ALKALINE WATER Co INC 10-Q for FY2023 Q3
ALKALINE WATER Co INC (WTER)
About this 10-Q
ALKALINE WATER Co INC filed this 10-Q on February 28, 2023, covering the quarter ended December 31, 2022 (FY2023 Q3).
Headline figures
Quarter ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $15.87M
- up 21.2% from $13.1M a year earlier
- Net loss
- $3.99M
- compared with a net loss of $10.74M a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.10 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter)
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(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company [ |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| December 31, 2022 | March 31, 2022 | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | $ | $ | ||||
| Accounts receivable, net | ||||||
| Inventory | ||||||
| Prepaid expenses | ||||||
| Operating lease right-of-use asset - current portion | ||||||
| Total current assets | ||||||
| Fixed assets - net | ||||||
| Operating lease right-of-use asset | ||||||
| Total assets | $ | $ | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||
| Current liabilities | ||||||
| Accounts payable | $ | $ | ||||
| Accrued expenses | ||||||
| Revolving financing | ||||||
| Convertible note payable, net of debt discount | ||||||
| Operating lease liability - current portion | ||||||
| Total current liabilities | ||||||
| Operating lease liability | ||||||
| Total liabilities | ||||||
| Commitments and contingencies (Note 8) | ||||||
| Stockholders' equity | ||||||
| Preferred stock, $ |
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| Common stock, Class A - $ |
||||||
| Discount on Preferred Stock | ( |
) | ||||
| Subscription Receivable | ( |
) | ||||
| Additional paid in capital | ||||||
| Accumulated deficit | ( |
) | ( |
) | ||
| Total stockholders' equity | ||||||
| Total liabilities and stockholders' equity | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
| For the Three Months | For the Nine Months | |||||||||||
| December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||
| Cost of Goods Sold | ||||||||||||
| Gross Profit | ||||||||||||
| Operating expenses | ||||||||||||
| Sales and marketing expenses | ||||||||||||
| General and administrative | ||||||||||||
| Total operating expenses | ||||||||||||
| Total operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Other (income) expense | ||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Debt conversion expense | ( |
) | ||||||||||
| Gain on forgiveness of PPP loan payable | ||||||||||||
| Total other (income) expense | ( |
) | ( |
) | ( |
) | ||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| LOSS PER SHARE (Basic and Diluted) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
| WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE ALKALINE WATER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
| Preferred Stock | Common Stock | Additional | Discount on | Subscription | Accumulated | ||||||||||||||||||||||
| Number | Par Value | Number | Par Value | Paid-in Capital | Preferred Stock | Receivable | Deficit | Total | |||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Preferred stock issuance | |||||||||||||||||||||||||||
| Common shares issued upon exercise of warrants | |||||||||||||||||||||||||||
| Common shares issued to non-employees and employees | |||||||||||||||||||||||||||
| Stock option and RSU-related stock compensation expense | |||||||||||||||||||||||||||
| Stock option exercise | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Common shares issued in connection with offerings | |||||||||||||||||||||||||||
| Common shares issued upon exercise of warrants | |||||||||||||||||||||||||||
| Common shares issued to non-employees and employees | |||||||||||||||||||||||||||
| Stock option and RSU-related stock compensation expense | |||||||||||||||||||||||||||
| Stock option exercise | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Common shares issued upon exercise of warrants | |||||||||||||||||||||||||||
| Preferred stock conversion to common stock | ( |
) | ( |
) | |||||||||||||||||||||||
| Common shares issued to non-employees | |||||||||||||||||||||||||||
| Stock option and RSU-related stock compensation expense | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Preferred stock conversion to common stock and vesting of endorsement shares | ( |
) | ( |
) | |||||||||||||||||||||||
| Common Shares issued in connection with offerings | |||||||||||||||||||||||||||
| Stock option exercise | ( |
) | |||||||||||||||||||||||||
| Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Common shares issued in connection with conversion of note payable | |||||||||||||||||||||||||||
| Common shares issued upon exercise of warrants | |||||||||||||||||||||||||||
| Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Preferred stock and common shares issued in connection with issuance of preferred stock series e | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs | |||||||||||||||||||||||||||
| Net (loss) | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
THE ALKALINE WATER COMPANY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Nine Months | ||||||
| December 31, 2022 | December 31, 2021 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net loss | $ | ( |
) | $ | ( |
) |
|
|
||||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||
| Depreciation expense | ||||||
| Shares issued and vested, options and RSU expensed for employee and non-employee services | ||||||
| Amortization of debt discount | ||||||
| Debt conversion expense | ||||||
| Non-cash interest expense | ||||||
| Non-cash lease expense | ( |
) | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | ( |
) | ||||
| Inventory | ( |
) | ( |
) | ||
| Prepaid expenses and other current assets | ( |
) | ||||
| Accounts payable | ||||||
| Accrued expenses | ( |
) | ||||
| NET CASH USED IN OPERATING ACTIVITIES | ( |
) | ( |
) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Purchase of fixed assets | ( |
) | ( |
) | ||
| CASH USED IN INVESTING ACTIVITIES | ( |
) | ( |
) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Proceeds from (repayment of) revolving financing, net | ( |
) | ||||
| Proceeds from sale of common stock, net | ||||||
| Proceeds from sale of preferred stock, net | ||||||
| Proceeds for the exercise of warrants, net | ||||||
| Proceeds for the exercise of stock options, net | ||||||
| CASH PROVIDED BY FINANCING ACTIVITIES | ||||||
| NET CHANGE IN CASH | ( |
) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||
| CASH AT END OF PERIOD | $ | $ | ||||
| INTEREST PAID | $ | $ | ||||
| TAXES PAID | $ | $ | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company offers retail consumers bottled alkaline water in 500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 2,-liter, 3-liter and 1-gallon sizes, all of which is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce 8.8 pH drinking water without the use of any manmade chemicals. The Company also sells a line of Alkaline88® Sports Drinks and hemp-derived CBD bottled water under the brand name "Alkaline88CBD™". Our hemp-derived CBD bottled water is produced and sold in compliance with the Agriculture Improvement Act of 2018 (also known as the 2018 Farm Bill, Public Law 115-334).
The consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in U.S. dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.
The consolidated financial statements include the accounts of The Alkaline Water Company Inc. (a Nevada Corporation) and its wholly owned subsidiary, Alkaline 88, LLC (an Arizona Limited Liability Company). All significant intercompany balances and transactions have been eliminated. The Alkaline Water Company Inc. and Alkaline 88, LLC 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 its Alkaline 88, LLC subsidiary indicated above, unless otherwise indicated.
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.
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. As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible. The Company had $
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.
| December 31, | March 31, | |||||
| 2022 | 2022 | |||||
| Trade receivables | $ | $ | ||||
| Less: Allowance for doubtful accounts | ( |
) | ( |
) | ||
| Net accounts receivable | $ | $ |
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. The accounts receivable balance is pledged as collateral for the Company's revolving financing as disclosed in Note 3.
Inventory represents raw materials and finished goods 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. The inventory balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4.
| December 31, 2022 | March 31, 2022 | |||||
| Raw materials | $ | $ | ||||
| Finished goods | ||||||
| Total inventory | $ | $ |
As of March 31, 2022, the presentation in the table above has been corrected for a transposition error as the amounts for raw materials and finished goods.
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 (half-life convention) method over the estimated useful life of the assets, which the Company has determined to be
The Company accounts for stock-based compensation in accordance with Accounting Standards Codification ("ASC") 718. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite 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 Company's common stock for common share issuances.
