What changed in this filing

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Item 1. Business

2019-07-01 compared with 2018-06-29 · 218 added, 211 removed, 182 unchanged (70% of the section changed)

51 unchanged sentences

us our, the Company and Alkaline refer to The Alkaline Water Company

Inc., a Nevada corporation, and its wholly-owned subsidiary, Alkaline 88, LLC,

unless otherwise specified.

Inc., a Nevada corporation, and its wholly-owned subsidiaries A88 Infused

Beverage Division, Inc.

(a Nevada Corporation hereinafter referred to as A88

Infused), A88 International, Inc.

(a Nevada Corporation), and Alkaline 88, LLC

(an Arizona Limited Liability Company), unless otherwise specified.

Corporate Overview

Our company offers retail consumers bottled alkaline water in

We offer retail consumers bottled alkaline water in

500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 3-liter and 1-gallon sizes

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variety of rare earth minerals to produce our 8.8 pH drinking water without the

use of any chemicals.

Our product also incorporates 84 trace minerals from

Himalayan salt.

Our product was designed to have a clean smooth taste using only purified

water and the Himalayan salt.

Consumers drink our water because of the taste

profile and the perceived health benefits.

We are now one of the largest (by

sales volume) alkaline water companies in the United States.

Our company, The Alkaline Water Company Inc., was incorporated

under the laws of the State of Nevada on June 6, 2011.

On February 20, 2013, The Alkaline Water Company Inc.

into a non-binding letter of intent with Alkaline 88, LLC, a wholly-owned

subsidiary of Alkaline Water Corp at the time., for the acquisition of all of

the issued and outstanding securities of the capital of Alkaline 88, LLC.

Further to this letter of intent, on May 31, 2013, The Alkaline Water Company

entered into a share exchange agreement with Alkaline Water Corp.

of its stockholders, and as a result of the closing of this agreement on the

same date, Alkaline Water Corp.

became a wholly-owned subsidiary of The Alkaline

Water Company Inc.

Consequently, after the closing of this agreement, we adopted

the business of Alkaline Water Corp.s wholly-owned operating subsidiary,

Alkaline 88, LLC.

On March 3, 2018, Alkaline Water Corp.

was merged into Alkaline

88, LLC with Alkaline88, LLC being the surviving entity.

Alkaline88, LLC is currently the sole wholly-owned subsidiary of The Alkaline

Water Company Inc.

On May 3, 2017, we designated 3,000,000 shares of the

authorized and unissued preferred stock of our company as Series D Preferred

Stock by filing a Certificate of Designation with the Secretary of State of the

State of Nevada.

On November 2, 2017, we increased the number of authorized

shares of Series D Preferred Stock in our company to 5,000,000 shares by filing

an Amendment to the foregoing Certificate of Designation with the Secretary of

State of the State of Nevada.

Each share of the Series D Preferred Stock will be

convertible, without the payment of any additional consideration by the holder

and at the option of the holder, into one fully paid and non-assessable share of

our common stock at any time after (i) we achieve the consolidated revenue of

our company and all of its subsidiaries equal to or greater than $40,000,000 in

any 12 month period, ending on the last day of any quarterly period of our

or (ii) a Negotiated Trigger Event, defined as an event upon which

the Series D Preferred Stock will be convertible as may be agreed by our company

and the holder in writing from time to time.

The principal offices of our company are located at 14646 N.

Kierland Blvd, Suite 255, Scottsdale, AZ 85254.

Our telephone number is (480)

Alkaline 88, LLC, our operating subsidiary, operates primarily

use of any manmade chemicals.

Our product also incorporates 84 trace minerals

from Himalayan pink rock salt.

Our product is designed to have a clean smooth

taste using only purified water and the Himalayan pink rock salt.

consumers drink our water because of the taste profile and the preconceived

health benefits (although we do not market our products as having any potential health benefits), as well as because of our brand and

trademark, which we believe is one of the most easily identifiable in the

Measured by sales volume in 2018, we believe we are now one of the

largest alkaline water companies in the United States.

Our product is presently available in all 50 states and the

District of Columbia, although over 50% of our current sales are concentrated in

the Southwest and Texas.

We distribute our product through several channels.

sell through large national distributors, including UNFI, KeHE, C&S, and

We also sell our product to retail clients, including convenience

stores, natural food products stores, large ethnic markets and national

Examples of our retail clients include Walmart, Food Lion,

Albertsons, Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco, Sprouts,

Bashas, Stater Bros.

