The accompanying notes are an integral part of these condensed
consolidated financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(unaudited)
|
|
|
For the quarter ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(1,013,631
|
)
|
$
|
(1,554,630
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in
operating
|
|
|
|
|
|
|
Depreciation
expense
|
|
89,439
|
|
|
71,029
|
|
Stock compensation expense
|
|
142,625
|
|
|
642,872
|
|
Amortization of
debt discount and accretion
|
|
79,049
|
|
|
6,583
|
|
Interest expense relating to
amortization of capital lease discount
|
|
25,752
|
|
|
25,524
|
|
Change in
derivative liabilities
|
|
(4,306
|
)
|
|
168,164
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(26,561
|
)
|
|
(73,213
|
)
|
Inventory
|
|
(74,492
|
)
|
|
(18,766
|
)
|
Prepaid expenses and other current assets
|
|
206
|
|
|
-
|
|
Accounts payable
|
|
(247,813
|
)
|
|
197,933
|
|
Accounts payable - related party
|
|
-
|
|
|
(43,036
|
)
|
Accrued expenses
|
|
35,953
|
|
|
10,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN
OPERATING ACTIVITIES
|
|
(993,779
|
)
|
|
(566,977
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
(49,310
|
)
|
|
(2,850
|
)
|
Equipment Deposits
- related party
|
|
(67,619
|
)
|
|
(24,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
(116,929
|
)
|
|
(27,848
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from notes
payable
|
|
260,000
|
|
|
250,000
|
|
Proceeds from convertible note
payable
|
|
-
|
|
|
50,000
|
|
Proceeds from
revolving financing
|
|
70,532
|
|
|
(34,005
|
)
|
Proceeds from sale of common
stock, net
|
|
425,000
|
|
|
480,800
|
|
Repayment of notes
payable
|
|
(341,863
|
)
|
|
-
|
|
Repayment of capital lease
|
|
(57,360
|
)
|
|
(48,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY
FINANCING ACTIVITIES
|
|
356,309
|
|
|
698,667
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
(754,399
|
)
|
|
103,842
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD
|
|
1,192,119
|
|
|
90,113
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
$
|
437,720
|
|
$
|
193,955
|
|
|
|
|
|
|
|
|
INTEREST PAID
|
$
|
19,162
|
|
$
|
30,167
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
THE ALKALINE WATER COMPANY INC.
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(unaudited)
|
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements included herein 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 U.S. generally accepted accounting principles have been omitted. However,
in the opinion of management, all adjustments (which include only normal
recurring adjustments, unless otherwise indicated) necessary to present fairly
the financial position and results of operations for the periods presented have
been made. The results for interim periods are not necessarily indicative of
trends or of results to be expected for the full year. These financial
statements should be read in conjunction with the financial statements of the
Company for the year ended March 31, 2016 (including the notes thereto) set
forth on Form 10-K. The Company uses as guidance the Accounting Standard
Codification (ASC) as established by the Financial Accounting Standards Board
(FASB).
Principles of consolidation
The consolidated financial statements include the accounts of
The Alkaline Water Company Inc. (a Nevada Corporation), Alkaline Water Corp. (an
Arizona Corporation) and Alkaline 88, LLC (an Arizona Limited Liability
Company).
All significant intercompany balances and transactions have
been eliminated. The Alkaline Water Company Inc. (a Nevada Corporation),
Alkaline Water Corp. (an Arizona Corporation) and Alkaline 88, LLC (an Arizona
Limited Liability Company) will be collectively referred herein to as the
Company. Any reference herein to The Alkaline Water Company Inc., the
Company, we, our or us is intended to mean The Alkaline Water Company
Inc., including the subsidiaries indicated above, unless otherwise
indicated.
Reverse split
Effective December 30, 2015, the Company effected a fifty for
one reverse stock split of its authorized and issued and outstanding shares of
common stock. As a result, the authorized common stock has decreased from
1,125,000,000 shares of common stock, with a par value of $0.001 per share, to
22,500,000 shares of common stock, with a par value of $0.001 per share. All
shares and per share amounts have been retroactively restated to reflect such
split.
On January 21, 2016, stockholders of our company approved, by
written consents, an amendment to the articles of incorporation of our company
to increase the number of authorized shares of our common stock from 22,500,000
to 200,000,000.
The Company received written consents representing 20,776,000
votes from the holders of shares of its common stock and our Series A Preferred
Stock voting as a single class, representing approximately 61% of the voting
power of its outstanding common stock and its outstanding Series A Preferred
Stock voting as a single class as of the record date (January 12, 2016). On
January 21, 2016, there were no written consents received by the Company
representing a vote against, abstention or broker non-vote with respect to the
proposal.
6
Our authorized preferred stock was not affected by the reverse
stock split and continues to be 100,000,000 shares of preferred stock, with a
par value of $0.001 per share. In addition, the number of issued and outstanding
shares of Series A Preferred Stock continues to be 20,000,000. However, holders
of Series A Preferred Stock had 0.2 vote per share of Series A Preferred Stock,
instead of 10 votes per share of Series A Preferred Stock, as a result of the
reverse stock split.
On January 22, 2016, the Company amended the certificate of
designation for our Series A Preferred Stock by filing an amendment to
certificate of designation with the Secretary of State of the State of Nevada.
The Company amended the certificate of designation for our Series A Preferred
Stock by deleting Section 2.2 of the certificate of designation, which
proportionately increases or decreases the number of votes per share of Series A
Preferred Stock in the event of any dividend or other distribution on our common
stock payable in its common stock or a subdivision or consolidation of the
outstanding shares of its common stock. Accordingly, holders of Series A
Preferred Stock will have 10 votes per share of Series A Preferred Stock,
instead of 0.2 votes per share of Series A Preferred Stock.