The Company recognizes revenue per ASC 606. The Company recognizes revenue when the Company's performance obligations are satisfied. The Company's primary obligation (the distribution and sale of beverage products) is satisfied upon the delivery of products to the Company's customers, which is also when control is transferred. 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. The Company provides credit to its customers which typically require payment within 30 days. As an incentive to pay early the Company also typically provides a 2% discount if the customer pays within 10 days. The Company estimates the amount of the discount that the customer is likely to take and recognizes it as variable consideration. The amounts are not considered material. After evaluating the revenue disclosure requirements, the Company does not believe that any revenues are required to be disaggregated.
Revenue consists of the gross sales price, less variable consideration, consisting of estimated allowances for which provisions are made at the time of sale, and less certain other discounts, allowances, and rebates that are accounted for as a reduction from gross revenue. Shipping and handling charges that are billed to customers are included as a component of revenue. Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $
Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company's retail customers or distributors including, but not limited to the following: (a) discounts granted off list prices to support price promotions to end-consumers by retailers; (b) reimbursements given to the Company's distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; and (c) the Company's agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; The Company's promotional allowance programs with its retailers or distributors are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, typically ranging from one week to one year. The Company's promotional and other allowances are calculated based on various programs with retailers and distributors, and accruals are established at the time of initial product sale for the Company's anticipated liabilities. The Company believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company's historical experience.
| December 31, 2022 | December 31, 2021 | |||||
| Retailers | $ | $ | ||||
| Distributors | ||||||
| Ecommerce/Other | ||||||
| Total Net Revenue | $ | $ |
The following table reflects disaggregated net revenue by sales channel for the nine months ended December 31, 2022 and December 31, 2021 are as follows:
| December 31, 2022 | December 31, 2021 | |||||
| Retailers | $ | $ | ||||
| Distributors | ||||||
| Ecommerce/Other | ||||||
| Total Net Revenue | $ | $ |
We have
The Company had
The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income (loss), permanent tax differences and statutory tax rates. Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate principally to net operating loss carryforwards. Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Basic and diluted earnings or loss per share ("EPS") amounts in the consolidated financial statements are computed in accordance with 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.
The Company had
The Company operates as a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management.
The carrying amounts of the Company's financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period for maturity of these instruments.
The Company does not use derivative financial instruments to hedge exposures to cash-flow, market, or foreign-currency risks.
Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the company's assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
As of December 31, 2022, and 2021, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.
As a result of the correction, total Revenue decreased from $
Recent Accounting Pronouncements
Standards Required to be Adopted in Future Years.
The Company has evaluated recent accounting pronouncements through December 31, 2022 and believes that none of them will have a material effect on our 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 realization of assets and satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in 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 December 31, 2022 of ($
The Company's cash position may not be sufficient to support the Company's daily operations. Management plans to raise additional funds by way of a private or ongoing public offering. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities.
The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - PROPERTY AND EQUIPMENT
| December 31, 2022 | March 31, 2022 | |||||
| Machinery and equipment | $ | $ | ||||
| Office equipment | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
| Property and equipment, net | $ | $ |
Depreciation expense for the three months ended December 31, 2022 and December 31, 2021 was $
Depreciation expense for the nine months ended December 31, 2022 and December 31, 2021 was $
NOTE 4 - REVOLVING FINANCING
On February 1, 2017, we entered into a credit and security agreement (the "Credit Agreement") with SCM Specialty Finance Opportunities Fund, L.P. ("SCM" or "Lender"), which subsequently changed its name to CNH Finance Fund I, L.P.
The Credit Agreement provides our company with a revolving credit facility (the "Revolving Facility"), the proceeds of which are to be used to repay existing indebtedness of our company, transaction fees incurred in connection with the Credit Agreement and for the working capital needs of our company.
The Credit Agreement expires on July 3, 2023, unless earlier terminated by the parties in accordance with the terms of the Credit Agreement.
To secure the payment and performance of the obligations under the Credit Agreement, we granted to SCM a continuing security interest in all of our assets and agreed to a lockbox account arrangement in respect of certain eligible receivables.
The Company agreed to pay to SCM monthly an unused line fee in amount equal to
The interest rate will be increased by
The Credit Agreement contains customary representations and warranties and various affirmative and negative covenants including the right of first refusal to provide financing for our company and the financial and loan covenants, such as the loan turnover rate, minimum EBITDA, fixed charge coverage ratio and minimum liquidity requirements.
NOTE 5 - STOCKHOLDER EQUITY
Preferred Shares
On October 7, 2013, the Company amended its articles of incorporation to create
Series S Convertible Preferred Stock
On May 12, 2021, The Alkaline Water Company Inc. (the "Company") entered into an Endorsement Agreement (the "Endorsement Agreement"), with ABG-Shaq, LLC ("ABG-Shaq"), an entity affiliated with Shaquille O'Neal, for the personal services of Mr. O'Neal. Pursuant to the Endorsement Agreement, the Company received the right and license to use Mr. O'Neal's name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights, in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of the Company's branded products. Mr. O'Neal will also provide brand ambassador services related to appearances, social media and public relations matters. The Endorsement Agreement also includes customary exclusivity, termination, and indemnification clauses.
As consideration for the rights and services granted under the Endorsement Agreement, the Company agreed to pay to ABG-Shaq aggregate cash payments of $
In addition, the Company agreed to grant
In the three and nine months ended December 31, 2022, the Company recognized an expense of $
Series E Convertible Preferred Stock
On November 23, 2022, we entered into private placement subscription agreements, whereby we issued an aggregate of
Holders of the Series E Preferred Stock (the "Holders") are entitled to receive dividends at the rate per share (as a percentage of the stated value per share) of
Each share of Series E Preferred Stock will be convertible, at any time after the date that is twelve months from the original issue date, at our option, into that number of units (each, a "Unit") determined by dividing the stated value of such share of Series E Preferred Stock by $
The Company identified the conversion into a Unit (one share of preferred stock and one-half warrant) as an embedded beneficial conversion feature (ASC 470), thus the Company valued (using Black-Scholes option-pricing model for common stock options and warrants) each component of the Unit. The Warrant was valued at in the aggregate $
A Holder may, at its option, at any time and from time to time after January 31, 2023, convert all, but no less than all, of shares of Series E Preferred Stock held by such Holder into that number of Units determined by dividing the stated value of such shares of Series E Preferred Stock by the Conversion Price. Each share of the Series E Preferred Stock will automatically convert, upon the occurrence of a Fundamental Transaction (as defined below), into that number of Units determined by dividing the stated value of such share of Series E Preferred Stock by the Conversion Price.
Except with respect to a Fundamental Transaction, as required by law, or as required by the articles of incorporation of our company, the Holders and the holders of our common stock will be 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: (i) holders of our common stock will have one vote per share of our common stock held by them; and (ii) holders of Series E Preferred Stock will have one vote per share of Series E Preferred Stock held by them. With respect to a Fundamental Transaction, the Holders will be entitled to notice of any stockholders' meeting and to vote as a separate class and will have one vote per share of Series E Preferred Stock by them. A Fundamental Transaction means (i) any merger or consolidation of our company with or into another entity (but excluding a merger effected solely for the purpose of changing the jurisdiction of the incorporation of our company or changing the name of our company or liquidating, dissolving or winding-up one or more subsidiaries of our company), (ii) any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of our company's assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by our company or another individual or entity) is completed pursuant to which holders of our common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of our common stock, or (v) one or more related transactions consummating a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another individual or entity or group of individuals or entities whereby such other individual or entity or group acquires more than 50% of the outstanding shares of our common stock (not including any shares of common stock held by the other individual or entity making or party to, or associated or affiliated with the other individual or entity making or party to, such stock or share purchase agreement or other business combination).
