exemption from the registration requirements
of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated
thereunder and/or Section 4(a)(2) of the Securities Act of 1933.
Effective October 8, 2013, we issued an aggregate of 1,250,000
shares of our common stock to three investors in a non-brokered private
placement, at a purchase price of $0.40 per share for gross proceeds of
$500,000. In addition, we issued 1,250,000 units to a finder in connection with
this private placement. Each unit consisted of one share purchase warrant
entitling the holder to purchase, for a period of two years from issuance, one
share of our common stock at an exercise price of $0.50 per share and one-half
of one share purchase warrant, with each whole share purchase warrant entitling
the holder to purchase, for a period of two years from issuance, one share of
our common stock at an exercise price of $0.60 per share. These investors and
finder were not U.S. Persons (as that term is defined in Regulation S of the
Securities Act of 1933) and all of these investors and finder acquired the
securities in transactions outside of the United States. In issuing these
securities to these investors and finder, we relied on the registration
exemption provided for in Regulation S and/or Section 4(a)(2) of the Securities
Act of 1933.
Effective October 8, 2013, we issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven A. Nickolas and
Richard A. Wright (10,000,000 shares to each), our directors and executive
officers, in consideration for the past services, at a deemed value of $0.001
per share. We issued these shares to two U.S. Persons (as that term is defined
in Regulation S of the Securities Act of 1933) and in issuing securities we
relied on the registration exemption provided for in Section 4(a)(2) of the
Securities Act of 1933.
Effective October 10, 2013, we issued 200,000 shares of our
common stock to one consultant in consideration for services rendered by the
consultant to our company. The consultant is a U.S. Person (as that term is
defined in Regulation S of the Securities Act of 1933) and in issuing securities
to the consultant we relied on the exemption from the registration requirements
of the Securities Act of 1933 provided in Section 4(a)(2) of the Securities Act
of 1933.
On November 7, 2013, we issued an aggregate of 500.00028 shares
of our 10% Series B Convertible Preferred Stock (Series B Preferred
Stock) at a stated value of $1,000 per share of Series B Preferred Stock
for gross proceeds of $500,000.28 (the Offering). On the same date, we
also issued Series A, Series B and Series C common stock purchase warrants. The
Series A warrants are exercisable into 1,162,791 shares of our common stock
(Common Stock) with an exercise price of $0.55 per share and have a
term of exercise of five years. The Series B warrants are exercisable into
1,162,791 shares of the Common Stock with an exercise price of $0.43 per share
and have a term of exercise of 54 weeks. The Series C warrants are exercisable
into 1,162,179 shares of the Common Stock with an exercise price of $0.55 per
share and have a term of exercise of five years; provided that such Series C
warrants only become exercisable ratably upon exercise of the Series B Warrants.
We issued the Series B Preferred Stock and the Series A, Series B and Series C
common stock purchase warrants to three accredited investors. The issuance and
sale of securities is exempt from registration pursuant to Section 4(a)(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder.
Holders of the Series B Preferred Stock will be entitled to
receive cumulative dividends at the rate per share (as a percentage of the
stated value per share) of 10% per annum, payable semi-annually on April 30 and
October 31 and on each conversion date (with respect only to Series B Preferred
Stock being converted) and on each Mandatory Redemption Date and One Year Redemption Date (with respect only
to Series B Preferred Stock being redeemed). Upon any liquidation, dissolution
or winding-up of our company, holders of the Series B Preferred Stock will be
entitled to receive out of the assets of our company an amount equal to the
stated value, plus any accrued and unpaid dividends thereon and any other fees
or liquidated damages then due and owing thereon for each share of the Series B
Preferred Stock before any distribution or payment is made to the holders of any
junior securities.
47
Each share of the Series B Preferred Stock is convertible at
the option of the holder thereof into that number of shares of Common Stock
determined by dividing the stated value of such share of the Series B Preferred
Stock by the conversion price of $0.43, subject to later adjustment. In
addition, on the earlier (the Trigger Date) of (a) the date that a
registration statement that registers the resale of the shares of Common Stock
issuable upon conversion of the shares of the Series B Preferred Stock (the
Registration Statement) is first declared effective by the Securities
and Exchange Commission and (b) the 180th calendar day following the date of the
closing of the Offering (November 7, 2013), the conversion price will be reduced
to the lesser of (i) the then conversion price or (ii) 85% of the average of the
volume weighted average price for the five trading dates immediately prior to
such Trigger Date, subject to a floor price of $0.25. The conversion right is
subject to the beneficial ownership limitation, which will be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock issuable upon conversion of the Series
B Preferred Stock held by the applicable holder. The holder may increase or
decrease the beneficial ownership limitation upon not less than 61 days prior
notice to our company, but in no event will such beneficial ownership exceed
9.99% .
Within three trading days from the closing of any subsequent
financing (each, a Mandatory Redemption Date), we must use 25% of the
proceeds from each such financing to redeem the Series B Preferred Stock on a
pro rata basis, until such time that all of the Series B Preferred Stock then
outstanding are redeemed in full (each, a Mandatory Redemption). If any
portion of the cash payment for a Mandatory Redemption has not been paid by us
on the Mandatory Redemption Date, interest will accrue until such amount is paid
in full at a rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law. In addition, on the first anniversary of the
earliest date on which any shares of the Series B Preferred Stock were issued
(the One Year Redemption Date), we must redeem all of the then
outstanding Series B Preferred Stock, for an amount in cash equal to the sum of
100% of the aggregate stated value then outstanding, the accrued but unpaid
dividends and all the liquidated damages and other amounts due in respect of the
Series B Preferred Stock. In addition, upon the occurrence of a triggering
event, each holder will have the right to require us to redeem all of the Series
B Preferred Stock then held by such holder for a redemption price, in cash,
equal to the sum of (a) the greater of (i) 130% of the stated value and (ii) the
product of (y) the volume weighted average price on the trading day immediately
preceding the date of the triggering event and (z) the stated value divided by
the then conversion price, (b) all accrued but unpaid dividends thereon, (c) the
make-whole amount (being an amount in cash equal to all of the dividends that,
but for the applicable conversion, redemption or default payment, would have
accrued with respect to the applicable stated value being so converted or
redeemed for the period commencing on the applicable redemption date or
conversion date or default payment date and ending on November 8, 2014) and (d)
all liquidated damages and other costs, expenses or amounts due in respect of
the Series B Preferred Stock. The triggering events include, among other things,
the failure of the Registration Statement to be declared effective by the
Securities and Exchange Commission on or prior to the 180th day after the date
of the closing of the Offering (November 7, 2013).
On November 4, 2013, we also entered into a Registration Rights
Agreement with the investors pursuant to which we are obligated to file a
Registration Statement to register the resale of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and upon exercise of
the warrants on or prior to the 30th calendar day following November 4, 2013. We
also agreed to use our best efforts to cause the registration statement to be
declared effective as promptly as possible after the filing thereof, but in any
event no later than the 60th calendar day following November 4, 2013 (or, in the
event of a full review by the Securities and Exchange Commission, the 120th
calendar day following November 4, 2013).
Effective November 7, 2013, we issued Series A common stock
purchase warrants to the placement agent and its designees as compensation for
the services provided by the placement agent in connection with our private
placement of 500.00028 shares of our 10% Series B Convertible Preferred Stock,
which was completed on November 7, 2013. The Series A warrants issued to the
placement agent and its designees are exercisable into an aggregate of 116,279
shares of our common stock with an exercise price of $0.55 per share and have a
term of exercise of five years. We issued the Series A warrants to six
accredited investors. The issuance the Series A warrants was exempt from registration pursuant to Section
4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder.
48
Between April 16, 2014 and April 22, 2014, the holders of
Series B Preferred Stock converted 252.83 shares of Series B Preferred Stock
into 796,566 shares of our common stock at a conversion price of $0.3174 per
share. The issuance of the securities was exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated
thereunder.
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 $2,599,999.35. 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.
These securities were sold pursuant to the securities purchase agreement dated
April 28, 2014 and have been registered under the Securities Act of 1933
pursuant to our registration statement on Form S-1, as amended (No. 333-192599),
which was declared effective by the Securities and Exchange Commission on April
16, 2014. 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. These warrants have an exercise price
of $0.1875 per share and expire on April 16, 2019. In issuing these warrants, we
relied on an exemption from the registration requirements of the Securities Act
of 1933 provided by Section 4(a)(2) of the Securities Act of 1933.
On July 31, 2014, we issued 245,000 shares of our common stock
to a third-party consultant for partial consideration for the services to be
provided under a consulting agreement dated effective as of June 4, 2014. In
addition, we agreed to issue to the consultant 70,000 shares of our common stock
on or before August 15, 2014 (issued) and 35,000 shares of our common stock on
or before September 15, 2014. We issued and intend to issue these shares to an
accredited investor. The issuance of these shares was and will be exempt from
registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule
506 promulgated thereunder.
In consideration for the consulting services to be rendered to
our company under a consulting agreement dated effective as of August 7, 2014,
we agreed to issue a third-party consultant an aggregate of 2,000,000 shares of
our common stock to be issued as follows: 500,000 shares on the date of the
execution of the agreement, 500,000 shares on the date that is 45 days from the
execution date, 500,000 shares on the date that is 90 days from the execution
date, and 500,000 shares on the date that is 135 days from the execution date.
We issued and intend to issue these shares to an accredited investor. The
issuance of these shares was and will be exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933 and Rule 506 promulgated
thereunder.
On August 20, 2014, we entered into a warrant amendment
agreement (the Warrant Amendment Agreement) with certain holders (the
Holders) of our outstanding common stock purchase warrants (the
Existing 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 are to be
issued new common stock purchase warrants of our company (the New
Warrants) 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.
An aggregate of 8,666,664 shares of our common stock issued upon exercise of the
Existing Warrants were registered under the Securities Act of 1933 pursuant to
our registration statement on Form S-1, as amended (No. 333-192599), which was
declared effective by the Securities and Exchange Commission on April 16, 2014
and in issuing the rest of shares of our common stock upon exercise of the
Existing Warrants, we relied on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933 and Rule 506
promulgated thereunder. In issuing the New Warrants, we relied on an exemption
from the registration requirements of the Securities Act of 1933 provided by
Section 4(a)(2) of the Securities Act of 1933.