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
$437,750 and $193,955 in cash and cash equivalents at June 30, 2016 and 2015,
respectively.
Accounts receivable and allowance for doubtful
accounts
The Company generally does not require collateral, and the
majority of its trade receivables are unsecured. The carrying amount for
accounts receivable approximates fair value.
Accounts receivable 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 June 30, 2016 and March, 31 2016, inventory consisted of
the following:
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
359,466
|
|
$
|
300,575
|
|
Finished goods
|
|
149,734
|
|
|
134,133
|
|
Total inventory
|
$
|
509,200
|
|
$
|
434,708
|
|
Property and equipment
7
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 Standards Codification (ASC) 718. Stock-based
compensation to employees is measured at the grant date, based on the fair value
of the award, and is recognized as expense over the requisite employee service
period. The Company accounts for stock-based compensation to other than
employees in accordance with ASC 505-50. Equity instruments issued to other than
employees are valued at the earlier of a commitment date or upon completion of
the services, based on the fair value of the equity instruments and is
recognized as expense over the service period. The Company estimates the fair
value of stock-based payments using the Black-Scholes option-pricing model for
common stock options and warrants and the closing price of the Companys common
stock for common share issuances.
Revenue recognition
The Company recognizes revenue when all of the following
conditions are satisfied: (1) there is persuasive evidence of an arrangement;
(2) the product or service has been provided to the customer; (3) the amount to
be paid by the customer is fixed or determinable; and (4) the collection of such
amount is probable.
The Company records revenue when it is realizable and earned
upon shipment of the finished products. The Company does not accept returns due
to the nature of the product. However, the Company will provide credit to our
customers for damaged goods.
Fair value measurements
The valuation of our embedded derivatives and warrant
derivatives are determined primarily by the multinomial distribution (Lattice)
model. An embedded derivative is a derivative instrument that is embedded within
another contract, which under the convertible note (the host contract) includes
the right to convert the note by the holder, certain default redemption right
premiums and a change of control premium (payable in cash if a fundamental
change occurs). In accordance with ASC 815
Accounting for Derivative
Instruments and Hedging Activities
, as amended, these embedded derivatives
are marked-to-market each reporting period, with a corresponding non-cash gain
or loss charged to the current period. A warrant derivative liability is also
determined in accordance with ASC 815. Based on ASC 815, warrants which are
determined to be classified as derivative liabilities are marked-to-market each
reporting period, with a corresponding non-cash gain or loss charged to the
current period. The practical effect of this has been that when our stock price
increases so does our derivative liability resulting in a non-cash loss charge
that reduces our earnings and earnings per share. When our stock price declines,
the Company records a non-cash gain, increasing our earnings and earnings per
share. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, there exists a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value as follows:
Level 1
|
unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access
as of the measurement date.
|
|
|
Level 2
|
inputs other than quoted prices included within
Level 1 that are directly observable for the asset or liability or
indirectly observable through corroboration with observable market data.
|
8
Level 3
|
unobservable inputs for the asset or liability only used
when there is little, if any, market activity for the asset or liability
at the measurement date.
|
This hierarchy requires the Company to use observable market
data, when available, and to minimize the use of unobservable inputs when
determining fair value.
To determine the fair value of our embedded derivatives,
management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include our period end stock
price, historical stock volatility, risk free interest rate and derivative term.
The fair value recorded for the derivative liability varies from period to
period. This variability may result in the actual derivative liability for a
period either above or below the estimates recorded on our consolidated
financial statements, resulting in significant fluctuations in other income
(expense) because of the corresponding non-cash gain or loss recorded.
Income taxes
In accordance with ASC 740
Accounting for Income
Taxes
, the provision for income taxes is computed using the asset and
liability method. Under the asset and liability method, deferred income tax
assets and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the currently enacted tax rates and laws. A valuation allowance is
provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized.
Basic and diluted loss per share
Basic and diluted earnings or loss per share (EPS) amounts in
the consolidated financial statements are computed in accordance ASC 260 10
Earnings per Share
, which establishes the requirements for presenting
EPS. Basic EPS is based on the weighted average number of common shares
outstanding. Diluted EPS is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents. Basic EPS is computed
by dividing net income or loss available to common stockholders (numerator) by
the weighted average number of common shares outstanding (denominator) during
the period. Potentially dilutive securities were excluded from the calculation
of diluted loss per share, because their effect would be anti-dilutive.
Reclassification
Certain accounts in the prior period were reclassified to
conform to the current period financial statements presentation.
Newly issued accounting pronouncements
During the period ended June 30, 2016, 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
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 June 30, 2016 of
($20,947,565). In addition, the Companys development activities since inception
have been financially sustained through debt and equity financing.
9
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:
|
|
June
30, 2016
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
$
|
1,015,728
|
|
$
|
970,728
|
|
Machinery under Capital Lease
|
|
735,781
|
|
|
735,781
|
|
Office Equipment
|
|
57,941
|
|
|
53,631
|
|
Leasehold Improvements
|
|
3,979
|
|
|
3,979
|
|
|
|
|
|
|
|
|
Less: Accumulated Depreciation
|
|
(627,024
|
)
|
|
(537,585
|
)
|
Fixed Assets, net
|
$
|
1,186,405
|
|
$
|
1,226,534
|
|
Depreciation expense for the years ended June 30, 2016 and June
30 2015 was $89,439 and $71,029, respectively.
NOTE 4 EQUIPMENT DEPOSITS RELATED PARTY
During the three month period ending June 30, 2016 the company
made a net deposit on equipment of $67,619 to Water Engineering Solutions.