Common Stock
On March 4, 2022, the Company entered into private placement subscription agreements, whereby it issued unsecured convertible notes (the "Notes") in the aggregate principal amount of $
Pursuant to the aforementioned subscription agreements, in consideration for the subscribers' execution and delivery of the subscription agreements, the Company issued an aggregate of
In addition, the Company recognized a beneficial conversion feature in connection with the warrants in the amount of $
On July 25, 2022, the Company entered into debt settlement agreements the holders of the Notes in which the Company issued
Upon conversion of the Notes, the holders of the Notes received warrants to purchase
Share Issuances
Effective as of August 29, 2022, we issued an aggregate of
Restricted Awards
On November 16, 2022, we granted an award of
NOTE 6 - OPTIONS
Options
Issuance of Options
On November 16, 2022, we granted an aggregate of
Forfeiture of Options
During the quarter, there were
NOTE 7 - LEASES
As of October 1, 2020, the company entered into a lease for
As of November 1, 2020, the company entered into a lease for
As of April 1, 2022, the Company entered into a lease for
At inception the ROU and Lease Liability was calculated based on the net present value of the future lease payments over the term of the lease. When available, the Company uses the rate implicit in the lease discount payments as the incremental borrowing rate to calculate the net present value; however, the rate implicit in the lease is not readily determinable for our corporate office lease. In this case, the Company estimated its incremental borrowing rate as the interest rate it could borrow an amount equal to the lease payments over a similar term, with similar collateral as the lease, and in a similar economic environment. The Company estimated its rate using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company's estimated creditworthiness.
For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. The corporate office, lease also requires the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in the general and administrative expenses on the condensed consolidated statements of operations.
Operating Lease expense for the three and nine months ended December 31, 2022 was $
| Operating Leases: | |||
| December 31, 2022 | |||
| Operating lease right-of-use asset - current portion | $ | ||
| Operating lease right-of-use asset - non-current portion | |||
| Total Operating lease right-of-use asset | $ | ||
| Operating lease liability - current portion | $ | ||
| Operating lease liability - non-current portion | |||
| Total Operating lease liability | $ | ||
| Weighted average remaining lease term (in years): | |||
| Operating leases | |||
| Weighted average discount rate: | |||
| Operating leases |
Supplemental cash flow information related to leases is as follows:
Maturities of undiscounted lease liabilities as of December 31, 2022 are as follows:
| Operating Leases |
|||
| Year ending March 31, 2023 | $ | ||
| Year ending March 31, 2024 | |||
| Year ending March 31, 2025 | |||
| Total lease payments | |||
| Adjusted for interest | ( |
) | |
| Total lease obligations | $ |
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its consolidated financial statements.
NOTE 9 – RELATED PARTY TRANSACTIONS
Effective as of August 29, 2022, the Company issued an aggregate of
On November 16, 2022, the Company cancelled a previously issued grant to Mr. Aaron Keay, a director of the Company, of
On November 16, 2022, the Company granted awards of and aggregate of
On November 16, 2022, the Company granted an aggregate of
On November 23, 2022, the Company entered into private placement subscription agreements, whereby it issued an aggregate of
NOTE 10 - SUBSEQUENT EVENTS
On January 11, 2023, the Company issued an aggregate of
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains "forward-looking statements." All statements other than statements of historical fact are "forward-looking statements" for purposes of applicable securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward- looking statements, which speak only as of the dates on which they are made. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend, and undertake no obligation, to update any forward-looking statement.
Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:
| • | lack of working capital; |
| • | inability to raise additional financing; |
| • | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain; |
| • | deterioration in general or regional economic conditions; |
| • | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; |
| • | inability to efficiently manage our operations; |
| • | inability to achieve future sales levels or other operating results; and |
| • | the unavailability of funds for capital expenditures. |
Unless otherwise indicated, all reference to "dollars", "$", "USD" or "US$" are to United States dollars and all reference to "CDN$" are to Canadian dollars.
Our financial statements are stated in United States Dollars ($ or US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this quarterly report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report on Form 10-Q, the terms "we", "us" "our", the "Company" and "Alkaline" refer to The Alkaline Water Company Inc., a Nevada corporation, and its wholly-owned subsidiary, Alkaline 88, LLC (an Arizona Limited Liability Company), unless otherwise specified.
COVID-19
Our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the outbreak of COVID-19. To date, we have managed to operate successfully throughout the pandemic without any material disruptions to our supply chain. Although retailers which carry our products may be considered essential businesses and therefore be allowed to remain operational, they may experience significantly reduced demand. The risk of a pandemic, or public perception of the risk, could cause customers to avoid public places, including retail properties, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory to our customers. Further, such risks could also adversely affect retail customers' financial condition, resulting in reduced spending on our products, which are marketed as premium products. "Shelter-in-place" or other such orders by governmental entities could also disrupt our operations, if our employees or the employees of our sourcing partners who cannot perform their responsibilities from home, are not able to report to work. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our co-packing facilities or operations of our sourcing partners.
Inflationary Pressure
We have seen significant margin contraction as a result of inflationary pressures over the last 12 months. We've taken a number of steps that will allow us to increase our margins in the year ended March 31, 2023. These steps include (1) an approximate 9% across the board price increase (effective across all banners for the entire fiscal 2023); (2) a potential leveling off or small reduction in freight costs due to the geographic distribution of our new co-packers and suppliers; and (3) our buying power allowing us to lock in price breaks on raw materials over the next 12 months.
Results of Operations
Three Months Ended December 31, 2022 and December 31, 2021
Our results of operations for the three months ended December 31, 2022 and December 31, 2021 are as follows:
| For the three | For the three | |||||
| months ended | months ended | |||||
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| Revenue | $ | 15,874,967 | $ | 13,100,048 | ||
| Cost of goods sold | 11,947,892 | 10,128,144 | ||||
| Gross profit | $ | 3,927,075 | $ | 2,971,904 | ||
| Net Loss | $ | (3,986,455 | ) | $ | (10,736,033 | ) |
Revenue and Cost of Goods Sold
We had revenue from sales of our product for the three months ended December 31, 2022 of $15,874,967 as compared to $13,100,048 for the three months ended December 31, 2021, an increase of 21% generated by sales of our alkaline water and flavored infused water. The increase in sales is due to the expanded distribution of our products to additional retailers throughout the country. We distribute our product through several channels. We sell through large national distributors (UNFI, KeHE, C&S, and Core-Mark), which together represent over 150,000 retail outlets. We also sell our product directly to retail clients, including drug store chains, warehouse clubs, convenience stores, natural food products stores, large ethnic markets and national retailers. Some examples of retail clients are: Walmart, CVS, Rite Aid, Sam's Club, Family Dollar, Albertson/Safeway, Kroger companies, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros. Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's.
Cost of goods sold is comprised of production costs, shipping and handling costs. For the three months ended December 31, 2022, we had cost of goods sold of $11,947,892, or 75% of revenue, as compared to cost of goods sold of $10,128,144 or 77% of revenue, for the three months ended December 31, 2021.
Expenses
Our operating expenses for the three months ended December 31, 2022 and December 31, 2021 are as follows:
| For the three | For the three | |||||
| months ended | months ended | |||||
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| Sales and marketing expenses | $ | 4,949,002 | $ | 7,561,927 | ||
| General and administrative expenses | 2,539,959 | 6,333,663 | ||||
| Total operating expenses | $ | 7,488,961 | $ | 13,895,590 |
For the three months ended December 31, 2022, our total operating expenses were $7,488,961 as compared to $13,895,590 for the three months ended December 31, 2021.
For the three months ended December 31, 2022, the total included $4,949,002 of sales and marketing expenses. Sales and marketing expenses increased as a result of increased freight and sales promotional expenses due to our increase in sales. General and administrative expenses of $2,539,959, consisted primarily of approximately $0.3 million of professional fees, media fees and legal fees, stock option and restricted stock expense in the amount of approximately $0.2 million and approximately $1.7 million of wages and wage related expenses.