49
On October 7, 2014, we entered into a warrant amendment
agreement (the Rogers Warrant Amendment Agreement) with Neil William
Rogers, a holder of our outstanding common stock purchase warrants (the
Rogers Existing Warrants), whereby we agreed to reduce the exercise
price of the Rogers Existing Warrants to $0.10 per share in consideration for
the immediate exercise of the Rogers Existing Warrants by Mr. Rogers and Mr.
Rogers was to be issued new common stock purchase warrants of our company (the
Rogers New Warrants) in the form of the Rogers Existing Warrants to
purchase up to a number of shares of our common stock equal to the number of
Rogers Existing Warrants exercised by Mr. Rogers, provided that the exercise
price of the Rogers New Warrants will be $0.125 per share, subject to adjustment
in the Rogers New Warrants.
On October 7, 2014, pursuant to the Rogers Warrant Amendment
Agreement, we issued an aggregate of 4,699,800 shares of our common stock upon
exercise of the Rogers Existing Warrants at an exercise price of $0.10 per share
for aggregate gross proceeds of $469,980. In addition, we issued Rogers 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. These securities were issued to one non-U.S. person (as that term is
defined in Regulation S of the Securities Act of 1933) in an offshore
transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act
of 1933.
Effective as of October 28, 2014, we entered into a warrant
agreement with Veterans Capital Fund, LLC (Veterans), pursuant to which
we agreed to issue a warrant to purchase 3,600,000 shares of our common stock to
Veterans and/or its affiliates at an exercise price of $0.125 per share for a
period of five years. 900,000 shares vested on October 28, 2014 and the
remaining 270,000 shares will vest on a pro rata basis according to any amounts
Veterans funds pursuant to any lease schedules under a master lease agreement
between our company and Veterans dated October 28, 2014, 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. We issued the warrant to an
accredited investor. The issuance of the warrant was exempt from registration
pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule 506
promulgated thereunder.
Effective as of October 28, 2014, we also entered into a
registration rights agreement with Veterans, pursuant to which we gave piggyback
registration right to Veterans. Subject to certain limitations, each time that
we propose to register a public offering solely of our common stock, other than
pursuant to a registration statement on Form S-4 or Form S-8, we agreed to offer
Veterans the right to request inclusion of 3,600,000 shares underlying the
warrant issued under the warrant agreement with Veterans, if such shares are not
eligible for sale under Rule 144 promulgated under the Securities Act of 1933,
and use our best efforts to cause such shares to be registered.
In consideration for 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 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
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 is
expected to be exempt from registration pursuant to Section 4(a)(2) of the
Securities Act of 1933.
In consideration for 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.
50
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 (Assurance), 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 $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. The issuance and sale of securities by us under the securities
purchase agreement with Assurance 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.
On June 29, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a convertible promissory note in the
principal amount of $50,000 and 714,286 warrants in exchange for the loan in the
amount of $50,000. The convertible promissory note bears simple interest at the
rate of 8% per annum and matures on June 29, 2016. The lender has the option to convert the amount due under
the convertible promissory note into shares of our common stock at a conversion
price of $0.07 per share. Each warrant is exercisable into one share of our
common stock at an exercise price of $0.10 until June 29, 2017. In issuing these
shares, we relied on an exemption from the registration requirements of the
Securities Act of 1933 provided by Section 4(a)(2) of the Securities Act of
1933.
51
On June 30, 2015, we entered into loan agreements with three
lenders, pursuant to which we issued three convertible promissory notes in the
aggregate principal amount of $75,000 and an aggregate of 1,071,429 warrants in
exchange for the loans in the aggregate amount of $75,000. The convertible
promissory notes bear simple interest at the rate of 8% per annum and mature on
June 30, 2016. The lenders have the option to convert the amount due under the
convertible promissory notes into shares of our common stock at a conversion
price of $0.07 per share. Each warrant is exercisable into one share of our
common stock at an exercise price of $0.10 until June 30, 2017. In issuing these
shares, we relied on an exemption from the registration requirements of the
Securities Act of 1933 provided by 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.
52
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.
On July 7, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a convertible promissory note in the
principal amount of $25,000 and 357,143 warrants in exchange for the loan in the
amount of $25,000. The convertible promissory note bears simple interest at the
rate of 8% per annum and matures on July 7, 2016. The lender has the option to
convert the amount due under the convertible promissory note into shares of our
common stock at a conversion price of $0.07 per share. Each warrant is
exercisable into one share of our common stock at an exercise price of $0.10
until July 7, 2017. In issuing these securities, we relied on an exemption from
the registration requirements of the Securities Act of 1933 provided by Section
4(a)(2) of the Securities Act of 1933.
On July 13, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a convertible promissory note in the
principal amount of $25,000 and 357,143 warrants in exchange for the loan in the
amount of $25,000. The convertible promissory note bears simple interest at the
rate of 8% per annum and matures on July 13, 2016. The lender has the option to
convert the amount due under the convertible promissory note into shares of our
common stock at a conversion price of $0.07 per share. Each warrant is
exercisable into one share of our common stock at an exercise price of $0.10
until July 13, 2017. In issuing these shares, we relied on an exemption from the
registration requirements of the Securities Act of 1933 provided by Section
4(a)(2) of the Securities Act of 1933.
On July 13, 2015, we sold 214,286 units of our securities at a
price of $0.07 per unit for gross proceeds of $15,000.02. 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.
Between July 15, 2015 and July 17, 2015, we issued an aggregate
of 905,716 shares of our common stock at a price of $0.07 per share to a warrant
holder upon full exercise of the warrant to purchase an aggregate of 1,665,117
shares of our common stock on a cashless basis. In issuing these shares, we
relied on an exemption from the registration requirements of the Securities Act
of 1933 provided by Section 4(a)(2) of the Securities Act of 1933.
On July 17, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a convertible promissory note in the
principal amount of $25,000 and 357,143 warrants in exchange for the loan in the
amount of $25,000. The convertible promissory note bears simple interest at the
rate of 8% per annum and matures on July 17, 2016. The lender has the option to
convert the amount due under the convertible promissory note into shares of our
common stock at a conversion price of $0.07 per share. Each warrant is
exercisable into one share of our common stock at an exercise price of $0.10
until July 17, 2017. In issuing these securities, we relied on an exemption from
the registration requirements of the Securities Act of 1933 provided by Section
4(a)(2) of the Securities Act of 1933. On July 24, 2015, we issued 78,081 shares
of our common stock at a price of $0.07 per share to a warrant holder upon full
exercise of the warrant to purchase an aggregate of 166,666 shares of our common
stock on a cashless basis. In issuing these shares, we relied on an exemption
from the registration requirements of the Securities Act of 1933 provided by
Section 4(a)(2) of the Securities Act of 1933.
On August 4, 2015, we sold 1,500,000 units of our securities at
a price of $0.07 per unit for gross proceeds of $105,000. 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 August 7, 2015, we sold 357,143 units of our securities at a
price of $0.07 per unit for gross proceeds of $25,000.01. 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.
53
On August 8, 2015, we sold 357,143 units of our securities at a
price of $0.07 per unit for gross proceeds of $25,000.01. 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 August 11, 2015, we issued an aggregate of 365,000 shares of
our common stock at a price of $0.07 per share to a warrant holder upon full
exercise of the warrant to purchase an aggregate of 365,000 shares of our common
stock on a cashless basis. In issuing these shares, we relied on an exemption
from the registration requirements of the Securities Act of 1933 provided by
Section 4(a)(2) of the Securities Act of 1933.
On August 19, 2015, we sold 720,000 units of our securities at
a price of $0.07 per unit for gross proceeds of $50,400.00. 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 August 19, 2015, we sold 285,715 units of our securities at
a price of $0.07 per unit for gross proceeds of $20,000.05. 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 August 20, 2015, we entered into a securities purchase
agreement with Assurance, pursuant to which we sold a secured term note of our
company in the principal amount of $240,000, together with 1,000,000 shares of
our common stock, in consideration for $200,000. The secured note matures on
August 20, 2016. The principal amount of the note is to be paid at the rate of
$20,000 per month, commencing on September 20, 2015 and the 20th calendar day of
each successive month until the maturity date. 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 $2,500 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
August 20, 2015 with Assurance. The issuance and sale of securities by us under
the securities purchase agreement with Assurance was exempt from registration
pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule 506
promulgated thereunder.
In consideration for the consulting services rendered to our
company pursuant to an amendment effective as of August 25, 2015 to the service
agreement dated April 10, 2015, we issued 1,500,000 shares of our common stock
to a consultant effective as of August 25, 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 services rendered to our company pursuant
to a marketing authorization agreement dated November 4, 2014, we issued 300,000
shares of our common stock to a service provider effective as of August 27,
2015. The issuance of these shares was exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933.
On September 24, 2015, we entered into a securities purchase
agreement with one lender, pursuant to which we issued a convertible promissory
note in the principal amount of $82,500 and 1,600,000 warrants in consideration
for $75,000. The convertible promissory note matures seven months from the date
of payment and bears a one-time interest charge of 8%, payable on the maturity date. The lender
has the option to convert the amount due under the convertible promissory note
into shares of our common stock at a conversion price of $0.07 per share. Each
warrant is exercisable into one share of our common stock at an exercise price
of $0.07 for a period of five years. In issuing these securities, we relied on
an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
54
On October 2, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a promissory note in the principal amount of
$50,000 and 714,286 warrants in exchange for the loan in the amount of $50,000.
The promissory note bears interest at the rate of 8% per annum, payable
quarterly, and matures on May 2, 2016. The lender has the option to convert the
amount due under the promissory note into shares of our common stock at a
conversion price of $0.07 per share. Each warrant is exercisable into one share
of our common stock at an exercise price of $0.07 until October 2, 2017. We also
granted the lender a registration right. In issuing these securities, we relied
on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
On October 2, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a promissory note in the principal amount of
$10,000 and 142,857 warrants in exchange for the loan in the amount of $10,000.
The promissory note bears interest at the rate of 8% per annum, payable
quarterly, and matures on May 2, 2016. The lender has the option to convert the
amount due under the promissory note into shares of our common stock at a
conversion price of $0.07 per share. Each warrant is exercisable into one share
of our common stock at an exercise price of $0.07 until October 2, 2017. We also
granted the lender a registration right. In issuing these securities, we relied
on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
On October 2, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a promissory note in the principal amount of
$25,000 and 357,143 warrants in exchange for the loan in the amount of $25,000.