During the three month period ending June 30, 2015 the company made a net
deposit on equipment of $24,998 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.
NOTE 5 REVOLVING FINANCING
On February 20, 2014, The Alkaline Water Company Inc., and
subsidiaries, Alkaline 88, LLC and Alkaline Water Corp., entered into a
revolving accounts receivable funding agreement with Gibraltar Business Capital,
LLC (Gibraltar). Under the agreement, from time to time, the Company agreed to
tender to Gibraltar all of our accounts (which is defined as our rights to
payment whether or not earned by performance, (i) for property that has been or
is to be sold, leased, licensed, assigned or otherwise disposed of, or (ii) for
services rendered or to be rendered, or (iii) as otherwise defined in the
Uniform Commercial Code of the State of Illinois). Gibraltar will have the
right, but will not be obligated, to purchase such accounts tendered in its sole
discretion. If Gibraltar purchases such accounts, Gibraltar will make cash
advances to us as the purchase price for the purchased accounts.
The Company assumed full risk of non-payment and
unconditionally guaranteed the full and prompt payment of the full face amount
of all purchased accounts. The Company also agreed to direct all parties
obligated to pay the accounts to send all payments for all accounts directly to
Gibraltar. All collections from accounts will be applied to our indebtedness,
which is defined as the amount owed by us to Gibraltar from time to time, i.e.,
all cash advances, plus all charges, plus all other amounts owning from us to
Gibraltar pursuant to the agreement, less all collections retained by Gibraltar
from either purchased accounts or from us which are applied to indebtedness,
unless Gibraltar elects to hold any such collections to establish reserves to
secure payment of any purchased accounts.
10
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 and the Company increased
the amount available under the revolving accounts receivable funding agreement
to $900,000 on May 12, 2016. The Company may request further increase(s) to the
in $100,000 increments up to $5,000,000, subject the Companys financial
performance and/or projections are satisfactory to Gibraltar, and absent an
event of default. The Company also granted to Gibraltar a security interest in
all of our presently-owned and hereafter-acquired personal and fixture property,
wherever located. The agreement will continue until the first to occur of (i)
demand by Gibraltar; or (ii) 24 months from the first day of the month following
the date that the first purchased account is purchased and will be automatically
renewed for successive periods of 12 months thereafter unless, at least 30 days
prior to the end of the term, the Company gives Gibraltar notice of our
intention to terminate the agreement. In addition, the Company will be able to
exit the agreement at any time for a fee of 2% of the line of credit in place at
the time of prepayment. On June 30, 2016 the amount borrowed on this facility
was $545,805.
NOTE 6 DERIVATIVE LIABILITY
On November 7, 2013, the Company sold to certain institutional
investors 10% Series B Convertible Preferred Shares which are subject to
mandatory redemption and include down-round provisions that reduce the exercise
price of a warrant and convertible instrument. As required by ASC 815
Derivatives and Hedging, if the Company either issues equity shares for a
price that is lower than the exercise price of those instruments or issues new
warrants or convertible instruments that have a lower exercise price, the
investors will be entitled to down-round protection. The Company evaluated
whether its warrants and convertible debt instruments contain provisions that
protect holders from declines in its stock price or otherwise could result in
modification of either the exercise price or the shares to be issued under the
respective warrant agreements. The Company determined that a portion of its
outstanding warrants and conversion instruments contained such provisions
thereby concluding they were not indexed to the Companys own stock and
therefore a derivative instrument.
Between April 16, 2014 and April 24, 2014, the Company redeemed
247 shares of the 10% Series B Preferred Stock for $247,171 plus accrued
interest of $46,456 and a $10,212 penalty related to the delayed registration.
The effect of this redemption resulted in a reduction of $56,098 derivative
liability.
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 346,667 shares of our common stock and warrants to purchase an
aggregate of 173,333 shares of our common stock, for aggregate gross proceeds of
$2,599,999. Each share of common stock sold in the offering was accompanied by a
warrant to purchase one-half of a share of common stock at an exercise price of
$7.50 per share for a period of five years from the date of issuance. Each share
of common stock, together with each warrant was sold at a price of $7.50. The
warrants include down-round provisions that reduce the exercise price of a
warrant and convertible instrument. As required by ASC 815 Derivatives and
Hedging, if the Company either issues equity shares for a price that is lower
than the exercise price of those instruments or issues new warrants or
convertible instruments that have a lower exercise price, the investors will be
entitled to down-round protection. The Company evaluated whether its warrants
and convertible debt instruments contain provisions that protect holders from
declines in its stock price or otherwise could result in modification of either
the exercise price or the shares to be issued under the respective warrant
agreements. The Company determined that a portion of its outstanding warrants
and conversion instruments contained such provisions thereby concluding were not
indexed to the Companys own stock and therefore a derivative instrument.
11
On August 20, 2014, the Company entered into a warrant
amendment agreement with certain holders of the Companys outstanding common
stock purchase warrants whereby the Company agreed to reduce the exercise price
of the Existing Warrants to $5.00 per share in consideration for the immediate
exercise of the Existing Warrants by the Holders and the Holders are to be
issued new common stock purchase warrants of the Company in the form of the
Existing Warrants to purchase up to a number of shares of our common stock equal
to the number of Existing Warrants exercised by the Holders, provided that the
exercise price of the New Warrants will be $6. 25 per share, subject to
adjustment in the New Warrants. Each New Warrant has a term of five years from
the date of issuance. Each share of common stock, together with each warrant was
sold at a price of $6.25. The warrants include down-round provisions that reduce
the exercise price of a warrant and convertible instrument. As required by ASC
815 Derivatives and Hedging, if the Company either issues equity shares for a
price that is lower than the exercise price of those instruments or issues new
warrants or convertible instruments that have a lower exercise price, the
investors will be entitled to down-round protection. The Company evaluated
whether its warrants and convertible debt instruments contain provisions that
protect holders from declines in its stock price or otherwise could result in
modification of either the exercise price or the shares to be issued under the
respective warrant agreements. The Company determined that a portion of its
outstanding warrants and conversion instruments contained such provisions
thereby concluding they were not indexed to the Companys own stock and
therefore a derivative instrument. The derivative liability was increased by
$167,384 as a result of the issued warrants.