For the three months ended December 31, 2021, the total included $7,561,927 of sales and marketing expenses. Sales and marketing expenses increased as a result of increased freight and sales promotional expenses due to our increase in sales. General and administrative expenses of $6,333,663, consisted primarily of approximately $1.3 million of professional fees, media fees and legal fees, stock option and restricted stock expense in the amount of approximately $2.3 million and approximately $1.5 million of wages and wage related expenses.
Nine Months Ended December 31, 2022 and December 31, 2021
Our results of operations for the nine months ended December 31, 2022 and December 31, 2021 are as follows:
| For the nine | For the nine | |||||
| months ended | months ended | |||||
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| Revenue | $ | 51,277,376 | $ | 39,684,465 | ||
| Cost of goods sold | 40,296,127 | 29,530,570 | ||||
| Gross profit | $ | 10,981,249 | $ | 10,153,895 | ||
| Net Loss | $ | (19,877,071 | ) | $ | (28,540,132 | ) |
Revenue and Cost of Goods Sold
We had revenue from sales of our product for the nine months ended December 31, 2022 of $51,277,376 as compared to $39,684,465 for the nine months ended December 31, 2021, an increase of 29% generated by sales of our alkaline water and flavored infused water. The increase in sales is due to the expanded distribution of our products to additional retailers throughout the country. We distribute our product through several channels. We sell through large national distributors (UNFI, KeHE, C&S, and Core-Mark), which together represent over 150,000 retail outlets. We also sell our product directly to retail clients, including drug store chains, warehouse clubs, convenience stores, natural food products stores, large ethnic markets and national retailers. Some examples of retail clients are: Walmart, CVS, Rite Aid, Sam's Club, Family Dollar, Albertson/Safeway, Kroger companies, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros. Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's.
For the nine months ended December 31, 2022, we had cost of goods sold of $40,296,127, or 79% of revenue, as compared to cost of goods sold of $29,530,570 or 74% of revenue, for the nine months ended December 31, 2021.
Expenses
Our operating expenses for the nine months ended December 31, 2022 and December 31, 2021 are as follows:
| For the nine | For the nine | |||||
| months ended | months ended | |||||
| December 31, | December 31, | |||||
| 2022 | 2021 | |||||
| Sales and marketing expenses | $ | 17,924,034 | $ | 22,054,276 | ||
| General and administrative expenses | 7,979,938 | 16,549,788 | ||||
| Total operating expenses | $ | 25,903,972 | $ | 38,604,064 |
For the nine months ended December 31, 2022, our total operating expenses were $25,903,972, as compared to $38,604,064 for the nine months ended December 31, 2021.
For the nine months ended December 31, 2022, the total included $17,924,034 of sales and marketing expenses. Sales and marketing expenses decreased as a result of decreased out-bound freight expense (approximately $1.3 million) and decreased marketing expenses (approximately $3.4 million). General and administrative expenses of $7,979,938, consisted primarily of approximately $0.9 million of professional fees, stock option and stock award expense in the amount of approximately $0.8 million and approximately $5.4 million of wage and wage related expenses.
For the nine months ended December 31, 2021, the total included $22,054,276 of sales and marketing expenses. Sales and marketing expenses increased compared to the nine months ended December 31, 2020 as a result of increased out bound freight to our customers of approximately $6.5 million, increased advertising and promotional expenses of approximately $2.9 million and increased non-cash stock expense of approximately $1.7 million. General and administrative expenses of $16,549,788, consisted primarily of approximately $6.8 million of professional fees, stock option and stock award expense in the amount of approximately $3.7 million and approximately $3.6 million of wage and wage related expenses.
Liquidity and Capital Resources
Working Capital
| At December | At March 31, | |||||
| 31, 2022 | 2022 | |||||
| Current assets | $ | 22,225,650 | $ | 21,157,421 | ||
| Current liabilities | 22,902,412 | 21,920,686 | ||||
| Working capital | $ | (676,762 | ) | $ | (763,265 | ) |
Current Assets
Current assets as of December 31, 2022 and March 31, 2022 primarily relate to $2,192,867 and $1,531,062 in cash, $8,774,283 and $7,927,065 in accounts receivable and $8,737,717 and $8,583,664 in inventory, respectively.
Current Liabilities
Current liabilities as of December 31, 2022 and March 31, 2022 primarily relate to $14,109,479 and $10,441,879 in accounts payable which increased due to lower balance on the revolver credit line and continued operating loss, revolving financing of $6,391,316 and $7,043,870, and accrued expenses of $2,225,366 and $2,036,739 respectively.
Cash Flows
Our cash flows for the nine months ended December 31, 2022 and December 31, 2021 are as follows:
| For the nine | For the nine | |||||
| months | Months | |||||
| ended | ended | |||||
| December | December | |||||
| 31, | 31, | |||||
| 2022 | 2021 | |||||
| Net cash used in operating activities | $ | (9,919,960 | ) | $ | (25,940,267 | ) |
| Net cash used in investing activities | (787,817 | ) | (493,392 | ) | ||
| Net cash provided by financing activities | 11,369,582 | 20,595,932 | ||||
| Net increase (decrease) in cash and cash equivalents | $ | 661,805 | $ | (5,837,664 | ) |
Operating Activities
Net cash used in operating activities was $9,919,960 for the nine months ended December 31, 2022, as compared to $25,940,267 used in operating activities for the nine months ended December 31, 2021. The decrease of approximately $16 million in net cash used in operating activities is primarily due to approximately $8.7 million decrease of net loss in the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021 and an increase in accounts payable of approximately $2.9 million.
Investing Activities
Net cash used in investing activities was $787,817 for the nine months ended December 31, 2022, as compared to $493,329 used in investing activities for the nine months ended December 31, 2021.
Financing Activities
Net cash provided by financing activities for the nine months ended December 31, 2022 was $11,369,582, as compared to $20,595,932 for the nine months ended December 31, 2021. The decrease of approximately $9.2 million in net cash provided by financing activities is primarily due to decrease of approximately $7.7 million of proceeds provided by the exercise of warrants.
Cash Requirements
Our ability to continue operating as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We have initiated a cost-reduction strategy, which along with our cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the sales agreement with Roth Capital Partners, LLC is planned to fund our current planned operations and capital needs. However, if our current plans change or are accelerated or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors. 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.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with US GAAP, which requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. We have identified the accounting estimates below as critical to understanding and evaluating the financial results reported in our consolidated financial statements.
Revenue Recognition – Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s distributors or retail customers including, but not limited to the following: discounts granted off list prices to support price promotions to end-consumers by retailers; reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; the Company’s agreed share of fees given to distributors and/or directly to retailers for advertising, in-store marketing and promotional activities
Promotional allowance - The Company’s promotional allowance programs with its distributors and/or retailers are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with distributors and retail customers, and accruals are established during the year for its anticipated liabilities. These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels. Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain "disclosure controls and procedures", as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company's disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the material weaknesses in our internal control over financial reporting disclosed in our annual report on Form 10-K for the fiscal year ended March 31, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified the following material weaknesses: (1) we had inadequate segregation of duties over both financial reporting and closing activities, (2) we had inadequate resources in the accounting department, (3) delays in the implementation of a new ERP accounting system which caused the system to not function as intended and as a result led to delays in our financial closing activities. In response to the material weaknesses discussed above, we are working on implementing a new integrated ERP system and have hired additional accounting personnel in December 2022. Once the ERP system in fully implemented within the next three months, we plan to engage a third-party consultant to develop a comprehensive control framework using the ERP and to document our internal controls based on the implementation of the ERP system.
We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional improvements as necessary.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material pending legal proceedings to which our company or any of our subsidiaries is a party or of which any of our properties, or the properties of any of our subsidiaries, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.