The promissory note bears interest at the rate of 8% per annum, payable
quarterly, and matures on May 2, 2016. The lender has the option to convert the
amount due under the promissory note into shares of our common stock at a
conversion price of $0.07 per share. Each warrant is exercisable into one share
of our common stock at an exercise price of $0.07 until October 2, 2017. We also
granted the lender a registration right. In issuing these securities, we relied
on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
On October 5, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a promissory note in the principal amount of
$25,000 and 357,143 warrants in exchange for the loan in the amount of $25,000.
The promissory note bears interest at the rate of 8% per annum, payable
quarterly, and matures on May 5, 2016. The lender has the option to convert the
amount due under the promissory note into shares of our common stock at a
conversion price of $0.07 per share. Each warrant is exercisable into one share
of our common stock at an exercise price of $0.07 until October 5, 2017. We also
granted the lender a registration right. In issuing these securities, we relied
on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
On October 28, 2015, we entered into a securities purchase
agreement with one lender, pursuant to which we sold a term note of our company
in the aggregate principal amount of $125,000, together with 500,000 shares of
our common stock, in consideration for $125,000. The term note bears interest at
the rate of 15% per annum and matures on October 28, 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 the lender $2,500 for legal fees incurred
by it and granted it piggyback registration rights. The issuance and sale of
securities by us under the securities purchase agreement was exempt from
registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule
506 promulgated thereunder.
On November 13, 2015, we entered into a loan agreement with one
lender, pursuant to which we issued a promissory note in the principal amount of
$50,000 and 714,286 warrants in exchange for the loan in the amount of $50,000.
The promissory note bears interest at the rate of 8% per annum, payable
quarterly, and matures on June 13, 2016. The lender has the option to convert
the amount due under the promissory note into shares of our common stock at a
conversion price of $0.07 per share. We may prepay the note in full (with a 110%
premium of face) or in part at any time. Each warrant is exercisable into one share of
our common stock at an exercise price of $0.10 until November 13, 2017. We also
granted the lender a registration right. In issuing these securities, we relied
on an exemption from the registration requirements of the Securities Act of 1933
provided by Section 4(a)(2) of the Securities Act of 1933.
55
On November 30, 2015, we entered into a warrant exchange
agreement (the Rogers Warrant Exchange Agreement) with Neil Rogers, a
holder of our outstanding common stock purchase warrants (the Rogers
Warrants), whereby we exchanged the Rogers Warrants, for no additional
consideration, for such number of shares of our common stock that is equal to
100% of the number of the Rogers Warrants (the Rogers Exchange), and
following the Rogers Exchange, the Rogers Warrants were automatically cancelled
and terminated and Mr. Rogers has no further rights pursuant to the Rogers
Warrants and any agreement or instrument pursuant to which such Rogers Warrants
were issued.
On November 30, 2015, pursuant to the Rogers Warrant Exchange
Agreement, we issued 4,699,800 shares of our common stock upon exchange of the
4,699,800 Rogers Warrants.
As of November 30, 2015, we entered into a loan agreement with
Neil Rogers, whereby the Mr. Rogers loaned $750,000 to our company in exchange
for a non-negotiable promissory note in the principal amount of $750,000. The
note bears interest at the rate of 15% per annum and matures on the date that is
60 days after November 30, 2015. The loan agreement provides that our
obligations to Mr. Rogers will be secured by an escrow agreement, pursuant to
which we will deposit into escrow a certificate representing $1.5 million worth
of shares of our common stock. As of November 30, 2015, we entered into the
escrow agreement with Mr. Rogers and an escrow agent. Pursuant to the escrow
agreement, we deposited a share certificate (the Certificate)
representing 26,315,789 shares of our common stock (the Escrowed
Shares), valued at $1.5 million, to the escrow agent. Pursuant to the
escrow agreement, (i) in the event that there is any event of default that is
not cured in accordance with the loan agreement, the escrow agent is to deliver
the Certificate to Mr. Rogers and (ii) in the event that our company repays the
loan pursuant to the loan agreement and there is no event of default that is not
cured in accordance with the loan agreement at the time of repayment, the escrow
agent is to deliver the Certificate to the transfer agent of our company and
request the transfer agent to cancel the Escrowed Shares. Pursuant to the loan
agreement, we also granted piggyback registration rights to Mr. Rogers with
respect to the Escrowed Shares. We issued these securities to one non-U.S.
person (as that term is defined in Regulation S of the Securities Act of 1933)
in an offshore transaction relying on Regulation S and/or Section 4(a)(2) of the
Securities Act of 1933. On January 25, 2016, we entered into an amendment
agreement with Neil Rogers, whereby the parties agreed to extend the date that:
(a) all sums due and payable under the loan agreement dated November 30, 2015
are to be paid from 60 days after November 30, 2015 to March 31, 2016; and (b)
all outstanding principal and interest under the non-negotiable promissory note
dated November 30, 2015 to be due and payable from 60 days after November 30,
2015 to March 31, 2016.
On December 1, 2015, we entered into a warrant exchange
agreement (the December Warrant Exchange Agreement) with 11 holders of
our outstanding common stock purchase warrants (the December Warrants),
whereby we exchanged each holders December Warrants, for no additional
consideration, for such number of shares of our common stock that is equal to
100% of the number of such holders December Warrants (the December
Exchange), and following the December Exchange, the December Warrants were
automatically cancelled and terminated and the holders have no further rights
pursuant to the December Warrants and any agreement or instrument pursuant to
which such December Warrants were issued.
On December 1, 2015, pursuant to the December Warrant Exchange
Agreement, we issued an aggregate of 6,689,554 shares of our common stock upon
exchange of the 6,689,554 December Warrants.
In issuing these shares, we relied on an exemption from the
registration requirements of the Securities Act of 1933 provided by Section
3(a)(9) of the Securities Act of 1933.
As of January 25, 2016, we entered into a loan agreement with
Turnstone Capital Inc., whereby Turnstone Capital Inc. loaned $750,000 to our
company in exchange for a non-negotiable promissory note in the principal amount
of $750,000. The note bears interest at the rate of 15% per annum and matures on
March 31, 2016. The loan agreement provides that our obligations to the lender
will be secured by an escrow agreement, pursuant to which we will deposit into
escrow a certificate representing 1,500,000 shares of our common stock. As of
January 25, 2016, we entered into the escrow agreement with the lender and an escrow
agent. Pursuant to the escrow agreement, we intend to deposit a share
certificate representing the escrowed shares with the escrow agent. Pursuant to
the escrow agreement, (i) in the event that there is any event of default that
is not cured in accordance with the loan agreement, the escrow agent is to
deliver the share certificate to the lender and (ii) in the event that our
company repays the loan pursuant to the loan agreement and there is no event of
default that is not cured in accordance with the loan agreement at the time of
repayment, the escrow agent is to deliver the share certificate to the transfer
agent of our company and request the transfer agent to cancel the escrowed
shares. Pursuant to the loan agreement, we also granted piggyback registration
rights to the lender with respect to the escrowed shares. We issued these
securities to one non-U.S. person (as that term is defined in Regulation S of
the Securities Act of 1933) in an offshore transaction relying on Regulation S
and/or Section 4(a)(2) of the Securities Act of 1933.
56
Exhibits
Exhibit |
|
Number |
Description |
|
|
(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 to Articles of Incorporation
(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 |
Certificate of Change (incorporated by reference from our
Current Report on Form 8-K, filed on December 30, 2015) |
3.8 |
Certificate of Amendment to Articles of Incorporation
(incorporated by reference from our Current Report on Form 8-K, filed on
January 25, 2016) |
3.9 |
Certificate of Amendment to Certificate of Designation
(incorporated by reference from our Current Report on Form 8-K, filed on
January 25, 2016) |
3.10 |
Amended and Restated Bylaws (incorporated by reference
from our Current Report on Form 8-K, filed on March 15, 2013) |
(4) |
Instruments Defining the Rights of Security Holders,
including Indentures |
4.1* |
Form of Warrant Certificate |
(5) |
Opinion regarding Legality |
5.1* |
Opinion of Clark Wilson LLP regarding the legality of the securities being registered |
(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)
|
57
10.5 |
Private Placement Subscription Agreement dated May 29,
2013 with Bank Gutenberg AG (incorporated by reference from our
Current Report on Form 8-K, filed on June 5, 2013) |
10.6 |
2013 Equity Incentive Plan (incorporated by reference
from our Current Report on Form 8-K, filed on October 11, 2013) |
10.7 |
Form of Securities Purchase Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013) |
10.8 |
Form of Registration Rights Agreement dated as of
November 4, 2013, by and among The Alkaline Water Company Inc. and the
purchasers named therein (incorporated by reference from our Current
Report on Form 8-K, filed on November 5, 2013) |
10.9 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on November 5, 2013)
|
10.10 |
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) |
10.11 |
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) |
10.12 |
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) |
10.13 |
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) |
10.14 |
Equipment Lease Agreement dated January 17, 2014
(incorporated by reference from our Current Report on Form 8-K, filed on
January 27, 2014) |
10.15 |
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) |
10.16 |
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) |
10.17 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on May 6, 2014)
|
10.18 |
Form of Placement Agent Common Stock Purchase Warrant
(incorporated by reference from our Current Report on Form 8-K, filed on
May 6, 2014) |
10.19 |
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) |
10.20 |
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) |
10.21 |
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) |
10.22 |
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) |
10.23 |
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) |
10.24 |
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) |
10.25 |
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) |
10.26 |
Form of Warrant Amendment Agreement (incorporated by
reference from our Current Report on Form 8-K, filed on August 21, 2014)
|
10.27 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on August 21, 2014)
|
10.28 |
Form of Warrant Amendment Agreement (incorporated by
reference from our Current Report on Form 8-K, filed on October 9, 2014)
|
10.29 |
Form of Common Stock Purchase Warrant (incorporated by