Markets, Unified Grocers, Bristol Farms, Publix, Vallarta,

Superior Foods, Ingles, HEB and Brookshires.

The majority of our sales to

retail clients are through brokers and distributors, however, sales to our

larger retail clients are often direct to the clients own warehouse

distribution network.

Our operating subsidiary, Alkaline 88, LLC, operates primarily

as a marketing, distribution, and manufacturing company.

Alkaline 88, LLC has

entered into co-packing agreements with six different bottling companies in

Virginia, Georgia, California, Texas and Arizona to act as co-packers for our

Our current capacity at all plants exceeds $7,000,000 per month

Our branding is being coordinated through 602 Design, LLC and our

component materials are readily available through multiple vendors.

principal suppliers are Vav Plastics Inc., Amcor Inc.

and Packaging Corporation

Our product is currently at the expansion phase of its

In March 2012, Alkaline 88, LLC did market research on the demand for

a bulk alkaline product at the Natural Product Expo West in Anaheim, California.

In January 2013, we began the formal launching of our product in Southern

California and Arizona.

Since then, we have begun to deliver product through

approximately 40,000 retail outlets throughout the United States.

presently in all 50 States and the District of Columbia, although over 50% of

our current sales are concentrated in the Southwest and Texas.

distribution agreements with large national distributors (e.g., UNFI, KeHe, and

C&S), representing over 150,000 retail establishments.

Our current stores

include convenience stores, natural food products stores, large ethnic markets

and national retailers.

Currently, we sell all of our products to our retailers

through brokers and distributors.

Our larger retail clients bring the water in

through their own warehouse distribution network.

Our current retail clients are

made up of a variety of the following;

convenience stores, including 7-11s;

large national retailers, including Walmart, Albertsons/Safeway, Kroger

companies, and regional grocery chains such as Schnucks, Smart & Final,

Jewel-Osco, Sprouts, Bashas, Bristol Farms, Stater Brothers, Vallarta, Superior

Foods, Brookshires, HEB and other companies throughout the United States.

total we are now in more than half of the top 75 (by sales) grocery retailers in

the United States.

In April 2014, we entered into an exclusive territorial

distribution agreement with Kalil Bottling Co.

on a new single serve 700ml

bottle with a sport cap.

This exclusivity is in Arizona and other areas in the

Southwestern United States.

Kalil Bottling Co.

is a direct to store distributor

In order to continue our expansion, we anticipate that we will

be required, in most cases, to continue to give promotional deals throughout

2018 and in subsequent years on a quarterly basis ranging from a 5%-20% discount

similar to all other beverage company promotional programs.

It has been our

experience that most of the retailers have requested some type of promotional

introductory program which has included either a $0.25 -$0.50 per unit discount

on an initial order;

a buy one get one free program;

or a free-fill program

which includes 1- 2 cases of free product per store location.

Slotting has only

been presented and negotiated in the larger national grocery chains and, in most

cases, is offset by product sales.

It has entered into

co-packing agreements with eight different bottling companies located in

Virginia, Georgia, California, Texas, Nevada and Arizona to act as co-packers

for our product.

Our current capacity at all plants exceeds approximately $8.3

million per month wholesale.

Our component materials are readily available through multiple

Our principal suppliers are Vav Plastics Inc., Amcor Inc.

and Packaging

Corporation of America.

A88 Infused Beverage Division, Inc.

In August 2018, we formed A88 Infused Beverage Division, Inc.,

or A88 Infused, a Nevada corporation and a wholly-owned subsidiary of our

A88 Infused's focus is brand extension and product innovations in the

wellness water category.

We formed A88 Infused to meet what we believe is

increasing consumer demand for enhanced and functional (value-added) beverages.

We expect A88 Infused to capitalize on this and potential consumer demand with

the development and launch of new products focused on growing trends in the

beverage space.

To prepare for the launch of products by A88 Infused, we have

expanded our packaging capabilities.

We announced in January, 2019 that

Nevada-based Western Group Packing has agreed to produce A88 Infused's flavored

Alkaline88 ® water products and its planned hemp extract-infused water

product at its 150,000+ square foot facility located in North Las Vegas, NV.

have received verbal confirmation from many of our current retail clients of

their interest in purchasing our flavored Alkaline88 ® waters.

production of A88 Infused's planned hemp extract product is contingent on U.S.