On August 21, 2014, pursuant to the Warrant Amendment
Agreement, the Company issued an aggregate of 196,589 shares of the Companys
common stock upon exercise of the Existing Warrants at an exercise price of
$5.00 per share for aggregate gross proceeds of $982,945. An aggregate of
173,333shares of our common stock issued upon exercise of the Existing Warrants.
The derivative liability was reduced by $168,273 as a result of the warrants
exercised.
Pursuant to the engagement agreement dated March 12, 2014 with
H.C. Wainwright & Co., LLC (Wainwright), Wainwright agreed to act as our
exclusive placement agent in connection with the offering. Pursuant to the
engagement agreement, the Company, the Company issued warrants to purchase an
aggregate of 5.5% of the aggregate number of shares of our common stock sold in
the offering, or 19,067 to Wainwright and its designees. These warrants have an
exercise price of $9.38 per share and expire on April 16, 2019. The warrants
include down-round provisions that reduce the exercise price of a warrant and
convertible instrument. As required by ASC 815 Derivatives and Hedging, if the
Company either issues equity shares for a price that is lower than the exercise
price of those instruments or issues new warrants or convertible instruments
that have a lower exercise price, the investors will be entitled to down-round
protection. The Company evaluated whether its warrants and convertible debt
instruments contain provisions that protect holders from declines in its stock
price or otherwise could result in modification of either the exercise price or
the shares to be issued under the respective warrant agreements. The Company
determined that a portion of its outstanding warrants and conversion instruments
contained such provisions thereby concluding they were not indexed to the
Companys own stock and therefore a derivative instrument.
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at April 24,
2014 is as follows:
|
|
Conversion feature
|
|
Stock price
|
$
|
16 .3275
|
|
Term (Years)
|
|
Less than 1
|
|
Volatility
|
|
331%
|
|
Exercise prices
|
$
|
21.50
|
|
Dividend yield
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at May 1, 2014
is as follows:
12
|
|
|
|
|
Placement
Agent
|
|
|
|
Issuance Warrants
|
|
|
Warrants
|
|
Stock price
|
$
|
7. 50
|
|
$
|
7. 50
|
|
Term (Years)
|
|
5
|
|
|
5
|
|
Volatility
|
|
306%
|
|
|
306%
|
|
Exercise prices
|
$
|
7. 50
|
|
$
|
9.375
|
|
Dividend yield
|
|
0%
|
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at August 20,
2014 is as follows:
|
|
New Warrants
|
|
Stock price
|
$
|
6.00
|
|
Term (Years)
|
|
5
|
|
Volatility
|
|
247%
|
|
Exercise prices
|
$
|
6. 50
|
|
Dividend yield
|
|
0%
|
|
The range of significant assumptions which the Company used to
measure the fair value of warrant liabilities (a level 3 input) at August 21,
2014 is as follows:
|
|
Existing Warrants
|
|
Stock price
|
$
|
8.50
|
|
Term (Years)
|
|
5
|
|
Volatility
|
|
247%
|
|
Exercise prices
|
$
|
5.00
|
|
Dividend yield
|
|
0%
|
|
During the year ended March 31, 2016, certain Warrant holders
from the August 21, 2014 Warrant Amendment Agreement exercised their warrants
via a cashless exercise where-in 54,154 warrants were tendered, the shareholders
received 26,976 shares and the shareholders forfeited 27,178 warrants. The
Company reduced the derivative liability $62,986.
During the year ended March 31, 2016, certain Warrant holders
from the August 21, 2014 Warrant Amendment Agreement and the Company agreed to
exchange 133,791 warrants for 133,791 shares of common stock and the Company
reduced the derivative liability by $76,843.
During the year ended March 31, 2016 the Company issued shares
of stock at $3.50 which reduced the exercise price of the Existing Warrants.
The following table sets forth the fair value hierarchy within
our financial assets and liabilities by level that were accounted for at fair
value on a recurring basis as of May 1, 2014.
|
|
|
|
|
Fair Value Measurement at May 1, 2014
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2014
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative warrant liability
|
$
|
216,236
|
|
$
|
-
|
|
$
|
-
|
|
$
|
216,236
|
|
Derivative placement agent warrant liability
|
$
|
23,787
|
|
$
|
-
|
|
$
|
-
|
|
$
|
23,787
|
|
Total derivative liability
|
$
|
240,023
|
|
$
|
-
|
|
$
|
-
|
|
$
|
240,023
|
|
13
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, 2016.
|
|
|
|
|
Fair Value Measurement at March 31, 2016
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Derivative warrant liability convertible preferred stock
|
$
|
8,291
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,291
|
|
Derivative warrants liability on common
stock issuance including placement agent warrants
|
$
|
2,852
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,852
|
|
Total derivative liability
|
$
|
11,143
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,143
|
|
The 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 June 30, 2016.