reference from our Current Report on Form 8-K, filed on October 9, 2014)
|
10.30 |
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) |
58
10.31 |
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) |
10.32 |
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) |
10.33 |
2013 Equity Incentive Plan
(incorporated by reference from our Current Report on Form 8-K, filed on
November 4, 2014) |
10.34 |
Form of Amending Agreement to Stock Option
Agreement (incorporated by reference from our Current Report on Form 8-K,
filed on November 4, 2014) |
10.35 |
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) |
10.36 |
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) |
10.37 |
Securities Purchase Agreement
dated as of May 11, 2015 with Assurance Funding Solutions
LLC (incorporated by reference from our Annual Report on Form 10-K,
filed on July 14, 2015) |
10.38 |
Secured Term Note dated May 2015 issued to
Assurance Funding Solutions LLC (incorporated by reference from our Annual
Report on Form 10-K, filed on July 14, 2015) |
10.39 |
General Security Agreement
dated as of May 11, 2015 with Assurance Funding Solutions
LLC (incorporated by reference from our Annual Report on Form 10-K,
filed on July 14, 2015) |
10.40 |
Securities Purchase Agreement dated as of
August 20, 2015 with Assurance Funding Solutions LLC (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on November 23,
2015) |
10.41 |
Secured Term Note dated August
20, 2015 issued to Assurance Funding Solutions LLC (incorporated by
reference from our Quarterly Report on Form 10-Q, filed on November 23,
2015) |
10.42 |
General Security Agreement dated as of August
20, 2015 with Assurance Funding Solutions LLC (incorporated by reference
from our Quarterly Report on Form 10-Q, filed on November 23, 2015) |
10.43 |
Form of Warrant Exchange
Agreement (incorporated by reference from our Current Report on Form 8-K,
filed on December 1, 2015) |
10.44 |
Loan Agreement dated November 30, 2015 with
Neil Rogers (incorporated by reference from our Current Report on Form
8-K, filed on December 4, 2015) |
10.45 |
Promissory Note dated November
30, 2015 issued to Neil Rogers (incorporated by reference from our Current
Report on Form 8-K, filed on December 4, 2015) |
10.46 |
Escrow Agreement dated November 30, 2015 with
Neil Rogers and Escrow Agent (incorporated by reference from our Current
Report on Form 8-K, filed on December 4, 2015) |
10.47 |
2013 Equity Incentive Plan (incorporated by reference from our Current Report on Form 8-K, filed on January 25, 2016) |
10.48 |
Loan Agreement dated January 25, 2016 with
Turnstone Capital Inc. (incorporated by reference from our Current Report
on Form 8-K, filed on January 25, 2016) |
10.49 |
Promissory Note dated January
25, 2016 issued to Turnstone Capital Inc. (incorporated by reference from
our Current Report on Form 8-K, filed on January 25, 2016) |
10.50 |
Escrow Agreement dated January 25, 2016 with
Turnstone Capital Inc. and Escrow Agent (incorporated by reference from
our Current Report on Form 8-K, filed on January 25, 2016) |
10.51 |
Amendment Agreement dated
January 25, 2016 with Neil Rogers (incorporated by reference from our
Current Report on Form 8-K, filed on January 25, 2016) |
10.52 |
Stock Option Agreement dated January 29, 2016 with
Steven P. Nickolas (incorporated by reference from our Current Report on Form
8-K, filed on February 4, 2016) |
10.53 |
Stock Option Agreement dated January 29, 2016 with
Richard A. Wright (incorporated by reference from our Current Report on Form
8-K, filed on February 4, 2016) |
10.54* |
|
(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* |
|
23.2* |
|
(101) |
Interactive Data File |
101.INS* |
XBRL Instance Document |
101.SCH* |
XBRL Taxonomy Extension Schema |
59
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.
Undertakings
The undersigned registrant hereby undertakes:
1. To file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
i. To include
any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in
the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the Calculation of Registration Fee table in the effective
registration statement; and
iii. To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
2. That, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
3. To remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering; and
4. That, for
the purpose of determining liability under the Securities Act of 1933 to any
purchaser, if the undersigned registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
5. That, for the
purpose of determining liability of the registrant under the Securities Act of
1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
60
i. Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
ii. Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned registrant;
iii. The portion of any
other free writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
iv. Any other
communication that is an offer in the offering made by the undersigned
registrant to the purchaser;
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
1. For purposes
of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act
of 1933 shall be deemed to be part of this registration statement as of the time
it was declared effective.
2. For the
purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
61
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Scottsdale,
State of Arizona, on February 8, 2016.
The Alkaline Water Company Inc.
By: |
|
|
|
|
|
/s/ Steven P.
Nickolas |
|
Steven P. Nickolas |
|
President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
|
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Steven P.
Nickolas |
|
Steven P. Nickolas |
|
President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
|
Date: February 8, 2016 |
|
|
|
|
|
/s/ Richard A.
Wright |
|
Richard A. Wright |
|
Vice-President, Secretary, Treasurer and Director |
|
(Principal Financial Officer and Principal Accounting
Officer) |
|
Date: February 8, 2016 |
|
62
Warrant No. 2016-♦-♦-♦
THESE WARRANTS WILL EXPIRE AND BECOME NULL AND
VOID |
AT 5:00 P.M. (MOUNTAIN TIME) ON ♦,
2018. |
|
SHARE PURCHASE WARRANTS TO PURCHASE |
SHARES OF COMMON STOCK OF |
THE ALKALINE WATER COMPANY INC.
|
THIS IS TO CERTIFY THAT ♦ (the Holder), of ♦, has the
right to purchase, upon and subject to the terms and conditions hereinafter
referred to, up to ♦ (♦) fully paid and non-assessable shares (the
Shares) of common stock in the capital of The Alkaline Water Company
Inc. (the Company) on or before 5:00 p.m. (Mountain time) on ♦, 2018
(the Expiry Date) at a price per Share of US$0.50 (the Exercise
Price) on the terms and conditions attached hereto as Appendix A (the
Terms and Conditions).
|
1. |
ONE (1) WARRANT AND THE EXERCISE PRICE ARE REQUIRED TO
PURCHASE ONE SHARE. THIS CERTIFICATE REPRESENTS ♦ (♦) WARRANTS. |
|
|
|
|
2. |
These Warrants are issued subject to the Terms and
Conditions, and the Warrant Holder may exercise the right to purchase
Shares only in accordance with those Terms and Conditions. |
|
|
|
|
3. |
Nothing contained herein or in the Terms and Conditions
will confer any right upon the Holder hereof or any other person to
subscribe for or purchase any Shares at any time subsequent to the Expiry
Date, and from and after such time, this Warrant and all rights hereunder
will be void and of no value. |
IN WITNESS WHEREOF the Company has executed this Warrant
Certificate this ♦th day of ♦, 2016.
THE ALKALINE WATER COMPANY INC.
Per: |
|
|
Authorized Signatory
|
APPENDIX A
TERMS AND CONDITIONS dated ♦, 2016, attached to the Warrants
issued by The Alkaline Water Company Inc.
1. |
INTERPRETATION |
|
|
1.1 |
Definitions |
In these Terms and Conditions, unless there is something in the
subject matter or context inconsistent therewith:
|
(a) |
Company means The Alkaline Water Company Inc.,
until a successor corporation will have become such as a result of
consolidation, amalgamation or merger with or into any other corporation
or corporations, or as a result of the conveyance or transfer of all or
substantially all of the properties and estates of the Company as an
entirety to any other corporation and thereafter Company will mean such
successor corporation; |
|
|
|
|
(b) |
Companys Auditors means an independent firm of
accountants duly appointed as auditors of the Company; |
|
|
|
|
(c) |
Director means a director of the Company for the
time being, and reference, without more, to action by the directors means
action by the directors of the Company as a Board, or whenever duly
empowered, action by an executive committee of the Board; |
|
|
|
|
(d) |
herein, hereby and similar expressions
refer to these Terms and Conditions as the same may be amended or modified
from time to time; and the expression Article and Section, followed by
a number refer to the specified Article or Section of these Terms and
Conditions; |
|
|
|
|
(e) |
person means an individual, corporation,
partnership, trustee or any unincorporated organization and words
importing persons have a similar meaning; |
|
|
|
|
(f) |
shares means the common shares in the capital of
the Company as constituted at the date hereof and any shares resulting
from any subdivision or consolidation of the shares; |
|
|
|
|
(g) |
Warrant Holders or Holders means the
holders of the Warrants; and |
|
|
|
|
(h) |
Warrants means the warrants of the Company
issued and presently authorized and for the time being
outstanding. |
Words importing the singular number include the plural and vice
versa and words importing the masculine gender include the feminine and neuter
genders.
1.3 |
Interpretation not affected by
Headings |
The division of these Terms and Conditions into Articles and
Sections, and the insertion of headings are for convenience of reference only
and will not affect the construction or interpretation thereof.
The Warrant and the terms hereof are governed by the laws of
the State of Nevada. The Holder, in its personal or corporate capacity and, if
applicable, on behalf of each beneficial purchaser for whom it is acting,
irrevocably attorns to the jurisdiction of the courts of the State of Arizona.
- 2 -
2. |
ISSUE OF WARRANTS |
|
|
2.1 |
Additional Warrants |
The Company may at any time and from time to time issue
additional warrants or grant options or similar rights to purchase shares of its
capital stock.
2.2 |
Warrants to Rank Pari
Passu |
All Warrants and additional warrants, options or similar rights
to purchase shares from time to time issued or granted by the Company, will rank
pari passu whatever may be the actual dates of issue or grant thereof, or
of the dates of the certificates by which they are evidenced.
2.3 |
Issue in substitution for Lost
Warrants |
|
(a) |
In case a Warrant becomes mutilated, lost, destroyed or
stolen, the Company, at its sole discretion, may issue and deliver a new
Warrant of like date and tenor as the one mutilated, lost, destroyed or
stolen, in exchange for and in place of and upon cancellation of such
mutilated Warrant, or in lieu of, and in substitution for such lost,
destroyed or stolen Warrant and the substituted Warrant will be entitled
to the benefit hereof and rank equally in accordance with its terms with
all other Warrants issued or to be issued by the Company. |
|
|
|
|
(b) |
The applicant for the issue of a new Warrant pursuant
hereto will bear the cost of the issue thereof and in case of loss,
destruction or theft furnish to the Company such evidence of ownership and
of loss, destruction, or theft of the Warrant so lost, destroyed or stolen
as will be satisfactory to the Company in its discretion and such
applicant may also be required to furnish indemnity in amount and form
satisfactory to the Company in its sole discretion, and will pay the
reasonable charges of the Company in connection
therewith. |
2.4 |
Warrant Holder Not a
Shareholder |
The holding of a Warrant will not constitute the Holder thereof
as a shareholder of the Company, nor entitle him to any right or interest in
respect thereof except as in the Warrant expressly provided.