Food and Drug Administration, or the FDA, and state laws, regulations, and

While the Agriculture Improvement Act of 2018 removed hemp from

Schedule I of the Controlled Substances Act, the law did not change the FDA's

authorities with respect to food or drugs.

As of June 28, 2019, the FDA has not

made a determination that the use of hemp extract in food is safe.The FDA has

evaluated Generally Recognized as Safe (GRAS) notices for three hemp

seed-derived food ingredients and determined that the agency has no questions

that those ingredients are GRAS under their intended conditions of use.

In early February 2019, at the Convenience EPPS trade show in

Chicago, Illinois and in May, 2019 at the Western Association of Food Chains

Convention, we sampled and offered up for sale "Alkaline88 ®

Flavored," which is available in four different, all natural, sugar-free

We believe "Alkaline88 ® Flavored" is the first flavored

bottled alkaline water to be sold in the United States.

A88 Infused is also developing and preparing for the initial

launch of its planned hemp extract product, which will be marketed under the

trademark Soothe .

In the event the FDA issues appropriate regulations or

guidance or determines that it has no questions that hemp extract is GRAS under

intended conditions of use that would permit A88 Infused to market hemp extract

in water without food additive approval, we expect to produce and sell

Soothe as still water in bottles.

We may also decide to market

Soothe in any states, districts or territories if applicable laws allow

for such sale or if a supplier meets and complies with the FDA's GRAS

regulations with respect to a self-certification regarding the safety and GRAS

status of the use of hemp extract.

We expect to produce Soothe as a low

calorie or no calorie, hemp extract-infused water in three flavors.

may change the composition of our planned hemp-extract-infused product as

necessary to comply with federal, state or local laws, regulations or

We intend to comply in full with all federal, state, and local

laws, rules and regulations as we develop our hemp extract alkaline water and

other product lines.

We will not pursue the production or sale of hemp

extract-infused products until legally permitted.

Plan of Operations

In order for us to implement our business plan over the next 12

twelve-month period, we have identified the following milestones that we expect

months, we have identified the following milestones that we expect to

Expansion of Broker Network We expect to continue to develop our

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advantage of the momentum currently being created by their efforts.

anticipate a considerable amount of travel and ongoing expenses at an

estimated cost during that time of $300,000.

Increase Manufacturing Capacity We expect to add one or two new

co-packer facilities, strategically located to reduce freight costs and meet

current volumes and future growth objectives.

Expand Retail Distribution We believe that by the end of fiscal

year 2019, we will be in over 50,000 stores.

The cost of this retail expansion

is expected to be up to $2,000,000 during that time.

anticipate a considerable amount of travel and ongoing expenses to be incurred

as part of this expansion.

Increase Manufacturing Capacity (i) Flagship Alkaline88 product:

we expect to add one to two new co-packer facilities, strategically located to

reduce freight costs and meet current volumes and future growth objectives;

and (ii) A88 Infused:

we expect to add three to five new co-packer facilities

strategically located to meet anticipated volumes by product type and future

growth objectives.

Expand Retail Distribution We continue to expand our retail

Addition of Support Staff In order to support expansion efforts

and to continue the training and support of our broker network, we will need

to hire approximately two more people on the corporate level, which will be

hired for the specific purpose of supporting the broker, distributor and

and to continue the training and support of our broker network, we anticipate

that we will need to hire approximately four more people on the corporate

level for the specific purpose of supporting the broker, distributor and

retailers and their logistical and accounting requirements.

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seek and interview candidates to fill our growing need for additional

The additional cost of these new hires is expected to be

approximately $200,000 in salary and benefits over the next twelve months.

Capital Considerations Our business plan can be adjusted based on

the available capital to the business.

We anticipate that approximately

$2,000,000 is necessary in the near term in order to build-out a national

presence for our product and to allow for the purchase of the necessary

equipment and facilities over the next twelve months.

To fund our expansion in

the longer term, we anticipate that we need at least $3,000,000 during the

next 12 months.

International Expansion We expect to begin selling internationally

over the next 12 months and have budgeted $160,000 towards our initial

We believe that cash flow from operations will not meet our

present and near-term cash needs and thus we will require additional cash

resources, including the sale of equity or debt securities, to meet our planned

capital expenditures and working capital requirements for the next 12 months.

estimate that our capital needs over the next 12 months will be up to

We will require additional cash resources to achieve the milestones

indicated above.