|
|
|
|
|
Fair Value Measurement at June 30, 2016
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
at
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative convertible debt liability
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Derivative warrant liability convertible preferred stock
|
$
|
4,457
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,457
|
|
Derivative warrants liability on common
stock issuance including placement agent warrants
|
$
|
2,380
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,380
|
|
Total derivative liability
|
$
|
6,837
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6,837
|
|
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, 2016 was $11,143 and the conversion feature liability
was $0. At June 30, 2016 the fair value of these warrant liabilities was $6,847
and the conversion feature liability was $0. Changes in the derivative liability
for the period ended June 30, 2016 consist of:
14
|
|
Three Months Ended
|
|
|
|
June 30, 2016
|
|
Derivative liability at March 31, 2016
|
$
|
11,143
|
|
Change in derivative liability mark to market
|
|
(4,306
|
)
|
Derivative liability at June 30, 2016
|
$
|
6,837
|
|
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 23,256 shares of our
common stock at an exercise price of $27.50 per share, the Series B warrants
will be exercisable into 23,256 shares of our common stock at an exercise price
of $21.50 per share and the Series C warrants will be exercisable into 23,256
shares our common stock at an exercise price of $27.50 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 $21.50, subject to later
adjustment. On November 4, 2013, the Company also entered into a registration
rights agreement with the investors pursuant to which the Company was obligated
to file a registration statement to register the resale of the shares of common
stock issuable upon conversion of the Series B Preferred Stock and upon exercise
of the Warrants.
Between April 16, 2014 and April 22, 2014, the holders of our
Series B Preferred Stock exercised their right to have the Company redeem their
shares whereby the Company redeemed 247.17 shares of Series B Preferred Stock
for $303,839, which included accrued interest of $46,456 and a penalty for late
registration of $10,212. The remaining portion of the Series B Preferred Stock,
or 252.83 shares, was converted into 15,931 of our common shares at a conversion
price of $15.87 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 2,326 shares of our common stock with an
exercise price of $27.50 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.
15
NOTE 8 STOCKHOLDERS EQUITY
Preferred shares
On October 7, 2013, the Company amended its articles of
incorporation to create 100,000,000 shares of preferred stock by filing a
Certificate of Amendment to Articles of Incorporation with the Secretary of
State of Nevada. The preferred stock may be divided into and issued in series,
with such designations, rights, qualifications, preferences, limitations and
terms as fixed and determined by our board of directors. The Series A Preferred
Stock had 10 votes per share (reduced to 0.2 votes per share as a result of the
fifty for one reverse stock split, which became effective as of December 30,
2015) and are not convertible into shares of our common stock. The Series B
Convertible Preferred shares have 1,000 shares of our authorized preferred stock
are designated as 10% Series B Convertible Preferred Stock, which have a
stated value of $1,000 per share and have liquidation preferences, dividend
rights, redemption rights and conversion rights, of which none were issued at
March 31, 2016.
Grant of series A preferred stock
On October 8, 2013, the Company issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven A. Nickolas and
Richard A. Wright (10,000,000 shares to each), our directors and executive
officers, in consideration for the past services, at a deemed value of $0.001
per share. The company valued these shares based on the cost considering the
time and average billing rate of these individuals and recorded a $20,000 stock
compensation cost for the year ended March 31, 2014.
Our authorized preferred stock was not affected by the reverse
stock split and continues to be 100,000,000 shares of preferred stock, with a
par value of $0.001 per share. In addition, the number of issued and outstanding
shares of Series A Preferred Stock continues to be 20,000,000. However, holders
of Series A Preferred Stock had 0.2 votes per share of Series A Preferred Stock,
instead of 10 votes per share of Series A Preferred Stock, as a result of the
reverse-stock split.
On January 22, 2016, the Company amended the certificate of
designation for our Series A Preferred Stock by filing an amendment to
certificate of designation with the Secretary of State of the State of Nevada.
The Company amended the certificate of designation for our Series A Preferred
Stock by deleting Section 2.2 of the certificate of designation, which
proportionately increases or decreases the number of votes per share of Series A
Preferred Stock in the event of any dividend or other distribution on our common
stock payable in its common stock or a subdivision or consolidation of the
outstanding shares of its common stock. Accordingly, holders of Series A
Preferred Stock will have 10 votes per share of Series A Preferred Stock,
instead of 0.2 votes per share of Series A Preferred Stock.
Grant of series C Convertible preferred stock
On March 30, 2016, the Company designated 3,000,000 shares of
the authorized and unissued preferred stock of our company as Series C
Preferred Stock by filing a Certificate of Designation with the Secretary of
State of the State of Nevada. Each share of the Series C Preferred Stock will be
convertible, without the payment of any additional consideration by the holder
and at the option of the holder, into one fully paid and non-assessable share of
our common stock at any time after (i) the Company achieves consolidated revenue
equal to or greater than $15,000,000 in any 12 month period, ending on the last
day of any quarterly period of our fiscal year; or (ii) a Negotiated Trigger
Event, defined as an event upon which the Series C Preferred Stock will be
convertible as may be agreed by our company and the holder in writing from time
to time.
Effective March 31, 2016, the Company issued a total of
3,000,000 shares of our Series C Preferred Stock to Steven P. Nickolas and
Richard A. Wright (1,500,000 shares to each), our directors and executive
officers, pursuant to their employment agreements dated effective March 1, 2016.