3. |
NOTICE |
|
|
3.1 |
Notice to Warrant Holders |
Any notice required or permitted to be given to the Holders
will be in writing and may be given by prepaid registered post, electronic
facsimile transmission or other means of electronic communication capable of
producing a printed copy to the address of the Holder appearing on the Holders
Warrant or to such other address as any Holder may specify by notice in writing
to the Company, and any such notice will be deemed to have been given and
received by the Holder to whom it was addressed if mailed, on the third day
following the mailing thereof, if by facsimile or other electronic
communication, on successful transmission, or, if delivered, on delivery; but if
at the time or mailing or between the time of mailing and the third business day
thereafter there is a strike, lockout, or other labour disturbance affecting
postal service, then the notice will not be effectively given until actually
delivered.
- 3 -
3.2 |
Notice to the Company |
Any notice required or permitted to be given to the Company
will be in writing and may be given by prepaid registered post, electronic
facsimile transmission or other means of electronic communication capable of
producing a printed copy to the address of the Company set forth below or such
other address as the Company may specify by notice in writing to the Holder, and
any such notice will be deemed to have been given and received by the Company to
whom it was addressed if mailed, on the third day following the mailing thereof,
if by facsimile or other electronic communication, on successful transmission, or, if
delivered, on delivery; but if at the time or mailing or between the time of
mailing and the third business day thereafter there is a strike, lockout, or
other labour disturbance affecting postal service, then the notice will not be
effectively given until actually delivered:
The Alkaline Water Company Inc.
7730 E. Greenway Road, Suite 203
Scottsdale, Arizona 85260
U.S.A.
Attention: President
Fax No. (480) 272-7275
4. |
EXERCISE OF WARRANTS |
|
|
4.1 |
Method of Exercise of
Warrants |
The right to purchase shares conferred by the Warrants may be
exercised by the Holder surrendering the Warrant Certificate representing same,
with a duly completed and executed subscription in the form attached hereto and
a bank draft or certified cheque payable to the Company for the purchase price
applicable at the time of surrender in respect of the shares subscribed for in
lawful money of the United States of America, to the Company at the address set
forth in Section 3.2 or from time to time specified by the Company pursuant to
Section 3.1.
4.2 |
Effect of Exercise of
Warrants |
|
(a) |
Upon surrender and payment as aforesaid the shares so
subscribed for will be deemed to have been issued and such person or
persons will be deemed to have become the Holder or Holders of record of
such shares on the date of such surrender and payment, and such shares
will be issued at the subscription price in effect on the date of such
surrender and payment. |
|
|
|
|
(b) |
Within ten business days after surrender and payment as
aforesaid, the Company will forthwith cause to be delivered to the person
or persons in whose name or names the shares so subscribed for are to be
issued as specified in such subscription or mailed to him or them at his
or their respective addresses specified in such subscription, a
certificate or certificates for the appropriate number of shares not
exceeding those which the Warrant Holder is entitled to purchase pursuant
to the Warrant surrendered. |
4.3 |
Subscription for Less Than
Entitlement |
The Holder of any Warrant may subscribe for and purchase a
number of shares less than the number which he is entitled to purchase pursuant
to the surrendered Warrant. In the event of any purchase of a number of shares
less than the number which can be purchased pursuant to a Warrant, the Holder
thereof upon exercise thereof will in addition be entitled to receive a new
Warrant in respect of the balance of the shares which he was entitled to
purchase pursuant to the surrendered Warrant and which were not then purchased.
4.4 |
Warrants for Fractions of
Shares |
To the extent that the Holder of any Warrant is entitled to
receive on the exercise or partial exercise thereof a fraction of a share, such
right may be exercised in respect of such fraction only in combination with
another Warrant or other Warrants which in the aggregate entitle the Holder to
receive a whole number of such shares.
4.5 |
Expiration of Warrants |
After the expiration of the period within which a Warrant is
exercisable, all rights thereunder will wholly cease and terminate and such
Warrant will be void and of no effect.
- 4 -
Time will be of the essence hereof.
Each Warrant is exercisable at a price per share (the
Exercise Price) of US$0.50. One (1) Warrant and the Exercise Price are
required to subscribe for each share during the term of the Warrants.
4.8 |
Adjustment of Exercise
Price |
|
(a) |
The Exercise Price and the number of shares deliverable
upon the exercise of the Warrants will be subject to adjustment in the
event and in the manner following: |
|
(i) |
if and whenever the shares at any time outstanding are
subdivided into a greater or consolidated into a lesser number of shares
the Exercise Price will be decreased or increased proportionately as the
case may be; upon any such subdivision or consolidation the number of
shares deliverable upon the exercise of the Warrants will be increased or
decreased proportionately as the case may be; |
|
|
|
|
(ii) |
in case of any capital reorganization or of any
reclassification of the capital of the Company or in the case of the
consolidation, merger or amalgamation of the Company with or into any
other Company (hereinafter collectively referred to as a
Reorganization), each Warrant will after such Reorganization
confer the right to purchase the number of shares or other securities of
the Company (or of the Companys resulting from such Reorganization) which
the Warrant Holder would have been entitled to upon Reorganization if the
Warrant Holder had been a shareholder at the time of such
Reorganization. |
|
|
|
|
|
In any such case, if necessary, appropriate adjustments
will be made in the application of the provisions of this Section 4.8
relating to the rights and interest thereafter of the Holders of the
Warrants so that the provisions of this Section 4.8 will be made
applicable as nearly as reasonably possible to any shares or other
securities deliverable after the Reorganization on the exercise of the
Warrants. |
|
|
|
|
|
The subdivision or consolidation of shares at any time
outstanding into a greater or lesser number of shares (whether with or
without par value) will not be deemed to be a Reorganization for the
purposes of this clause 4.8(a)(ii). |
|
(b) |
The adjustments provided for in this Section 4.8 are
cumulative and will become effective immediately after the record date or,
if no record date is fixed, the effective date of the event which results
in such adjustments. |
4.9 |
Determination of
Adjustments |
If any questions will at any time arise with respect to the
Exercise Price or any adjustment provided for in Section 4.8, such questions
will be conclusively determined by the Companys Auditors, or, if they decline
to so act any other firm of certified public accountants in the United States of
America that the Company may designate and who will have access to all
appropriate records and such determination will be binding upon the Company and
the Holders of the Warrants.
4.10 |
Certain Exercise
Restrictions |
|
(a) |
Notwithstanding anything to the contrary set forth
herein, at no time may the Holder of any Warrant exercise the Warrants if
the number of shares to be issued pursuant to such
exercise would exceed, when aggregated with all other shares owned by
such Holder at such time, the number of shares which would result in such Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess
of 4.99% of all of the shares outstanding at such time; provided, however, that
upon the Holder providing the Company with sixty-one (61) days notice (pursuant
to Section 3.2 hereof) that such Holder would like to waive this Section 4.10(a)
with regard to any or all shares issuable upon exercise of the Warrants, this
Section 4.10(a) will be of no force or effect with regard to all or a portion of
the Warrants referenced in such notice; provided, further, that this Section
4.10(a) shall be of no further force or effect during the sixty-one (61) days
immediately preceding the expiration of the term of the Warrants. |
- 5 -
|
(b) |
Notwithstanding anything to the contrary set forth
herein, at no time may the Holder of any Warrant exercise the Warrants if
the number of shares to be issued pursuant to such exercise would exceed,
when aggregated with all other shares owned by such Holder at such time,
the number of shares which would result in such Holder beneficially owning
(as determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of
all of the shares outstanding at such time; provided, however, that upon
the Holder providing the Company with sixty-one (61) days notice
(pursuant to Section 3.2 hereof) that such Holder would like to waive this
Section 4.10(b) with regard to any or all shares issuable upon exercise of
the Warrants, this Section 4.10(b) will be of no force or effect with
regard to all or a portion of the Warrants referenced in such notice;
provided, further, that this Section 4.10(b) shall be of no further force
or effect during the sixty-one (61) days immediately preceding the
expiration of the term of the Warrants. |
5. |
WAIVER OF CERTAIN RIGHTS |
|
|
5.1 |
Immunity of Shareholders,
etc. |
The Warrant Holder, as part of the consideration for the issue
of the Warrants, waives and will not have any right, cause of action or remedy
now or hereafter existing in any jurisdiction against any past, present or
future incorporator, shareholder, Director or officer (as such) of the Company
for the issue of shares pursuant to any Warrant or on any covenant, agreement,
representation or warranty by the Company herein contained or in the Warrant.
6. |
MODIFICATION OF TERMS, ETC. |
|
|
6.1 |
Modification of Terms and Conditions for Certain
Purposes |
From time to time the Company may, subject to the provisions of
these presents, modify the Terms and Conditions hereof, for the purpose of
correction or rectification of any ambiguities, defective provisions, errors or
omissions herein.
- 6 -
FORM OF SUBSCRIPTION
TO: |
The Alkaline Water Company Inc. |
|
7730 E. Greenway Road, Suite 203 |
|
Scottsdale, Arizona 85260 |
|
U.S.A. |
|
|
|
Attention: President |
|
Fax No. (480)
272-7275 |
The undersigned Holder of the within Warrants hereby subscribes
for ____________ shares (the Shares) of common stock of The Alkaline
Water Company Inc. (the Company) pursuant to the within Warrants at
US$0.50 per Share on the terms specified in the said Warrants. This subscription is
accompanied by a certified cheque or bank draft payable to or to the order of
the Company for the whole amount of the purchase price of the Shares.
The undersigned represents that, at the time of the exercise of
these Warrants, all of the representations and warranties contained in the
subscription agreement(s) between the Company and the undersigned pursuant to
which these Warrants were issued are true and accurate.
The undersigned hereby directs that the Shares be registered as
follows:
NAME(S) IN FULL |
|
ADDRESS(ES) |
|
NUMBER OF SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL: |
|
|
(Please print full name in which share
certificates are to be issued, stating whether Mr., Mrs. or Miss is
applicable).
DATED
this
day
of
, ______ .
In the presence of:
Signature of Witness
|
|
Signature
of Warrant Holder |
Please print below your name and address in full.