Item 1A. Risk Factors.
Information regarding risk factors appears in our Annual Report on Form 10-K filed on July 14, 2022. There have been no material changes since July 14, 2022 from the risk factors disclosed in that Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Since the beginning of our fiscal quarter ended December 31, 2022, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE ALKALINE WATER COMPANY INC.
| Date: February 28, 2023 | By: | /s/ Frank Chessman |
| Frank Chessman | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: February 28, 2023 | By: | /s/ David A. Guarino |
| David A. Guarino | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial Officer and Principal | ||
| Accounting Officer) |
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is dated as of the 16th day of November , 2022.
BETWEEN:
THE ALKALINE WATER COMPANY INC., a corporation incorporated pursuant to the laws of the State of Nevada and having an office for business located at 8541 E. Anderson Drive, Suite 100, Scottsdale, Arizona 85255
(the "Company")
AND:
FRANK CHESSMAN, an individual resident of the State of with an address of
(the "Executive")
RECITALS:
A. The Company, which is publicly listed on the NASDAQ Capital Market and Canadian Securities Exchange under the ticker symbol "WTER," is in the beverage industry and distributes alkaline water and various CBD products; and
B. The Company and the Executive have agreed to enter into an employment relationship for their mutual benefit.
NOW THEREFORE, in consideration of the mutual promises of the parties hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereby covenant and agree as follows:
1. DEFINITIONS
1.1 Definitions. For the purposes of this Agreement, the following terms shall have the following meanings:
(a) "Agreement" means this Agreement and all schedules and amendments hereto.
(b) "Award" has the meaning set out in the Plan.
(c) "Award Agreement" has the meaning set out in the Plan.
(d) "Board" means the Board of Directors of the Company.
(e) "Bonus" has the meaning set out in Section 3.1.
(f) "Change of Control Event" means the occurrence of any one of the events set out in Sections 1.1.(f)(i) to 1.1(f)(v) below:
(i) the acquisition, after the date of this Agreement and excluding any acquisitions from the Company, by any one individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934), of beneficial ownership of 50% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors;
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(ii) the approval by the stockholders of the Company of a reorganization, merger, amalgamation, combination or consolidation of the Company in which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Company immediately prior to such reorganization, merger, amalgamation, combination or consolidation do not, following such reorganization, merger, amalgamation, combination or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Company resulting from such reorganization, merger, amalgamation, combination or consolidation;
(iii) the exercise of the voting power of all or any securities of the Company so as to cause or result in the election of a majority of members of the Board who were not previously incumbent directors thereof;
(iv) a tender offer, an exchange offer, a take-over bid or any other offer or bid by an entity, person or group (other than the Company or a wholly-owned subsidiary of the Company) of more than 50% of the issued and outstanding voting securities of the Company; or
(v) a liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company.
In the case of the occurrence of any of the events set forth in this Section 1.1(f), a Change of Control Event shall be deemed to occur immediately prior to the occurrence of any such events. An event shall not constitute a Change of Control Event if its sole purpose is to change the jurisdiction of the Company's organization or the name of the Company or to create a holding company, partnership or trust that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such event. Additionally, a Change of Control Event shall not be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group that consummates the Change of Control Event.
(g) "Common Shares" means the shares of common stock, par value $0.001, of the Company.
(h) "Compensation Committee" means the compensation committee of the Board.
(i) "Confidential Information" means information, whether or not originated by the Executive, that relates to the business or affairs of the Company, its affiliates, clients or suppliers and is confidential or proprietary to, about or created by the Company, its affiliates, clients, or suppliers. Confidential Information includes, but is not limited to, the following types of confidential information and other proprietary information of a similar nature (whether or not reduced to writing or designated or marked as confidential):
(i) the Company's properties and production methods, as well as information relating to strategies, research, communications, business plans, and financial data of the Company and any information of the Company which is not readily publicly available;
(ii) work product resulting from or related to work or projects performed for or to be performed for the Company or its affiliates, including but not limited to, the methods, processes, procedures, analysis, techniques and audits used in connection therewith;
(iii) any intellectual property contributed to the Company, and any other technical and business information of the Company, its subsidiaries and affiliates which is of a confidential, trade secret and/or proprietary character;
(iv) internal Company personnel and financial information, supplier names and other supplier information, purchasing and internal cost information, internal services and operational manuals, and the manner and method of conducting the Company's business;
(v) marketing and development plans, price and cost data, price and fee amounts, pricing and billing policies, quoting procedures, marketing techniques and methods of obtaining business, forecasts and forecast assumptions and volumes, current and prospective client lists, and future plans and potential strategies of the Company that have been or are being discussed; and
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(vi) all information that becomes known to the Executive as a result of this Agreement, any prior employment agreements with the Company, or the services performed hereunder that the Executive, acting reasonably, believes is confidential information or that the Company takes measures to protect;
provided that Confidential Information does not include any of the following:
(vii) the general skills and experience gained by the Executive during the Executive's employment with the Company that the Executive could reasonably have been expected to acquire in similar retainers or engagements with other companies;
(viii) information publicly known without breach of this Agreement or similar agreements;
(ix) information, the disclosure of which by the Executive is required to be made by any law, regulation or governmental authority or legal process of discovery (to the extent of the requirement), provided that before disclosure is made, notice of the requirement is provided to the Company, and to the extent reasonably possible in the circumstances, the Company is afforded an opportunity to dispute the requirement; or
(x) information known to the Executive at the date of this Agreement.
(j) "Date of Termination" means the date of termination of this Agreement.
(k) "Developments" means all discoveries, inventions, designs, works of authorship, improvements and ideas (whether or not patentable or copyrightable) and legally recognized proprietary rights (including, but not limited to, patents, copyrights, trademarks, know-how and trade secrets), and all records and copies of records relating to the foregoing, that:
(i) result or derive from the Executive's employment or from the Executive's knowledge or use of Confidential Information;
(ii) are conceived or made by the Executive (individually or in collaboration with others) during the term of the Executive's employment by the Company;
(iii) result from or derive from the use or application of the resources of the Company or its affiliates; or
(iv) relate to the business operations of the Company or to actual or demonstrably anticipated research and development by the Company or its affiliates.
(l) "Directors" means the Directors of the Company, and "Director" means any one of them.
(m) "Effective Date" means October 1, 2022.
(n) "Exchanges" means the Nasdaq Capital Market and the Canadian Securities Exchange.
(o) "Expense Report" has the meaning set out in Section 4.5.
(p) "Just Cause" includes, but is not limited to:
(i) the Executive's failure to properly discharge his lawful duties after receiving a written notice from the Board which advises of the details of such failure and which provides the Executive 30 days to cure such failure;
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(ii) the Executive's conviction for any crime respecting the property of the Company or which calls into question the Executive's personal honesty;
(iii) any breach by the Executive of the fiduciary duties normally owed by a Director of Sales and Operations of a corporation, including the duty to avoid conflicts of interest, and to act honestly and in good faith with a view to the best interests of the Company after receiving a written notice from the Board which advises of the details of such breach and which provides the Executive with 30 days to cure such breach; or
(iv) any material breach of this Agreement by the Executive after receiving a written notice from the Board which advises of the details of such breach and which provides the Executive 30 days to cure such breach.
(q) "Pay Period" means the recurring length of time over which employee time is recorded and paid by the Company.
(r) "Plan" means the 2020 Equity Incentive Plan adopted by the Board, as amended by the Board from time to time after the Effective Date, and any successor equity incentive plan that may be adopted by the Board from time-to-time after the Effective Date.
(s) "Salary" has the meaning set out in Section 3.1.
