|9 Months Ended|
Dec. 31, 2014
|CAPITAL LEASE [Text Block]||
NOTE 12 – CAPITAL LEASE
On January 17, 2014 the Company entered into an equipment lease with Water Engineering Solutions LLC, an entity that is controlled and owned by an officer, director and shareholder, for specialized equipment used to make our alkaline water with a stated value of $190,756 and agreed to a 60 month term at $3,864 per month and a purchase option of $1 which commenced on May 1, 2014.
On April 2, 2014, the Company entered into a capital lease agreement with Water Engineering Solutions LLC, an entity that is controlled and owned by an officer, director and shareholder, for specialized equipment used to make our alkaline water with a stated value of $188,000, terms of 60 monthly payments of $3,812, payable 30 days after installation of the equipment and a purchase option of $1.00 which commenced on July 1, 2014.
On October 22, 2014 the Company agreed to purchase the specialized equipment use to make our alkaline water that were previously reflected as capital lease on January 17, 2014 and April 2, 2014. During the quarter ended December 31, 2014 the Company purchased these capital leases of specialized equipment for $347,161, the lease liability on the date of purchase.
On October 22, 2014, the Company entered into a master lease agreement with Veterans Capital Fund, LLC (the “Lessor”) for the secured lease line of credit financing in an amount not to exceed $600,000. The lease is expected to be secured by three new alkaline generating electrolysis system machines. Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC acted as co-lessees. Water Engineering Solutions, LLC is an entity that is controlled and owned by our President, Chief Executive Officer, director and major stockholder, Steven P. Nickolas, and our Vice-President, Secretary, Treasurer and director, Richard A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to us the equipment described in any equipment schedule signed by us and approved by the Lessor. It is expected that any lease under the master lease agreement will be structured for a three year lease term with fixed monthly lease rental payments based on a monthly lease rate factor of 3.4667% of the Lessor’s capital cost. In connection with the entering into the master lease agreement, the Company paid the Lessor a one-time non-refundable commitment fee of $12,000. Effective as of October 22, 2014, the Company also entered into a warrant agreement with the Lessor, pursuant to which the Company agreed to issue a warrant to purchase 3,600,000 shares of our common stock to the Lessor and/or its affiliates at an exercise price of $0.125 per share for a period of five years. 900,000 shares vested on October 22, 2014, 887,763 shares on October 28, 2014 and 906,970 shares on December 22, 2014 and the remaining 905,267 shares will vest on a pro rata basis according to any mounts the Lessor funds pursuant to any lease schedules under the master lease agreement, provided that if we draws on 90% or more of the total lease line under the master lease agreement, then all such shares will be deemed to be vested. The fair value of the warrants granted during the period ended December 31, 2014 was estimated at the date of master lease agreement using the Black-Scholes option-pricing model, a level 3 valuation measure, with the following assumptions:
The Company evaluated this warrants under (ASC) 870-20”Debt with Conversion and other options” and concluded that these leases were debt instruments with detachable warrants. The Company recorded a reduction in capital leases liability based on the bifurcated relative fair value of the vested warrants of $159,532 and the related capital lease payable. The Company will amortize over the terms of the lease. For the period ended December 31, 2014 the Company amortized $14,294 as interest expense related to capital lease discount cost on these warrants.
During the quarter ended December 31, 2014 the Company agreed to lease the specialized equipment used to make our alkaline water with a value of $398,828 under the above Master Lease agreement. The Company evaluated this lease under (ASC) 840-30”Leases- Capital Leases” and concluded that these lease where a capital asset.
The entire disclosure for capital leasing arrangements including, but not limited to, the following: a) the basis on which contingent rental payments are determined; (b) the existence and terms of renewal or purchase options and escalation clauses; (c) restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing.
Reference 1: http://www.xbrl.org/2003/role/presentationRef