Name (Mr./Mrs./Miss) |
|
|
|
|
|
Address |
|
|
|
|
|
|
|
|
LEGENDS
If and as applicable, the certificates representing the
Shares acquired on the exercise of the Warrants will bear a legend substantially
in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND
HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
- 7 -
INSTRUCTIONS FOR SUBSCRIPTION
The signature to the subscription must correspond in every
particular with the name written upon the face of the Warrant without alteration
or enlargement or any change whatever. If there is more than one subscriber, all
must sign. In the case of persons signing by agent or attorney or by personal
representative(s), the authority of such agent, attorney or representative(s) to
sign must be proven to the satisfaction of the Company. If the Warrant
certificate and the form of subscription are being forwarded by mail, registered
mail must be employed.
|
|
|
|
|
|
|
|
Clark Wilson LLP |
|
|
|
Barristers & Solicitors
|
|
|
|
Patent & Trade-mark Agents
|
Our File No. |
40610-0001 / CW9469058.1 |
|
800-885 W Georgia Street |
|
|
|
|
Vancouver, BC V6C 3H1 |
|
|
|
|
Tel. |
604.687.5700 |
|
|
|
|
Fax |
604.687.6314 |
February 8, 2016
The Alkaline Water Company Inc.
7730 E Greenway Road Ste.
203
Scottsdale, AZ 85260
U.S.A.
Dear Sirs:
| Re: |
The
Alkaline Water Company Inc. - Registration Statement on Form
S-1/A |
We have acted as counsel to The Alkaline Water Company Inc.
(the Company), a Nevada corporation, in connection with the filing of a
registration statement on Form S-1/A (File No. 333-209124) (the Registration
Statement) under the Securities Act of 1933, as amended, with
respect to the offer and sale (the Offering) of up to 9,000,000 shares
of common stock (the Offering Shares), (ii) warrants to purchase up to
4,500,000 shares of common stock (the Offering Warrants) and (ii) up to
4,500,000 shares of common stock issuable upon exercise of the Offering Warrants
(the Offering Warrant Shares), as further described in the Registration
Statement filed on February 8, 2016.
In connection with this opinion, we have examined the following
documents:
|
(a) |
the articles of incorporation of the Company, as
amended; |
|
|
|
|
(b) |
the bylaws of the Company, as amended; |
|
|
|
|
(c) |
the resolutions adopted by the board of directors of the
Company pertaining to the Offering; |
|
|
|
|
(d) |
the Registration Statement; and |
|
|
|
|
(f) |
the prospectuses constituting parts of the Registration
Statement. |
In addition, we have examined such other documents as we have
deemed necessary or appropriate as a basis for the opinions hereinafter
expressed.
We have assumed that the signatures on all documents examined
by us are genuine, that all documents submitted to us as originals are authentic
and that all documents submitted to us as copies or as facsimiles of copies or
originals, conform with the originals, which assumptions we have not
independently verified.
Based upon the foregoing and the examination of such legal
authorities as we have deemed relevant, and subject to the qualifications and
further assumptions set forth below, we are of the opinion that:
- 2 -
|
the Offering Shares, when issued and delivered
by the Company against payment therefor, will be duly and validly
authorized and issued as fully paid and non-assessable shares of common
stock in the capital of the Company; |
|
|
|
the Offering Warrants, when issued and
delivered by the Company against payment therefor in accordance with and
in the manner described in the Registration Statement, will be duly and
validly authorized and issued, and will represent binding obligations of
the Company pursuant to the laws of the State of Nevada; and |
|
|
|
the Offering Warrant Shares, when issued and
delivered by the Company against payment therefor in accordance with terms
of the Offering Warrants, will be duly and validly authorized and issued
as fully paid and non-assessable shares of common stock in the capital of
the Company. |
This opinion letter is opining upon and is limited to the
current federal laws of the United States and Nevada law including the statutory
provisions, all applicable provisions of the Nevada Constitution and reported
judicial decisions interpreting those laws, as such laws presently exist and to
the facts as they presently exist. We express no opinion with respect to the
effect or applicability of the laws of any other jurisdiction. We assume no
obligation to revise or supplement this opinion letter should the laws of such
jurisdiction be changed after the date hereof by legislative action, judicial
decision or otherwise.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the General Rules and Regulations of the
Securities and Exchange Commission.
Yours truly,
CLARK WILSON LLP
/s/ Clark Wilson LLP
THE ALKALINE WATER COMPANY INC. |
|
SUBSCRIPTION AGREEMENT |
(UNITS US$0.33 PER UNIT) |
|
INSTRUCTIONS TO PURCHASER |
1. |
All purchasers must complete all of the information in
the boxes on page 2 and sign where indicated with an X. |
|
|
2. |
If you are a U.S. Purchaser, as defined in the
Accredited Investor Questionnaire, you must complete and sign the
Accredited Investor Questionnaire that starts on page 9. |
|
|
3. |
Certified check or bank draft should be made payable to
The Alkaline Water Company Inc. For wire instructions, contact Richard A.
Wright at ricky@wtfcpa.com. |
- 2 -
THE ALKALINE WATER COMPANY INC.
SUBSCRIPTION AGREEMENT
The undersigned (the Subscriber) hereby irrevocably
subscribes for and agrees to purchase from The Alkaline Water Company Inc. (the
Company) that number of units of the Company (each, a Unit) as
is set out below at a price of US$0.33 per Unit. Each Unit is comprised of one
share of common stock of the Company (each, a Share) and one-half of
one share purchase warrant (each whole warrant, a Warrant). Each
Warrant will entitle the holder thereof to acquire one Share (each, a
Warrant Share) at a price of US$0.50 per Warrant Share until 5:00 p.m.
(Mountain time) on the date of expiration of the Warrant, which is 24 months
following the Closing Date (as defined herein). The Subscriber agrees to be
bound by the terms and conditions set forth in the attached Terms and
Conditions of Subscription for Units.
Subscriber Information |
|
|
Units to be Purchased |
|
|
|
|
Number of
Units:
|
|
|
|
x US$0.33 |
|
(Name of Subscriber)
|
|
|
|
=
|
|
|
|
|
|
|
|
|
Aggregate Subscription Price:
US$
|
X |
|
|
(the Subscription
Amount) |
(Signature
of Subscriber if the Subscriber is an Individual) |
|
|
|
|
|
|
|
|
X |
|
|
|
|
(Signature
of Authorized Signatory if the Subscriber is not an Individual) |
|
Please complete if purchasing as agent or trustee for a
principal (beneficial |
|
|
|
purchaser) (a Disclosed Principal) and not purchasing as
trustee or agent |
|
|
|
for accounts fully managed by it. |
|
(Name and
Title of Authorized Signatory if the Subscriber is not an |
|
|
|
Individual) |
|
|
|
|
|
|
|
(Name of Disclosed Principal) |
|
|
|
|
|
|
(SSN or
other Tax Identification Number of the Subscriber) |
|
|
|
|
|
|
(Address of Disclosed Principal) |
|
|
|
|
|
|
(Subscribers Address, including city and state of residence)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(SSN or other Tax Identification Number of Disclosed Principal)
|
|
|
|
|
|
(Telephone Number) |
(Email Address) |
|
|
|
|
|
|
|
|
Register the Shares and Warrants as set forth
below: |
|
Deliver the Shares and Warrants as set forth
below: |
|
|
|
|
|
(Name to Appear on
Share and Warrant Certificate) |
|
|
(Name) |
|
|
|
|
|
|
|
|
|
(Address) |
|
(Address, including
Postal Code) |
|
|
|
|
|
|
|
|
|
|
|
|
(Contact Name) |
(Telephone Number) |
|
|
|
|
|
|
|
|
|
|
Number
and kind of securities of the Company held, directly or |
|
|
|
indirectly, or over which control or direction is exercised
by the |
|
|
|
Subscriber, if
any: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCEPTANCE: The Company hereby accepts the subscription as set
forth above on the terms and conditions contained in this Subscription
Agreement.
THE ALKALINE WATER COMPANY INC. |
_________________________, 2016
|
Per: |
|
|
Authorized Signatory
|
TERMS AND CONDITIONS OF SUBSCRIPTION FOR UNITS
1.1
On the basis of the representations and warranties and subject to the terms and
conditions set forth herein, the undersigned (the Subscriber) hereby
irrevocably subscribes for and agrees to purchase such number of Units as is set
forth on page 2 of this subscription agreement (the Agreement) at a
price of US$0.33 per Unit for the Subscription Amount, as set forth
on page 2 of the Agreement, which is tendered herewith (such subscription and
agreement to purchase being the Subscription).
1.2
Each Unit will consist of one Share and one-half of one Warrant. Each Warrant
will entitle the holder thereof to purchase one Warrant Share, as presently
constituted, for a period of 24 months commencing from the Closing Date at an
exercise price of US$0.50 per Warrant Share. The Units, Shares, Warrants and
Warrant Shares are referred to herein as the Securities.
1.3
The Company hereby agrees to sell the Units to the Subscriber on the basis of
the representations and warranties and subject to the terms and conditions set
forth in this Agreement. Subject to the terms of this Agreement, this Agreement
will be effective upon its acceptance by the Company.
1.4
The Subscriber acknowledges that the Subscriber has received the prospectus (the
Prospectus) describing the offering (the Offering) of the
Units by the Company as filed with the United States Securities and Exchange
Commission.
1.5
Unless otherwise provided, all dollar amounts referred to in this Agreement are
in lawful money of the United States.
2.1
The Subscription Amount must accompany this Subscription and shall be paid by
certified cheque or bank draft drawn on a bank in the United States reasonably
acceptable to the Company, and made payable and delivered to the Company.
Alternatively, the Subscription Amount may be wired to the Company or its
lawyers pursuant to wiring instructions provided by the Company or its lawyers.
If the funds are wired to the Companys lawyers, the Subscriber authorizes such
lawyers to immediately deliver the funds to the Company upon receipt of the
funds from the Subscriber. The Subscriber authorizes the Company to treat the
Subscription Amount as an interest free loan until the closing of the Offering
(the Closing).
2.2
The Subscriber acknowledges and agrees that this Agreement, the Subscription
Amount and any other documents delivered in connection herewith will be held on
behalf of the Company. In the event that this Agreement is not accepted by the
Company for whatever reason, which the Company expressly reserves the right to
do, the Subscription Amount (without interest thereon) and any other documents
delivered in connection herewith will be returned to the Subscriber at the
address of the Subscriber as set forth on page 2 of this Agreement.