2. TERMS AND CONDITIONS OF EMPLOYMENT
2.1 Employment. The Company and the Executive agree that, as of the Effective Date, the Company shall employ the Executive on the terms and conditions set out in this Agreement. The Executive shall perform such duties as are regularly and customarily performed by the Director of Sales and Operations of a corporation, and any other duties consistent with the Executive's position in the Company. The Executive agrees that, in addition to role of CFO of the Company, the Executive shall:
(a) perform other related positions or duties of senior capacity as the President and CEO and/or Board may from time-to-time reasonably require; and
(b) the Executive shall always act in accordance with any reasonable decision of and obey and carry out all lawful and reasonable orders given to him by the Board.
2.2 Reporting. The Executive shall:
(a) report to the Company's President & CEO and take direction from theCompany's President & CEO directly and/or the Board by resolution and in the absence of, or pending a resolution of the Board on any matter, take direction from the Chairman of the Board;
(b) attend all meetings of the Board;
(c) at meetings of the Board, have the authority to propose any resolution for consideration by the Board; and
(d) ensure that all contracts and similar arrangements of the Company shall be approved and signed in accordance with the signing authorities authorized by the Board from time to time.
2.3 Term. The term of this Agreement shall commence on the Effective Date, and, unless renewed under Section 2.4 or otherwise terminated under Section 6, shall terminate on the second anniversary of the Effective Date (the "Initial Term").
2.4 Renewal. On the second anniversary of the Effective Date and on each annual anniversary date thereafter, the term of this Agreement shall automatically be extended by one additional year (each, a "Renewal Term") unless either party gives ninety (90) days' written notice to the other of its intention not to renew this Agreement.
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2.5 Location. The Executive's employment shall be based in the Company's regional office in southern California The Executive understands that he will be required to travel regularly in order to fulfill his duties as Director of Sales and Operations of the Company, including regular travel to the Company's corporate headquarters in Scottsdale, Arizona.
2.6 Full Time and Efforts. Unless prevented by ill health, or physical or mental disability or impairment, the Executive shall, during the term hereof, devote his full-time attention, effort, care and attention to his duties set out in this Agreement and to the business of the Company in order to properly discharge his duties hereunder. Executive shall devote not less than fifty (50) hours per week to the Company's business. Except for serving on corporate board of directors that have been approved in advance by the Board, consulting with companies who Executive maintains a passive investment interest, and engaging in personal passive investment activities, the Executive shall not, without the prior express approval of the Board, be involved in any other outside business endeavours.
2.7 Authority, Approval Required for Pledging of Stock. The Executive shall have, subject always to the general or specific instructions and directions of the Board, full power and authority to manage and direct the business and affairs of the Company (except only the matters and duties as by law must be transacted or performed by the Board or by the stockholders of the Company in general meeting), including power and authority to enter into contracts, engagements or commitments of every nature or kind in the name of and on behalf of the Company and to engage and employ and to dismiss all managers and other employees and agents of the Company other than the senior management and officers of the Company, provided always that the contracts, engagements and commitments entered into are in accordance with the budgets presented to and approved by the Board. During the Term, the Executive shall not pledge, hypothecate or otherwise encumber his equity in the Company without the prior express written approval of the Board.
2.8 Fiduciary Role and Personal Use of Employees. The Executive acknowledges that, as the Director of Sales and Operations of the Company, he occupies a position of fiduciary trust and confidence and, as a fiduciary, he shall develop and acquire wide experience and knowledge with respect to all aspects in which the business of the Company is conducted. The Executive agrees to serve the Company in a manner which is consistent with the fiduciary duties owed to the Company. Except for personal assistance from the Executive's executive assistant and/or other administrative staff supporting the Executive and de minimus personal requests of other employees, the Executive shall not utilize any of the Company's employees for any of the Executive's personal affairs and business matters.
3. COMPENSATION
3.1 Salary and Bonus.
(a) During the Initial Term and any Renewal Terms in effect in which compensation has not been amended by mutual agreement of the Executive and Company, the Company shall pay the Executive the sum of $252,000.00 annually (the "Salary") or such other amount as may be determined by the Board from time to time, commencing on the Effective Date. During each of the Company's fiscal years during the Initial Term and any Renewal Terms (beginning with the fiscal year of April 1, 2022 to March 31, 2023 ("FY 23")), the Executive shall also be eligible for the following annual bonus: up to fifty percent (50%) of his Salary, with the exact amount of the bonus to be determined within thirty (30) days of the end of each fiscal year by the Compensation Committee, based ninety percent (90%) upon the Executive's performance during the immediately preceding fiscal year as measured bythe key performance indicators attached to this Agreement as Exhibit "A" (the "KPI's") and ten percent (10%) based upon the discretion of the Compensation Committee (the "Bonus").. During the Initial Term and any Renewal Terms, the KPI's attached to this Agreement: (i) shall be updated within thirty (30) days of the end of each fiscal year, with the first update being April 30, 2023 and with each of the Company and the Executive signing the updated KPI's to acknowledge their incorporation in to this Agreement; and (ii) shall be set and established in the sole discretion of the Compensation Committee. Notwithstanding the foregoing, the KPIs for FY 23 will be for the period October 1, 2022 through March 31, 2023 due to Effective Date of this Agreement and the applicable Bonus shall be pro-rated as to only apply to such six month's of Salary.
(b) All compensation payable to the Executive pursuant to this Section 3 or otherwise under this Agreement, shall be payable in accordance with the Company's normal payroll practices, as applicable, and shall be subject to all statutory deductions that the Company is required to make and remit.
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(c) The Executive shall be responsible to pay for all federal, state and local taxes assessed on any income received from the Executive under this Agreement, which are over and above the amounts that were deducted and remitted on the Executive's behalf by the Company.
3.2 Awards.
(a) At the sole and absolute discretion of the Board and subject to compliance with the Plan, all applicable laws, regulations and rules of any governmental authority, quotation system or stock exchange, the Company may grant Awards to the Executive from time-to-time during the term of this Agreement but nothing in this Agreement shall obligate the Company to do so.
(b) Any Awards granted to the Executive during the Term of this Agreement will be subject to the terms of the Plan and the Company's standard form of Award Agreement. In the event of any inconsistency among this Agreement, the Award Agreement and the Plan, the terms of the Plan and the Award Agreement will control, in descending order (for clarity, in the event of any inconsistency between the Plan and the Award Agreement, the terms of the Plan will control).
4. EMPLOYEE BENEFITS AND EXPENSES
4.1 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate in all Company employee benefit plans including without limitation, any medical/hospital and extended health care benefits (collectively, the "Employee Benefits") provided by the Company to its senior officers in accordance with the terms thereof as such may be in effect from time to time. Should the Company not provide such plans at any time or if the Executive elects to remain on his current insurance coverage, the Company shall reimburse the Executive for the actual cost of any such plans obtained privately for the Executive and his spouse.
4.2 Benefits on Cessation of Employment. Unless otherwise agreed by the parties, upon cessation of employment with the Company for any reason, regardless of whether the cessation is voluntary or involuntary or constitutes termination with or without cause or adequate notice:
(a) the Employee Benefits and any reimbursement in lieu of such Employee Benefits in accordance with Section 4.1 will continue for a period of six months after which time the Executive shall cease to participate in the Employee Benefits and shall not be entitled to any further benefits thereunder; and
(b) after such six (6) month period, the Executive shall be solely responsible for obtaining personal benefit plans to replace any or all Employee Benefits, including, without limitation, medical/hospital and extended health care benefits. Notwithstanding the foregoing, in the event Company offers COBRA coverage and the Executive is eligible after the period set forth in Section 4.2(a) above, the Executive, at his sole cost and expense, may participate in such COBRA coverage.
4.3 Automobile Allowance. The Company shall provide the Executive with a $750 per month automobile allowance during the Term of this Agreement.