Common stock
16
The Company is authorized to issue 1,125,000,000 shares of
$0.001 par value common stock. On May 31, 2013, the Company affected a 15-for-1
forward stock split of our $0.001 par value common stock. All shares and per
share amounts have been retroactively restated to reflect such split. Prior to
the acquisition of Alkaline Water Corp., the Company had 109,500,000 shares of
common stock issued and outstanding. On May 31, 2013, the Company issued
43,000,000 shares in exchange for a 100% interest in Alkaline Water Corp. For
accounting purposes, the acquisition of Alkaline Water Corp. by The Alkaline
Water Company Inc. has been recorded as a reverse acquisition of a company and
recapitalization of Alkaline Water Corp. based on the factors demonstrating that
Alkaline Water Corp. represents the accounting acquirer. Consequently, after the
closing of this agreement the Company adopted the business of Alkaline Water
Corp.s wholly-owned subsidiary, Alkaline 88, LLC. As part of the acquisition,
the former management of the Company agreed to cancel 75,000,000 shares of
common stock.
On December 30, 2015, the Company affected a fifty for one
reverse stock split of its authorized and issued and outstanding shares of
common stock. As a result, the authorized common stock has decreased from
1,125,000,000 shares of common stock, with a par value of $0.001 per share, to
22,500,000 shares of common stock, with a par value of $0.001 per share. All
shares and per share amounts have been retroactively restated to reflect such
split.
On January 21, 2016, stockholders of our company approved, by
written consents, an amendment to the articles of incorporation of our company
to increase the number of authorized shares of our common stock from 22,500,000
to 200,000,000.
The Company received written consents representing 20,776,000
votes from the holders of shares of its common stock and our Series A Preferred
Stock voting as a single class, representing approximately 61% of the voting
power of its outstanding common stock and its outstanding Series A Preferred
Stock voting as a single class as of the record date (January 12, 2016). On
January 21, 2016, there were no written consents received by the Company
representing a vote against, abstention or broker non-vote with respect to the
proposal.
Sale of restricted shares
During the period from May 7, 2015 through December 31, 2015,
the Company sold units of our securities at a price of $3.50 per unit. Each unit
consists of one share of our common stock and one non-transferable common stock
purchase warrant, with each common stock purchase warrant entitling the holder
to acquire one additional share of our common stock at a price of $5.00 per
share for a period of two years. The Company sold 223,200 units during the
period ended December 31, 2015 consisting of 223,200 shares of common stock and
223,200 warrants for gross proceeds of $781,200.
The evaluated these transaction using ASC 480-10
Distinguishing liabilities from equity and ASC 505 -10 Equity. The Company
sold 223,200 units and issued 223,200 shares of common stock and issued 223,200
warrants. The warrants were valued using the Black-Scholes option pricing model
with the following assumptions:
Market value of stock on purchase date
|
$
|
3.75
|
|
|
to
|
|
$
|
7.10
|
|
Risk-free interest rate
|
|
.26%
|
|
|
to
|
|
|
1.42%
|
|
Dividend yield
|
|
|
|
|
0.00%
|
|
|
|
|
Volatility factor
|
|
116%
|
|
|
to
|
|
|
161%
|
|
Weighted average expected life (years)
|
|
|
|
|
2
|
|
|
|
|
The proceeds were allocated as follows:
Common stock
|
$
|
414,036
|
|
Warrant
|
|
367,164
|
|
Total proceeds
|
$
|
781,200
|
|
On May 1, 2014, the Company completed the offering and sale of
an aggregate of 346,667 shares of our common stock and warrants to purchase an
aggregate of 173,333 shares of our common stock, for aggregate gross proceeds
of $2,599,999. Each share of common stock the Company sold in
the offering was accompanied by a warrant to purchase one-half of a share of
common stock at an exercise price of $7. 50 per share for a period of five years
from the date of issuance. Each share of common stock, together with each
warrant was sold at a price of $7. 50.
17
Pursuant to the engagement agreement dated March 12, 2014 with
H.C. Wainwright & Co., LLC (Wainwright), Wainwright agreed to act as our
exclusive placement agent in connection with the offering. Pursuant to the
engagement agreement, the Company paid Wainwright a cash placement fee equal to
8% of the aggregate gross proceeds from the offering, or $208,000, and a
non-accountable expense allowance equal to 1% of the aggregate gross proceeds
from the offering, or $26,000. In addition, the Company issued warrants to
purchase an aggregate of 5.5% of the aggregate number of shares of our common
stock sold in the offering, or 19,067, to Wainwright and its designees. These
warrants have an exercise price of $9.38 per share and expire on April 16,
2019.
On March 4, 2016, the Company completed the offering and sale
of an aggregate of 9,000,000 shares of our common stock and warrants to purchase
an aggregate of 4,500,000 shares of our common stock, for aggregate gross
proceeds of $2,970,000. Each share of common stock the Company sold in the
offering was accompanied by one-half of a warrant to purchase one share of
common stock at an exercise price of $0.50 per share for a period of two years
from the date of issuance. Each share of common stock and accompanying one-half
of one warrant was sold at a price of $0.33.
These securities have been registered under the Securities Act
of 1933 pursuant to our registration statement on Form S-1, as amended (No.
333-209124), which was declared effective by the Securities and Exchange
Commission on February 11, 2016.
Also on March 4, 2016, the Company used the proceeds of the
Offering to repay loans in the aggregate principal amounts of $1,500,000 In
connection with the repayment of loans in the aggregate principal amounts of
$1,500,000 on March 4, 2016, 526,316 shares of our common stock issued to Neil
Rogers and held in escrow and 1,500,000 shares of our common stock issued to
Turnstone Capital Inc. and held in escrow were cancelled effective as of March
31, 2016.
In June 2016, the Company issued an aggregate of 425,000 shares
of our common stock to three investors in a private placement, at a purchase
price of $1.00 per share for gross proceeds of $425,000.
Common stock issued for services
On April 1, 2016, the Company issued 5,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $1.65 per share.
On April 1, 201, the Company issued 12,500 common shares to
consultant for services rendered that were valued at the market value on that
date of $1.65 per share.