3. |
Documents Required from
Subscriber |
3.1
The Subscriber must complete, sign and return to the Company the following
documents:
|
(a) |
an executed copy of this Agreement; and |
|
|
|
|
(b) |
if the Subscriber is a U.S. Purchaser (as defined in
Exhibit A), an Accredited Investor Questionnaire (the
Questionnaire) attached as Exhibit A
hereto. |
3.2
The Subscriber shall complete, sign and return to the Company as soon as
possible, on request by the Company, any additional documents, questionnaires,
notices and undertakings as may be required by any regulatory authorities and
applicable law.
- 4 -
3.3
Both parties to this Agreement acknowledge and agree that Clark Wilson LLP has
acted as counsel only to the Company and is not protecting the rights and
interests of the Subscriber. The Subscriber acknowledges and agrees that the
Company and Clark Wilson LLP have given the Subscriber the opportunity to seek,
and have recommended that the Subscriber obtain, independent legal advice with
respect to the subject matter of this Agreement and, further, the Subscriber
hereby represents and warrants to the Company and Clark Wilson LLP that the
Subscriber has sought independent legal advice or waives such advice.
4. |
Conditions and
Closing |
4.1
The Closing shall occur on a date to be determined by the Company in its sole
discretion (the Closing Date), provided that the Closing Date is on or
prior to May 6, 2016. The Company may, at its discretion, elect to close the
Offering in one or more closings, in which event the Company may agree with one
or more subscribers (including the Subscriber to this Agreement) to complete
delivery of the Shares and Warrants to such subscriber(s) against payment
therefor at any time on or prior to the Closing Date.
5. |
Acknowledgements and Agreements of
Subscriber |
5.1
The Subscriber acknowledges and agrees that:
|
(a) |
the decision to acquire the Securities will not be based
upon any oral representation as to fact or otherwise made by or on behalf
of the Company and such decision will be based entirely upon a review of
the Prospectus; |
|
|
|
|
(b) |
there are risks associated with an investment in the
Securities; |
|
|
|
|
(c) |
all of the information which the Subscriber has provided
to the Company is correct and complete as of the date this Agreement is
signed, and if there should be any change in such information prior to
this Agreement being executed by the Company, the Subscriber will
immediately provide the Company with such information; |
|
|
|
|
(d) |
the Company is entitled to rely on the representations
and warranties of the Subscriber contained in this Agreement and, if
applicable, the Questionnaire and the Subscriber will hold harmless the
Company from any loss or damage it or they may suffer as a result of the
Subscribers failure to correctly complete this Agreement or, if
applicable, the Questionnaire; |
|
|
|
|
(e) |
the Subscriber will indemnify and hold harmless the
Company and, where applicable, its directors, officers, employees, agents,
advisors and shareholders, from and against any and all loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any
and all fees, costs and expenses whatsoever reasonably incurred in
investigating, preparing or defending against any claim, lawsuit,
administrative proceeding or investigation whether commenced or
threatened) arising out of or based upon any representation or warranty of
the Subscriber contained in this Agreement, if applicable, the
Questionnaire or in any document furnished by the Subscriber to the
Company in connection herewith being untrue in any material respect or any
breach or failure by the Subscriber to comply with any covenant or
agreement made by the Subscriber to the Company in connection
therewith; |
|
|
|
|
(f) |
the Subscriber has been advised to consult the
Subscribers own legal, tax and other advisors with respect to the merits
and risks of an investment in the Securities and with respect to
applicable resale restrictions, and it is solely responsible (and the
Company is not in any way responsible) for compliance
with: |
|
(i) |
any applicable laws of the jurisdiction in which the
Subscriber is resident in connection with the distribution of the
Securities hereunder, and |
|
|
|
|
(ii) |
applicable resale
restrictions; |
- 5 -
|
(g) |
the Company will refuse to register the transfer any of
the Securities not made pursuant to an effective registration statement
under the 1933 Act or pursuant to an available exemption from the
registration requirements of the 1933 Act and in each case in accordance
with applicable securities laws; |
|
|
|
|
(h) |
no securities commission or similar regulatory authority
has reviewed or passed on the merits of any of the Securities; |
|
|
|
|
(i) |
there is no government or other insurance covering any of
the Securities; |
|
|
|
|
(j) |
by execution hereof, the Subscriber has waived the need
for the Company to communicate its acceptance of the purchase of the Units
pursuant to this Agreement; and |
|
|
|
|
(k) |
this Agreement is not enforceable by the Subscriber
unless it has been accepted by the Company, and the Subscriber
acknowledges and agrees that the Company reserves the right to reject any
Subscription for any reason whatsoever. |
6. |
Representations, Warranties and Covenants of the
Subscriber |
6.1
The Subscriber hereby represents and warrants to and covenants with the Company
(which representations, warranties and covenants shall survive the Closing)
that:
|
(a) |
unless the Subscriber has completed Exhibit A, the
Subscriber is not a U.S. Person; |
|
|
|
|
(b) |
the Subscriber is resident in the jurisdiction shown as
the Subscribers Address on page 2 of this Agreement; |
|
|
|
|
(c) |
if the Subscriber is resident outside of the United
States: |
|
(i) |
the Subscriber is knowledgeable of, or has been
independently advised as to, the applicable securities laws having
application in the jurisdiction in which the Subscriber is resident (the
International Jurisdiction) which would apply to the offer and
sale of the Securities, |
|
|
|
|
(ii) |
the Subscriber is purchasing the Securities pursuant to
exemptions from prospectus or equivalent requirements under applicable
securities laws of the International Jurisdiction or, if such is not
applicable, the Subscriber is permitted to purchase the Securities under
applicable securities laws of the International Jurisdiction without the
need to rely on any exemptions, |
|
|
|
|
(iii) |
the applicable securities laws of the International
Jurisdiction do not require the Company to make any filings or seek any
approvals of any kind from any securities regulator of any kind in the
International Jurisdiction in connection with the offer, issue, sale or
resale of any of the Securities, |
|
|
|
|
(iv) |
the purchase of the Securities by the Subscriber does not
trigger: |
|
A. |
any obligation to prepare and file a prospectus or
similar document, or any other report with respect to such purchase in the
International Jurisdiction, or |
|
|
|
|
B. |
any continuous disclosure reporting obligation of the
Company in the International Jurisdiction, and |
|
(v) |
the Subscriber will, if requested by the Company, deliver
to the Company a certificate or opinion of local counsel from the
International Jurisdiction which will confirm
the matters referred to in subparagraphs (ii), (iii) and (iv) above
to the satisfaction of the Company, acting reasonably; |
- 6 -
|
(d) |
the Subscriber has the legal capacity and competence to
enter into and execute this Agreement and to take all actions required
pursuant hereto and, if the Subscriber is a corporate entity, it is duly
incorporated and validly subsisting under the laws of its jurisdiction of
incorporation and all necessary approvals by its directors, shareholders
and others have been obtained to authorize execution and performance of
this Agreement on behalf of the Subscriber; |
|
|
|
|
(e) |
the entering into of this Agreement and the transactions
contemplated hereby do not result in the violation of any of the terms and
provisions of any law applicable to, or the constating documents of, the
Subscriber or of any agreement, written or oral, to which the Subscriber
may be a party or by which the Subscriber is or may be bound; |
|
|
|
|
(f) |
the Subscriber has duly executed and delivered this
Agreement and it constitutes a valid and binding agreement of the
Subscriber enforceable against the Subscriber; |
|
|
|
|
(g) |
the Subscriber has received and carefully read this
Agreement and the Prospectus; |
|
|
|
|
(h) |
the Subscriber is aware that an investment in the Company
is speculative and involves certain risks (including those risks disclosed
in the Prospectus), including the possible loss of the entire
investment; |
|
|
|
|
(i) |
the Subscriber understands and agrees that the Company
and others will rely upon the truth and accuracy of the acknowledgements,
representations, warranties, covenants and agreements contained in this
Agreement and, if applicable, the Questionnaire and agrees that if any of
such acknowledgements, representations and agreements are no longer
accurate or have been breached, the Subscriber shall promptly notify the
Company; |
|
|
|
|
(j) |
the Subscriber is not an underwriter of, or dealer in,
the Securities, nor is the Subscriber participating, pursuant to a
contractual agreement or otherwise, in the distribution of the
Securities; |
|
|
|
|
(k) |
the Subscriber understands and agrees that there may be
material tax consequences to the Subscriber of an acquisition or
disposition of the Securities. The Company gives no opinion and makes no
representation with respect to the tax consequences to the Subscriber
under federal, state, local or foreign tax law of the Subscribers
acquisition or disposition of the Securities; |
|
|
|
|
(l) |
no person has made to the Subscriber any written or oral
representations: |
|
(i) |
that any person will resell or repurchase any of the
Securities, |
|
|
|
|
(ii) |
that any person will refund the purchase price of any of
the Securities, or |
|
|
|
|
(iii) |
as to the future price or value of any of the Securities,
or |
|
|
|
|
(iv) |
that any of the Securities will be listed and posted for
trading on any stock exchange or automated dealer quotation system or that
application has been made to list and post any of the Securities on any
stock exchange or automated dealer quotation system, except that certain
market makers make market in the Companys shares of common stock on the
OTCQB marketplace operated by the OTC Markets Group,
and |
|
(m) |
the Subscriber acknowledges and agrees that the Company
shall not consider the Subscribers Subscription for acceptance unless the
Subscriber provides to the Company, along with an executed copy of this
Agreement: |
- 7 -
|
(i) |
if the Subscriber is a U.S. Purchaser (as defined in
Exhibit A), fully completed and executed Questionnaire in the form
attached hereto as Exhibit A; and |
|
|
|
|
(ii) |
such other supporting documentation that the Company or
its legal counsel may request to establish the Subscribers qualification
as a qualified investor. |
6.2
In this Agreement and the Questionnaire, the term U.S. Person shall have the
meaning ascribed thereto in Regulation S promulgated under the 1933 Act and for
the purpose of this Agreement includes any person in the United States.