4.4 Vacation. The Executive shall be entitled in each calendar year to five (5) weeks' paid vacation, in addition to weekends and statutory holidays, to be taken in installments of no more than two (2) consecutive weeks of paid time off. Subject to the foregoing, paid vacation is to be taken at such time or times as the Executive may select and the Board may reasonably approve having regard to the business affairs and operations of the Company.
4.5 Expenses. The Company shall reimburse the Executive for any expenses that the Executive incurs in connection with his duties under this Agreement, provided that: (i) the Executive provides to the Company an itemized written account and written receipts acceptable to the Company within a reasonable time after they have been incurred (the "Expense Report"); and (ii) the Company's CFO has approved the applicable Expense Report and such Expense Report complies with all of the Company's audit and corporate governance guidelines then in effect.
5. CONFIDENTIAL INFORMATION AND DEVELOPMENTS
5.1 Confidential Information.
(a) All Confidential Information, whether developed by the Executive any time while he was employed by the Company, or by others employed or engaged by or associated with the Company or its affiliates or clients, is the exclusive and confidential property of the Company or its affiliates or clients, as the case may be, and shall at all times be regarded, treated and protected as such, as provided in this Agreement.
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(b) As a consequence of the acquisition of Confidential Information or arising from his position asthe Director of Sales and Operations, the Executive shall occupy a position of trust and confidence with respect to the affairs and business of the Company, its affiliates, suppliers and clients. In view of the foregoing, it is reasonable and necessary for the Executive to make the following covenants regarding the Executive's conduct during and subsequent to the Executive's employment by the Company:
(i) at all times during and subsequent to the Executive's employment with the Company, the Executive shall not disclose Confidential Information to any person (other than as necessary in carrying out the Executive's duties on behalf of the Company) without first obtaining the Company's consent, and the Executive shall take all reasonable precautions to prevent inadvertent disclosure of any Confidential Information;
(ii) at all times during and subsequent to the Executive's employment with the Company, the Executive shall not use, copy, transfer or destroy any Confidential Information (other than as necessary in carrying out the Executive's duties on behalf of the Company) without first obtaining the Company's consent and the Executive shall take all reasonable precautions to prevent inadvertent use, copying, transfer or destruction of any Confidential Information. This prohibition includes, but is not limited to, licensing or otherwise exploiting, directly or indirectly, any products or services that embody or are derived from Confidential Information or exercising judgment or performing analysis based upon knowledge of Confidential Information; and
(iii) within ten (10) business days after the termination of the Executive's employment for any reason, the Executive shall promptly deliver to the Company all property of or belonging to or administered by the Company including without limitation all Confidential Information that is embodied in any form, whether in hard copy or on electronic media, and that is within the Executive's possession or under the Executive's control.
5.2 Intellectual Property.
(a) All Developments shall be the exclusive property of the Company and the Company shall have sole discretion to deal with the Developments. The Executive agrees that no intellectual property rights in the Developments are or shall be retained by him. For greater certainty, all work done during the term of employment by the Executive for the Company or its affiliates is the sole property of the Company or its affiliates, as the case may be, as the first author for copyright purposes and in respect of which all copyright shall vest in the Company or the relevant affiliate, as the case may be. In consideration of the benefits to be received by the Executive under the terms of this Agreement, the Executive hereby irrevocably sells, assigns and transfers and agrees in the future to sell, assign and transfer all right, title and interest in and to the Developments and intellectual property rights therein including, without limitation, all patents, copyright, industrial design, circuit topography and trademarks, and any goodwill associated therewith in United States and worldwide to the Company and the Executive shall hold all the benefits of the rights, title and interest mentioned above in trust for the Company prior to the assignment to the Company.
(b) The Executive shall do all further things that may be reasonably necessary or desirable in order to give full effect to the foregoing. If the Executive's cooperation is required in order for the Company to obtain or enforce legal protection of the Developments following the termination of the Executive's employment, the Executive shall provide that cooperation so long as the Company pays to the Executive reasonable compensation for the Executive's time at a rate to be agreed between the Executive and the Company.
5.3 Non-Competition. The Executive hereby covenants and agrees to and with the Company that he shall not either directly or indirectly as principal, agent, owner, partner, shareholder, director, officer or otherwise, own, operate, be engaged in the operation of or have any financial interest in any business operation whether a proprietorship, partnership, joint venture or private company, or otherwise carry on or be engaged in the beverage industry or CBD industry within North America for a period of one year following the voluntary termination of the employment relationship with the Company if the new venture would be in conflict or direct competition of or with the Company.
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5.4 Consent to Enforcement. The Executive confirms that all restrictions in Sections 5.1, 5.2, and 5.3 are reasonable and valid and any defences to the strict enforcement thereof by the Company are waived by the Executive. Without limiting the generality of the foregoing, the Executive hereby consents to an injunction being granted by a court of competent jurisdiction in the event that the Executive is in breach of any of the provisions stipulated in Sections 5.1, 5.2 and 5.3. The Executive hereby expressly acknowledges and agrees that injunctive relief is an appropriate and fair remedy in the event of a breach of any of the said provisions.
5.5 Effect of Bankruptcy and other Events. In the event of bankruptcy of the Company, dissolution of business or the inability or failure of the Company to satisfy the terms of compensation or benefits contained in Sections 3 and 4, the non-competition provisions set out in Section 5.3 shall no longer apply.
5.6 Obligations Remain. Except where Section 5.5 applies, the Executive's obligations under each of Sections 5.1, 5.2, and 5.3 are to remain in effect in accordance with each of their terms and shall exist and continue in full force and effect despite any breach or repudiation, or alleged breach or repudiation, of this Agreement or the Executive's wrongful dismissal by the Company.
6. TERMINATION
6.1 Termination for Just Cause. The Company may terminate the Executive's employment for Just Cause at any time by delivering to the Executive written notice of termination. In the event that the Executive's employment with the Company is terminated by the Company for Just Cause, the Executive shall not be entitled to any additional payments or benefits hereunder (except as otherwise provided herein), other than for amounts due and owing to the Executive by the Company as at the Date of Termination, except for any Awards which shall be dealt with in accordance with the Plan and the Award Agreement.
6.2 Death or Disability. Subject to applicable employment laws or similar legislation, the Company may terminate the Executive's employment in the event the Executive has been unable to perform his duties for a period of eight (8) consecutive months or a cumulative period of twelve (12) months in any consecutive twenty-four (24) month period, because of a physical or mental disability. The Executive's employment shall automatically terminate on the Executive's death. In the event the Executive's employment with the Company terminates by reason of the Executive's death or disability, then upon and immediately effective on the Date of Termination the Company shall promptly pay and provide the Executive (or in the event of the Executive's death, the Executive's estate);
(a) any unpaid Salary and any outstanding and accrued regular and special vacation pay through the Date of Termination;
(b) reimbursement for any unreimbursed expenses incurred through to the Date of Termination; and
(c) any outstanding amounts due under any Awards which shall be dealt with in accordance with the Plan and the Award Agreement.
6.3 Severance for Disability. In the event the Executive's employment is terminated due to a disability pursuant to Section 6.2, the Company shall pay to the Executive the severance referred to in Section 6.4.
6.4 Termination by the Executive on Change of Control Event & Termination by the Company Other than for Just Cause.
(a) If, within 90 days of the occurrence of a Change of Control Event, the Executive resigns from his employment relationship with the Company or the Company terminates this Agreement for any reason other than for Just Cause and the Executive signs the Release, then the Company shall pay the Executive severance in an amount equal to the following: 12 months' Salary.
(b) The Company may terminate the Executive's employment at any time for other than Just Cause by delivering to the Executive written notice of termination. If the Executive's employment with the Company is terminated pursuant to this Section 6.4(b) and the Executive signs the Release, then the Company shall pay the Executive severance in an amount equal to the following: 12 months' Salary.