In March, 2019, we raised net proceeds

of $10,450,900 via a public offering of our common stock.

We believe the

proceeds from this offering, plus anticipated warrant exercises (we have

received $1,180,486 from warrant exercises since March 31, 2019) will

adequately fund our operations and capital needs for the next 12 months.

The milestones set forth above reflect our current judgment and

belief regarding the direction of our business.

Actual events, expenditures and

results will almost always vary, sometimes materially, from any estimates,

predictions, projections or assumptions suggested herein.

If our own financial resources and future cash-flows from

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could harm our overall business prospects.

Distribution Method for Our Product

Distribution Method for Our Products

Our distribution network is a broker-distributor-retailer

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large national retailers,

including Walmart, Albertsons/Safeway, Kroger companies, and regional grocery

chains such as Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas,

Bristol Farms, Stater Brothers, Vallarta, Superior Foods, Brookshires, HEB and

other companies throughout the United States.

In total we are now in more than

half of the top 75 (by sale) grocery retailers in the United States.

including Walmart, CVS, Albertsons/Safeway, Kroger companies, and regional

grocery chains such as Schnucks, Smart & Final, Jewel-Osco, Sprouts,

Bashas, Bristol Farms, Stater Brothers, Publix, Vallarta, Superior Foods,

Brookshires, HEB and other companies throughout the United States.

are now in more than half of the top 75 grocery retailers in the

United States.

We have engaged a producer of private labeled bottled water to

assist in the manufacturing, procurement and logistical aspects of our business.

Their specialized water production capabilities are expected to allow us to

support the growing demand for our products.

We believe this arrangement will

enable us to further scale production and distribution as the

Alkaline88 ® brand continues to gain market share.

Dependence on Few Customers

We have 2 major customers that together account for 46% (28%

16% and 10%, respectively) of accounts receivable at March 31, 2018, and 3

customers that together account for 47% (25%, 12%, and 10%, respectively) of the

total revenues earned for the year ended March 31, 2018.

and 18%, respectively) of accounts receivable at March 31, 2019, and 2 customers

that together account for 43% (25% and 18%, respectively) of the total revenues

earned for the year ended March 31, 2019.

There can be no assurance that such customers will continue to

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as the markets dictate.

The beverage industry is extremely competitive.

The principal

areas of competition include pricing, packaging, development of new products and

flavors, and marketing campaigns.

Our product will be competing directly with a

wide range of drinks produced by a relatively large number of manufacturers.

Most of these brands have enjoyed broad, well-established national recognition

for years, through well-funded ad and other marketing campaigns.

companies manufacturing these products generally have far greater financial,

marketing, and distribution resources than we have.

Important factors that will affect our ability to compete

successfully include the continued public perception of the benefits of alkaline

water, taste and flavor of our product, trade and consumer promotions, the

development of new, unique and cutting edge products, attractive and unique

packaging, branded product advertising, pricing, and the success of our

distribution network.

We will also be competing to secure distributors who will agree

to market our product over those of our competitors, provide stable and reliable

distribution, and secure adequate shelf space in retail outlets.

The extremely

competitive pressures within the beverage categories could result in our product

never even being introduced beyond what they can market locally themselves.

Our product will compete generally with all liquid

refreshments, including bottled water and numerous specialty beverages, such as

Core Hydration, SoBe, Snapple, Arizona Ice Tea, Vitamin Water, Gatorade, and

We will compete directly with other alkaline water producers and

brands focused on the emerging alkaline beverage market including Eternal,

Essentia, Icelandic, Real Water, Aqua Hydrate, Mountain Valley, Qure, Penta, and

Products offered by our direct competitors are sold in various

volumes and prices with prices ranging from approximately $0.99 for a half-liter

bottle to $4.99 for a one-gallon bottle, and volumes ranging from half-liter

bottles to one-and-a half liter bottles.

We have engaged a business and marketing consulting firm and

sales broker to assist our company in all aspects of our marketing, trade

promotion, public relations and brand development.

Their expertise in all

aspects of consumer goods brand development, marketing and promotional programs

is expected to help us meet the growing consumer demand for both our flagship

Alkaline88 ® product and our upcoming A88 Infused product line.

have also engaged a sales and merchandising broker to implement a unique Van

Program (where sales representatives sell products directly from vans to the

retailers) throughout Texas and California which is intended to bring both our

flagship Alkaline88 ® products and, once launched, A88 Infuseds

products to over 13,000 independently owned convenience stores in those markets.