On June 1, 2016, the Company issued 65,000 common shares to
consultant for services rendered that were valued at the market value on that
date of $1.75 per share.
NOTE 9 OPTIONS AND WARRANTS
Stock option awards
On January 29, 2016, the Company granted a total of 1,310,000
stock options to certain employees. The stock options are exercisable at the
exercise price of $0.52 per share for a period of 7.6 years from the date of
grant and vested upon the date of grant.
18
On January 29, 2016, the Company granted a total of 3,000,000
stock options Steven A. Nickolas and Richard A. Wright (1,500,000 stock options
to each). The stock options are exercisable at the exercise price of $0.52 per
share for a period of 7.6 years from the date of grant and vested upon the date
of grant.
On March 4, 2016, the Company completed the offering and sale
of an aggregate of 9,000,000 shares of our common stock the offering included
warrants to purchase an aggregate of 4,500,000 shares of our common stock, at an
exercise price of $0.50 per share for a period of two years from the date of
issuance.
For the three months ended June 30, 2016 and June 30, 2015 the
Company has recognized compensation expense of $0 and $12,912 respectively, on
the stock options granted that vested. The fair value of the unvested shares is
$0 as of June 30, 2016. The aggregate intrinsic value of these options was $0 at
June 30, 2016. 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, 2015
|
|
343,400
|
|
$
|
7.00
|
|
|
8.2
|
|
Granted
|
|
4,310,000
|
|
$
|
0.52
|
|
|
7.8
|
|
Exercised
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Expired/Forfeited
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
4,653,400
|
|
$
|
0.92
|
|
|
7.7
|
|
Granted
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Exercised
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Expired/Forfeited
|
|
-
|
|
$
|
-
|
|
|
-
|
|
Outstanding at June 30, 2016
|
|
4,653,400
|
|
$
|
0.92
|
|
|
7.3
|
|
Exercisable at June 30, 2016
|
|
4,653,400
|
|
$
|
0.92
|
|
|
7.3
|
|
NOTE 10 RELATED PARTY TRANSACTIONS
On October 31, 2014, the Company amended the 2013 Equity
Incentive Plan to, among other things, to increase the number of shares of stock
of the Company available for the grant of awards under the plan from 20,000,000
shares to 35,000,000 shares.
On October 31, 2014, the Company reduced the exercise price of
an aggregate of 120,000 stock options granted to Steven P. Nickolas and Richard
A. Wright, our directors and executive officers, to $7.50 per share as noted
below:
|
|
|
|
|
|
|
|
New Exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Exercise
|
|
|
Price per
|
|
|
|
|
|
Number of Stock
|
|
Name of Optionee
|
|
Grant Date
|
|
|
Price per Share
|
|
|
Share
|
|
|
Expiration Date
|
|
|
Options
|
|
Steven P. Nickolas
|
|
October 9, 2013
|
|
$
|
30.25
|
|
$
|
7.50
|
|
|
October 9, 2023
|
|
|
60,000
|
|
Richard A. Wright
|
|
October 9, 2013
|
|
$
|
30.25
|
|
$
|
7.50
|
|
|
October 9, 2023
|
|
|
60,000
|
|
On May 21, 2014, the Company granted a total of 120,000 stock
options Steven A. Nickolas and Richard A. Wright (60,000 stock options to each).
The stock options are exercisable at the exercise price of $7.275 per share for
a period of ten years from the date of grant. 60,000 stock options vested upon
the date of grant and 60,000 stock options will vest on November 21, 2014.
19
On October 9, 2013, the Company granted a total of 120,000
stock options to Steven A. Nickolas and Richard A. Wright (60,000 stock options
to each). The stock options are exercisable at the exercise price of $30.25 per
share for a period of ten years from the date of grant. For each individual, the
stock options vest as follows: (i) 20,000 upon the date of grant; and (ii)
10,000 per quarter until fully vested.
On October 8, 2013, the Company issued a total of 20,000,000
shares of non-convertible Series A Preferred Stock to Steven A. Nickolas and
Richard A. Wright (10,000,000 shares to each), our directors and executive
officers, in consideration for the past services, at a deemed value of $0.001
per share. We valued these shares based on the cost considering the time and
average billing rate of these individuals and recorded a $20,000 stock
compensation cost for the year ended March 31, 2014.
On January 29, 2016, the Company granted a total of 3,000,000
stock options Steven A. Nickolas and Richard A. Wright (1,500,000 stock options
to each). The stock options are exercisable at the exercise price of $0.52 per
share for a period of 7.6 years from the date of grant and vested upon the date
of grant.
Effective March 31, 2016, the Company issued a total of
3,000,000 shares of our Series C Preferred Stock to Steven P. Nickolas and
Richard A. Wright (1,500,000 shares to each), our directors and executive
officers, pursuant to their employment agreements dated effective March 1,
2016.
On April 2, 2014, the Company entered into a sale-leaseback
transaction with Water Engineering Solutions LLC, an entity that is controlled
and owned by an officer, director and shareholder, for specialized equipment
with an original cost of $208,773 and that was acquired in August 2013. The
Company received proceeds of $188,000 in April 2014. The lease terms are 60
monthly payments of $3,812, payable 30 days after installation of the equipment
and a purchase option of $1.00. The Company recorded a loss on sales leaseback
of $20,773.
As of March 31, 2014, the Company had $0 in equipment deposits
with an entity that is controlled and owned by an officer, director and
shareholder of the Company. During the year ended March 31, 2014, the Company
provided $201,900 of deposits on equipment used to produce our alkaline water to
an entity that is controlled and owned by an officer, director and shareholder
of the Company. During the month of March 2014, these funds were returned to the
Company.