(c) The severance amount calculated pursuant to Sections 6.4(a) or 6.4(b) shall be subject to the following conditions and terms: (i) the Executive must execute a broad based general release in favor of the Company (the "Release"); (ii) statutory deductions; and (iii) shall be payable in one (1) lump sum within then (10) days of such resignation or termination.
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6.5 Fair and Reasonable Provisions. The Company and the Executive acknowledge and agree that the provisions of Section 6.4 regarding further payments of the Salary constitute fair and reasonable provisions for the consequences of such resignation or termination, and such payments and benefits shall not be limited or reduced by amounts the Executive might earn or be able to earn from any other employment or ventures during the remainder of the agreed term of this Agreement.
6.6 Resignation of Offices. On termination of this Agreement for any reason, the Executive shall immediately resign all offices held (including directorships if requested) in the Company and, save as provided by this Agreement, the Executive shall not be entitled to receive any severance payment or compensation for loss of office or otherwise by reason of the resignation. If the Executive, as applicable, fails to resign as required by this Section 6.6, the Company is irrevocably authorized to appoint some person in his name and on his behalf to execute any documents or do anything necessary or requisite to give effect to such resignation.
7. GENERAL
7.1 Indemnification by the Company. Provided that the Executive has acted within the scope of his authority, the Company shall indemnify and save harmless the Executive (including his heirs and legal representatives) against any and all costs, claims and expenses (including any amounts paid to settle any actions or satisfy any judgments) which:
(a) the Executive may suffer or incur by reason of any matter or thing which the Executive may in good faith do or have done or caused to be done as an employee, officer or director of the Company, any of its subsidiaries or of any of their respective affiliates; or
(b) was reasonably incurred by the Executive in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been an employee, officer or director of the Company, any of its subsidiaries or of any of their respective affiliates;
provided that, the foregoing indemnification will apply only if:
(c) the Executive acted honestly and in good faith with a view to the best interests of the Company, any of its subsidiaries or any of their respective affiliates; and
(d) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Executive had reasonable grounds for believing that his conduct was lawful.
7.2 Indemnification by the Executive. The Executive shall indemnify and save harmless the Company against, and agree to hold it harmless from, any and all damages, injuries, claims, demands, actions, liability, costs and expenses (including reasonable legal fees) incurred or made against the Company arising from or connected with the performance or non-performance of this Agreement by the Executive or the beach of any warranty, representation or covenant herein by the Executive, other than claims by the Executive pursuant to this Agreement. This Section shall survive the termination of this Agreement.
7.3 Insurance. If and to the extent the Company maintains directors' and officers' liability insurance for the protection of its executives in connection with acts and omissions occurring during their employment with the Company, the Executive shall be included as an officer and director who is covered by such policy on a basis no less favorable than made available to other executives of the Company.
7.4 Authorization. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and perform its obligations hereunder, and that performance of this Agreement shall not violate any agreement between the Company and any other person, firm or organization nor breach any provisions of its corporate and organizational documents or governing legislation.
7.5 Obligations Continue. The Executive's obligations under Section 5 are to remain in full force and effect notwithstanding termination of this Agreement for any reason.
7.6 Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either party hereto of any breach by the other party hereto of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be.
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7.7 Compliance with Policies and Laws. The Executive agrees to abide by all the Company's policies and procedures. The Executive also agrees to abide by all laws applicable to the Company, in each jurisdiction that it does business.
7.8 Governing Law and Venue. This Agreement is governed by the laws of the State of Arizona and the federal laws of the United States of America as applicable therein. The Executive irrevocably attorns to the jurisdiction of the courts of the State of Arizona.
7.9 Notices. Any notice required or permitted to be given under this Agreement will be in writing and may be given by delivering, sending by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy, or sending by prepaid registered mail posted in the United States, the notice to the following address or number:
(a) in the case of the Company:
Attn: Michael Reagan, Esq.
8541 E. Anderson Drive
Suite 100
Scottsdale, AZ 85255,
email:
(b) in the case of the Executive:
Email:
(or to such other address or number as any party may specify by notice in writing to another party).
Any notice delivered or sent by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy on a business day will be deemed conclusively to have been effectively given on the day the notice was delivered, or the transmission was sent successfully to the number set out above, as the case may be.
Any notice sent by prepaid registered mail will be deemed conclusively to have been effectively given on the third business day after posting; but if at the time of posting or between the time of posting 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.
7.10 Severability. If any provision contained herein is determined to be void or unenforceable for any reason, in whole or in part, it shall not be deemed to affect or impair the validity of any other provision contained herein and the remaining provisions shall remain in full force and effect to the fullest extent permissible by law.
7.11 Entire Agreement. This Agreement contains the entire understanding and agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto.
7.12 Currency. Unless otherwise specified herein all references to dollar or dollars are references to U.S. dollars.
7.13 Further Assurances. Each of the Executive and the Company shall do, execute and deliver, or shall cause to be done, executed and delivered, all such further acts, documents and things as the Executive or the Company may require for the purposes of giving effect to this Agreement.
7.14 Successors and Assigns. This Agreement shall inure to the benefit of, and be binding on, the parties and their respective heirs, administrators, executors, successors and permitted assigns. The Company shall have the right to
assign this Agreement to any of its affiliates or to any successor (whether direct or indirect, by purchase, amalgamation, arrangement, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company; the Executive shall not be entitled to any payment or other consideration or to any advance notice of any such assignment. The Executive by the Executive's signature hereto expressly consents to such assignment and, provided that such successor agrees to assume and be bound by the terms and conditions of this Agreement, all references to the "Company" hereunder shall include its successor. The Executive shall not assign or transfer, whether absolutely, by way of security or otherwise, all or any part of the Executive's rights or obligations under this Agreement without the prior consent of the Company, which may be arbitrarily withheld.
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7.15 Continuing Cooperation. The Executive agrees that he shall, both during the term of this Agreement and thereafter, fully co-operate with and assist the Company in the resolution of complaints, claims or disputes against the Company, including without limitation civil, criminal or regulatory proceedings.
7.16 Legal Advice. The Executive acknowledges and agrees that he has had the opportunity to seek independent legal advice in relation to the nature, contents, terms and effect of this Agreement and he fully understands the nature of this Agreement and that he is entering into this Agreement voluntarily.
7.17 Counterparts/Electronic Execution. This Agreement may be executed in several parts in the same form and such parts as so executed shall together constitute one original document, and such parts, if more than one, shall be read together and construed as if all the signing parties had executed one copy of the said Agreement. Electronic or PDF signatures shall be deemed original signatures.
[Signature page on following page]
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IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above written.
THE ALKALINE WATER COMPANY INC.
| Per: | /s/ Frank Lazaran |
| Authorized Signatory | |
EXECUTED by FRANK CHESSMAN:
| /s/ Frank Chessman |
| FRANK CHESSMAN |
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EXHIBIT "A"
KPI'S for FY 23 (covering period October 1, 2022 to March 31, 2023) attached hereto
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank Chessman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Alkaline Water Company Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 28, 2023
/s/ Frank Chessman
Frank Chessman
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Guarino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Alkaline Water Company Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
February 28, 2023
/s/ David A. Guarino
David A. Guarino
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Frank Chessman, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. the quarterly report on Form 10-Q of The Alkaline Water Company Inc. for the period ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of The Alkaline Water Company Inc.
February 28, 2023
| /s/ Frank Chessman | |
| Frank Chessman | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, David A. Guarino, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. the quarterly report on Form 10-Q of The Alkaline Water Company Inc. for the period ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of The Alkaline Water Company Inc.
February 28, 2023
| /s/ David A. Guarino | |
| David A. Guarino | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial Officer and Principal Accounting Officer) |