We expect to be able to expand the program to an additional nine US markets over

the next few years.

The commercial retail beverage industry, and in particular its

non-alcoholic beverage segment, is highly competitive.

Market participants are

of various sizes, with various market shares and geographical reach, some of

whom have access to substantially more sources of capital.

We compete generally with all liquid refreshments, including

bottled water and numerous specialty beverages, such as:

CORE® Hydration, SOBE®,

Snapple®, AriZona® Iced Tea, Vitaminwater®, Gatorade Perform®, and POWERADE®.

We compete indirectly with major international beverage

companies including but not limited to:

The Coca-Cola Company®, PepsiCo, Inc.,

The Nestlé Group, Dr Pepper Snapple Group, Inc, Danone S.A., The Kraft Heinz

Company, and Unilever PLC.

These companies have established market presence in

the United States and globally, and offer a variety of beverages that are

competitors to our products.

We face potential direct competition from such

companies, because they have the financial resources, and access to

manufacturing and distribution channels to rapidly enter the alkaline water

We will compete directly with other alkaline water producers

and brands focused on the emerging alkaline beverage market including Eternal,

Essentia, Core, Icelandic, Real Water, Aqua Hydrate, Mountain Valley, Qure,

Penta, and Alka Power.

Products offered by our direct competitors are sold in

various volumes and prices with prices ranging from approximately $0.99 for a

half-liter bottle to $4.99 for a one-gallon bottle, and volumes ranging from

half-liter bottles to one-gallon bottles.

We currently offer our product in a

three-liter bottle for a suggested retail price (SRP) of $3.99, one-gallon

one-gallon bottle for a suggested resale price or an SRP of $4.99, three-liter

bottle for an SRP of $3.99, 1.5 liter at an SRP of $2.49, 1 liter at an SRP of

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an SRP of $0.99.

Our competitors may introduce larger sizes and offer them at an

SRP that is lower than our products.

We can provide no assurances that consumers

will continue to purchase our products or that they will not prefer to purchase

a competitive product.

Intellectual Property

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be a key component of our sales and operating strategy.

The electrolysis process through which our product is produced

is proprietary to us and, while the process is not patented, we seek to protect

the process through the maintenance of trade secrets and know-how agreements.

Seasonality of Business

34 unchanged sentences

policy to comply with any and all such legal requirements.

Compliance with these provisions has not had, and we do not

expect such compliance to have, any material adverse effect on our capital

expenditures, net income or competitive position.

In addition to Richard A.

Wright, who is our president, chief

executive officer and director, and David A.

Guarino, who is our chief financial

officer, secretary, treasurer and director, we currently employ 11 full time

employees and 1 part-time employee.

We also work with retail brokers in the

United States who are paid on a contract basis.

Our operations are overseen

directly by management that engages our employees to carry on our business.

management oversees all responsibilities in the areas of corporate

administration, business development, and research.

We intend to expand our

current management to retain skilled directors, officers, and employees with

experience relevant to our business focus.

Our managements relationships with

manufacturers, distillers, development/research companies, bottling concerns,

and certain retail customers will provide the foundation through which we expect

to grow our business in the future.

We believe that the skill-set of our

management team will be a primary asset in the development of our brands and

We also plan to form an independent network of contract sales and

regional managers, a promotional support team, and several market segment

specialists who will be paid on a variable basis.

Compliance with these

provisions has not had, and we do not expect such compliance to have, any

material adverse effect on our capital expenditures, net income or competitive

In addition to Richard Wright, who is our president, chief

executive officer and director, David Guarino, who is our chief financial

officer, secretary, treasurer and director, and Ronald DaVella, our executive

vice president of finance, we currently employ 14 full time employees and 3

part-time employee.

We also work with retail brokers in the United States who

are paid on a contract basis.

Our operations are overseen directly by management

that engages our employees to carry on our business.

Our management oversees all

responsibilities in the areas of corporate administration, business development,

and research.

We intend to expand our current management to retain skilled

directors, officers, and employees with experience relevant to our business

Our managements relationships with manufacturers, distillers,

development/research companies, bottling concerns, and certain retail customers

will provide the foundation through which we expect to grow our business in the

We believe that the skill-set of our management team will be a primary

asset in the development of our brands and trademarks.

We also plan to form an

independent network of contract sales and regional managers, a promotional support team, and several

market segment specialists who will be paid on a variable basis.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business