During the year ended March 31, 2014 the Company acquired
equipment of $208,773 and $10,287 from an entity that is controlled and
majority-owned by an officer, director and shareholder of the Company.
On January 17, 2014 the Company entered into an equipment lease
with Water Engineering Solutions LLC, an entity that is controlled and owned by
an officer, director and shareholder, for specialized equipment used to make our
alkaline water totaling $190,756 and agreed to a 60-month term at $2,512 per
month and a final payment of $28,585. On February 12, 2014 the Company amended
this lease, as noted above, with equipment deposits of $201,900 being returned
to the Company. In addition, the lease terms were amended to 60 monthly payments
of $3,864, payable 30 days after installation of the equipment and a purchase
option of $1.00.
On August 1, 2013, the Company entered into a 3-year sub-lease
agreement requiring a monthly payment of $2,085 for office space in Scottsdale,
Arizona, with a basic monthly lease increase of 8% and 7% on each anniversary
date. The Company or the landlord can cancel the lease with 30 days notice. The
sub-lessor is an entity owned by the 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 year ended March 31, 2016 the company made purchased
equipment of $312,500 to Water Engineering Solutions. Water Engineering
Solutions, LLC is an entity that is controlled and majority owned by Steven P.
Nickolas and Richard A. Wright for the production of our alkaline water.
20
NOTE 11 INCOME TAXES
The Company accounts for income taxes under ASC 740-10, which
provides for an asset and liability approach of accounting for income taxes.
Under this approach, deferred tax assets and liabilities are recognized based on
antic The Company accounts for income taxes under ASC 740-10, which provides for
an asset and liability approach of accounting for income taxes. Under this
approach, deferred tax assets and liabilities are recognized based on
anticipated future tax consequences, using currently enacted tax laws,
attributed to temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts calculated for
income tax purposes.
For the years ended March 31, 2016 and 2015, the Company
incurred net operating losses and, accordingly, no provision for income taxes
has been recorded. In addition, no benefit for income taxes has been recorded
due to the uncertainty of the realization of any deferred tax assets.
Based on the available objective evidence, including the
Companys history of losses, management believes it is more likely than not that
any net deferred tax assets will not be fully realizable. Accordingly, the
Company provided for a full valuation allowance against its net deferred tax
assets at June 30, 2016 and March 31, 2016, respectively.
In accordance with ASC 740, the Company has evaluated its tax
positions and determined that there are no uncertain tax positions.
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.
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 72,000 shares of our common stock to the Lessor and/or
its affiliates at an exercise price of $6. 25 per share for a period of five
years, 18,000 shares vested.
21
On February 25, 2015, the Company amended the master lease
agreement with Veterans Capital Fund, LLC for the increase in the secured lease
line of credit financing to an amount not to exceed $800,000. The lease was
secured by new alkaline generating electrolysis system machines by our
wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC.
Water Engineering Solutions, LLC is an entity that is controlled and owned by
our President, Chief Executive Officer, director and major stockholder, Steven
P. Nickolas, and our Vice-President, Secretary, Treasurer and director, Richard
A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to
us the equipment described in any equipment schedule signed by us and approved
by the Lessor. It is expected that any lease under the master lease agreement
will be structured for a three year lease term with fixed monthly lease rental
payments based on a monthly lease rate factor of 3.4667% of the Lessors capital
cost. In connection with the entering into the master lease agreement, the
Company entered into a warrant agreement with the Lessor, pursuant to which the
Company agreed to cancel the previous issued warrant for 72,000 and issue a
warrant to purchase 102,000 shares of our common stock to the Lessor and/or its
affiliates at an exercise price of $5.00 per share for a period of five years.
18,000 shares vested on October 22, 2014, 13,316 shares on October 28, 2014,
13,606 shares on December 22, 2014, 6,945 shares on February 3, 2015 and 15,799
shares on March 5, 2015. The remaining 18,105 shares will vest on a pro rata
basis according to any mounts the Lessor funds pursuant to any lease schedules
under the master lease agreement, provided that if the Company draws on 90% or
more of the total lease line under the master lease agreement, then all such
shares will be deemed to be vested. The Company recorded the bifurcated value of
$309,028 of the warrants issued as additional paid in capital, the value was
determine using a Black-Scholes, a level 3 valuation measure.
During the year ended March 31, 2015 the Company agreed to
lease 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 13 NOTES PAYABLE
On August 19, 2015, the Company entered into a securities
purchase agreement pursuant to which the Company issued a secured term note of
our company in the aggregate principal amount of $240,000, together with 20,000
shares of our common stock, in consideration for $200,000. The secured term note
bears requires monthly payments of $20,000 per month, along with a final payment
due on August 20, 2016.
On November 2, 2015 the Company issued a promissory note to a
lender in the amount of $125,000. The note requires weekly payments of $2,450.98
plus interest. The final payment is due on November 19, 2016.
Between June 10, 2016 and June 20, 2016, the Company entered
into loan agreements with various lenders pursuant to which the Company issued
convertible promissory notes of our company in the aggregate principal amount of
$260,000, The convertible promissory note bears interest at the rate of 10% per
annum and matures on June 10, 2017 and is convertible into common shares at
$1.00 per share. The Company evaluated this transaction under ASC 470-20-30
Debt liability and equity component
determine that a Debt Discount of
$240,100 was provided and will be amortized over the 1-year term of the note. As
of June 30, 2016, the unamortized debt discount was $220,092.
NOTE 14 SUBSEQUENT EVENTS
On July 26, 2016, the Company issues 25,600 of our common stock
in connection with a cash-less exercise of a warrant.
22