7. |
Representations and Warranties will be Relied Upon
by the Company |
7.1
The Subscriber acknowledges that the representations and warranties contained
herein are made by the Subscriber with the intention that such representations
and warranties may be relied upon by the Company and its legal counsel in
determining the Subscribers eligibility to purchase the Securities under
applicable securities laws, or (if applicable) the eligibility of others on
whose behalf the Subscriber is contracting hereunder to purchase the Securities
under applicable securities laws. The Subscriber further agrees that by
accepting delivery of the certificates representing the Securities on the
Closing Date, it will be representing and warranting that the representations
and warranties contained herein are true and correct as at the Closing Date with
the same force and effect as if they had been made by the Subscriber on the
Closing Date and that they will survive the purchase by the Subscriber of the
Securities and will continue in full force and effect notwithstanding any
subsequent disposition by the Subscriber of such Securities.
8.1
The Subscriber hereby waives, to the fullest extent permitted by law, any rights
of withdrawal, rescission or compensation for damages to which the Subscriber
might be entitled in connection with the distribution of any of the Securities.
9. |
Collection of Personal
Information |
9.1
The Subscriber acknowledges and consents to the fact that the Company is
collecting the Subscribers personal information for the purpose of fulfilling
this Agreement and completing the Offering. The Subscribers personal
information (and, if applicable, the personal information of those on whose
behalf the Subscriber is contracting hereunder) may be disclosed by the Company
to (a) stock exchanges or securities regulatory authorities, (b) the Companys
registrar and transfer agent, (c) tax authorities and any other governmental
authorities and (d) any of the other parties involved in the Offering, including
legal counsel, and may be included in record books in connection with the
Offering. By executing this Agreement, the Subscriber is deemed to be consenting
to the collection, use and disclosure of the Subscribers personal information
(and, if applicable, the personal information of those on whose behalf the
Subscriber is contracting hereunder) for the foregoing purposes, and to the
retention of such personal information for as long as permitted or required by
law or business practice. Notwithstanding that the Subscriber may be purchasing
Securities as agent on behalf of an undisclosed principal, the Subscriber agrees
to provide, on request, particulars as to the identity of such undisclosed
principal as may be required by the Company in order to comply with the
foregoing.
10.1
The Subscriber acknowledges and agrees that all costs and expenses incurred by
the Subscriber (including any fees and disbursements of any special counsel
retained by the Subscriber) relating to the purchase of the Securities shall be
borne by the Subscriber.
11. |
Execution of Subscription
Agreement |
11.1
The Company shall be entitled to rely on delivery by facsimile machine or e-mail
of an executed copy of this Agreement, and acceptance by the Company of such
facsimile or e-mail copy shall be equally effective to create a valid and binding agreement between the Subscriber
and the Company in accordance with the terms hereof. If less than a complete
copy of this Agreement is delivered to the Company at Closing, the Company and
its counsel are entitled to assume that the Subscriber accepts and agrees to all
of the terms and conditions of the pages not delivered at Closing unaltered.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which together shall constitute one and
the same Agreement.
- 8 -
11.2
The Subscriber hereby authorizes the Company to correct any minor errors in, or
complete any minor information missing from any part of this Agreement and any
other acknowledgements, provisions, forms, certificates or documents executed by
the Subscriber and delivered to the Company in connection with the Subscription.
12. |
Beneficial
Subscribers |
12.1
Whether or not explicitly stated in this Agreement, any acknowledgement,
representation, warranty, covenant or agreement made by the Subscriber in this
Subscription Agreement, including the exhibits hereto, will be treated as if
made by the disclosed beneficial subscriber, if any.
13.1
This Agreement is governed by the laws of the State of Nevada and the federal
laws of the United States applicable therein. The Subscriber, in its personal or
corporate capacity and, if applicable, on behalf of each beneficial purchaser
for whom it is acting, irrevocably attorns to the jurisdiction of the courts of
the State of Arizona.
14.1
This Agreement, including, without limitation, the representations, warranties
and covenants contained herein, shall survive and continue in full force and
effect and be binding upon the parties hereto notwithstanding the completion of
the purchase of the Securities by the Subscriber pursuant hereto.
15.1
The invalidity or unenforceability of any particular provision of this Agreement
shall not affect or limit the validity or enforceability of the remaining
provisions of this Agreement.
16.1
Except as expressly provided in this Agreement and in the agreements,
instruments and other documents contemplated or provided for herein, this
Agreement contains the entire agreement between the parties with respect to the
sale of the Units and there are no other terms, conditions, representations or
warranties, whether expressed, implied, oral or written, by statute or common
law, by the Company or by anyone else.
17.1
All notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Subscriber shall be directed to the address of
the Subscriber set forth on page 2 of this Agreement and notices to the Company
shall be directed to it at 7730 E Greenway Road, Ste. 203, Scottsdale, Arizona
85260, Attention: President.
- 9 -
18. |
Counterparts and Electronic
Means |
18.1
This Agreement may be executed in any number of counterparts, each of which,
when so executed and delivered, shall constitute an original and all of which
together shall constitute one instrument. Delivery of an executed copy of this
Agreement by electronic facsimile transmission or other means of electronic
communication capable of producing a printed copy will be deemed to be
execution and delivery of this Agreement as of the date hereinafter set forth.
- 10 -
EXHIBIT A
ACCREDITED INVESTOR QUESTIONNAIRE
All capitalized terms herein, unless otherwise defined, have
the meanings ascribed thereto in the Subscription Agreement between The Alkaline
Water Company Inc. (the Company) and the undersigned Subscriber.
This Questionnaire applies only to persons that are U.S.
Purchasers. A U.S. Purchaser is: (a) any U.S. Person, (b) any person
purchasing the Units on behalf of any U.S. Person, (c) any person that receives
or received an offer of the Units while in the United States, or (d) any person
that is in the United States at the time the Subscribers buy order was made or
this Agreement was executed or delivered.
The purpose of this Questionnaire is to assure the Company that
the Subscriber will meet the standards imposed by the appropriate exemptions of
applicable state securities laws. The Company will rely on the information
contained in this Questionnaire for the purposes of such determination. This
Questionnaire is not an offer of the Securities or any other securities of the
Company in any state other than those specifically authorized by the Company.
By signing and returning this Questionnaire, the Subscriber
agrees that, if necessary, this Questionnaire may be presented to such parties
as the Company deems appropriate to establish the availability, under applicable
state securities law, of an exemption from registration in connection with the
sale of the Securities hereunder.
The Subscriber covenants, represents and warrants to the
Company that it satisfies one or more of the categories of Accredited
Investors, as defined by Regulation D promulgated under the United States
Securities Act of 1933 (the 1933 Act), as indicated below: (Please
initial in the space provide those categories, if any, of an Accredited
Investor which the Subscriber satisfies)
Category
1 An organization described in Section
501(c)(3) of the United States Internal Revenue Code, a corporation, a
Massachusetts or similar business trust or partnership, not formed for the
specific purpose of acquiring the Securities, with total assets in excess of
US$5,000,000;
Category
2 A natural person whose individual net
worth, or joint net worth with that persons spouse, exceeds US$1,000,000. For
purposes of this Category 2, "net worth" means the excess of total assets at
fair market value (including personal and real property, but excluding the
estimated fair market value of a person's primary home) over total liabilities.
Total liabilities excludes any mortgage on the primary home in an amount of up
to the home's estimated fair market value as long as the mortgage was incurred
more than 60 days before the Securities are acquired, but includes (i) any
mortgage amount in excess of the home's fair market value and (ii) any mortgage
amount that was borrowed during the 60-day period before the date of the
acquisition of Securities for the purpose of investing in the Securities;
Category
3 A natural person who had an individual
income in excess of US$200,000 in each of the two most recent years or joint
income with that persons spouse in excess of US$300,000 in each of those years
and has a reasonable expectation of reaching the same income level in the
current year;
____ Category
4 A bank as defined under Section (3)(a)(2)
of the 1933 Act or savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the 1933 Act acting in its individual or fiduciary
capacity; a broker dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934 (United States); an insurance company as defined in
Section 2(13) of the 1933 Act; an investment company registered under the
Investment Company Act of 1940 (United States) or a business development
company as defined in Section 2(a)(48) of such Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958 (United States); a
plan with total assets in excess of US$5,000,000 established and maintained by a
state, a political subdivision thereof, or an agency or instrumentality of a
state or a political subdivision thereof, for the benefit of its employees; an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 (United States) whose investment decisions are made by
a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company or registered investment
adviser, or if the employee benefit plan has total assets in excess of
US$5,000,000, or, if a self-directed plan, whose investment decisions are made
solely by persons that are accredited investors;
- 11 -
____ Category
5 A private
business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940 (United States);
Category
6 A director or
executive officer of the Company;
____ Category
7 A trust with total
assets in excess of US$5,000,000, not formed for the specific purpose of
acquiring the Securities, whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii) under the 1933 Act;
____ Category
8 An entity in which all
of the equity owners satisfy the requirements of one or more of the foregoing
categories;
Note that the Subscriber claiming to satisfy one of the above
categories of Accredited Investor may be required to supply the Company with a
balance sheet, prior years federal income tax returns or other appropriate
documentation to verify and substantiate the Subscribers status as an
Accredited Investor.
If the Subscriber is an entity which initialled Category 8 in
reliance upon the Accredited Investor categories above, state the name, address,
total personal income from all sources for the previous calendar year, and the
net worth (exclusive of home, home furnishings and personal automobiles) for
each equity owner of the said entity:
The Subscriber hereby certifies that the information contained
in this Questionnaire is complete and accurate and the Subscriber will notify
the Company promptly of any change in any such information. If this
Questionnaire is being completed on behalf of a corporation, partnership, trust
or estate, the person executing on behalf of the Subscriber represents that it
has the authority to execute and deliver this Questionnaire on behalf of such
entity.
IN WITNESS WHEREOF, the undersigned has executed this
Questionnaire as of the ____ day of ________________, 2016.
|
Print or
Type Name of Entity |
|
|
|
Signature of Authorized Signatory |
|
|
|
Type of Entity |
SEALE AND BEERS, CPAs
PCAOB REGISTERED
AUDITORS
www.sealebeers.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We consent to the use, in the statement on Form S-1/A of The
Alkaline Water Company Inc of our report dated July 13th, 2015 on our audit of
the financial statements of The Alkaline Water Company Inc as of March 31, 2015
and March 31, 2014, and the related statements of operations, stockholders
equity and cash flows for the years ended March 31, 2015 and March 31, 2014, and
the reference to us under the caption Experts.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
February 8, 2016
8250 W. Charleston Blvd, Suite 100 - Las Vegas, NV 89145
Phone: (888)727-8251 Fax: (888)782-2351
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