What changed in this filing

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Item 1. Financial Statements

2017-11-20 compared with 2017-08-21 · 401 added, 244 removed, 741 unchanged (47% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEET

June 30, 2017

September 30, 2017

March 31, 2017

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Convertible notes payable, net of debt discount

long-term liabilities

Total long-term

Total liabilities

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stock, Class A - $0.001 par value, 200,000,000 shares authorized

18,263,739 and

17,532,451 shares issued and outstanding at June 30, 2017 and March 31,

2017 respectively

Additional paid in capital

shares issued and outstanding at September 30, 2017 and March 31, 2017

Additional paid in

Accumulated deficit

Total stockholders' equity

stockholders' equity

Total liabilities and stockholders' equity

3 unchanged sentences

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended

June 30, 2017

June 30, 2016

For the Three Months

For the Six Months

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

Cost of Goods Sold

Operating expenses

marketing expenses

Sales and marketing

General and administrative

Total operating

Total operating expenses

Total operating loss

2 unchanged sentences

Interest expense

Amortization of debt discount

and accretion

derivative liability

income (expense)

Amortization of debt

discount and accretion

Change in derivative liability

Total other income

EARNINGS PER SHARE (Basic)

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THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Months Ended

June 30, 2017

June 30, 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months

September 30, 2017

September 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in

Adjustments to reconcile net loss to net cash used in operating

Depreciation expense

Stock compensation expense

of debt discount and accretion

Amortization of debt

discount and accretion

Interest expense converted to equity

Interest expense relating

to amortization of capital lease discount

derivative liabilities

Change in derivative liabilities

Changes in operating

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Accounts receivable

Prepaid expenses and other current assets

Prepaid expenses and other

current assets

Accrued expenses

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CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets

Equipment Deposits -

related party

INVESTING ACTIVITIES

CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes

from convertible note payable

Proceeds from convertible note payable

Proceeds from revolving

from sale of common stock, net

Proceeds from sale of common stock, net

Proceeds from the exercise of warrants, net

Repayment of notes payable

capital lease

Repayment of capital lease

CASH PROVIDED BY FINANCING

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presented not misleading.

The interim financial statements are condensed and should be read in conjunction with the Company's

latest annual financial statements and that interim disclosures generally do not repeat those in the

The interim financial statements are condensed and

should be read in conjunction with the Company's latest annual financial

statements and that interim disclosures generally do not repeat those in the

annual statements.

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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 fiscal year;

(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.

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.

Use of Estimates

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The Company had

$441,827 and $603,805 in cash and cash equivalents at June 30, 2017 and March

31, 2017, respectively.

Accounts Receivable and Allowance for Doubtful

$481,831 and $603,805 in cash and cash equivalents at September 30, 2017 and

March 31, 2017, respectively.

Accounts receivable and allowance for doubtful accounts

The Company generally does not require collateral, and the

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accounts receivable approximates fair value.

Accounts receivable consisted of the following as of June 30,

2017 and March 31, 2017:

Trade receivables

Allowance for doubtful accounts

Net accounts receivable

Accounts receivable are periodically evaluated for

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defined as the lower of replacement cost or realizable value.

As of June 30, 2017 and March 31, 2017, inventory consisted of

the following:

As of September 30, 2017 and March, 31 2017, inventory

consisted of the following:

September 30, 2017

March 31, 2017

Raw materials

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of the award, and is recognized as expense over the requisite employee service

The Company accounts for stock-based compensation to other than

employees in accordance with ASC 505-50.

Equity instruments issued to other than

employees are valued at the earlier of a commitment date or upon completion of

the services, based on the fair value of the equity instruments and is

recognized as expense over the service period.

The Company estimates the fair

value of stock-based payments using the Black-Scholes option-pricing model for

common stock options and warrants and the closing price of the

Companys common stock for common share issuances.

The Company has elected to account for forfeitures as they occur.

Company accounts for stock-based compensation to other than employees in

accordance with ASC 505-50.

Equity instruments issued to other than employees

are valued at the earlier of a commitment date or upon completion of the

services, based on the fair value of the equity instruments and is recognized as

expense over the service period.

The Company estimates the fair value of

stock-based payments using the Black-Scholes option-pricing model for common

stock options and warrants and the closing price of the Companys common stock

for common share issuances.

Revenue recognition

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of diluted loss per share, because their effect would be anti-dilutive.

Reclassification

Certain accounts in the prior period were reclassified to

conform to the current period financial statements presentation.

Newly issued accounting pronouncements

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changes are effective.

On March 30, 2016, the FASB issued Accounting Standards Update

(ASU) 2O16-09) Improvements to Employee Share-based Accounting which amends ASC

718, Compensation Stock Compensation .

The ASU includes provisions intended to

simplify various provisions related to how share-based payments are

accounted for and presented in the financial statements.

Compensation cost is

ultimately only recognized for awards with performance and/or service conditions

that vest (or for awards with market conditions for which the requisite service

period is satisfied).

Under the new guidance, entities are permitted to make an

accounting policy election related to how forfeitures will impact the

recognition of compensation cost.

Currently entities are required to develop an

assumption regarding the forfeiture rate on the grant date, which impacts the

estimated amount of compensation cost recorded over the requisite service

The forfeiture estimates are updated throughout the service period so

that compensation cost is ultimately only recognized for awards that vest.

Under the new guidance, entities are permitted to make an

accounting policy to either estimate forfeitures each period, as required today

or to account for forfeitures as they occur.

The Company elects to account for

forfeitures as they occur.

ASU 2O16-O9 is effective for public business entities

for annual reporting periods beginning after December 15, 2O16 and interim

periods within that reporting period.

The Company has evaluated other recent accounting

pronouncements through June 2017 and believes that none of them will have a

pronouncements through September 2017 and believes that none of them will have a

material effect on our financial statements.

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As a result, the Company incurred accumulated net losses from Inception (June

19, 2012) through the period ended June 30, 2017 of ($25,160,288).

the Companys development activities since inception have been financially

sustained through debt and equity financing.

19, 2012) through the period ended September 30, 2017 of ($26,269,516).

addition, the Companys development activities since inception have been

financially sustained through debt and equity financing.

The ability of the Company to continue as a going concern is

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Fixed assets consisted of the following at:

June 30, 2017

September 30, 2017

March 31, 2017

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Fixed Assets, net

Depreciation expense for the three months ended June 30, 2017

and 2016 was $96,279 and $89,439, respectively.

Depreciation expense for the six months ended September 30, 2017 and

September 30 2016 was $193,221and $180,397, respectively.

NOTE 4 REVOLVING FINANCING

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ASC 815 Derivatives and Hedging to determine the derivative liability as of

June 30, 2017 was $3,407.

September 30, 2017 was $3,407.

NOTE 6 STOCKHOLDERS EQUITY

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On October 8, 2013, the Company issued a total of 20,000,000

shares of non-convertible Series A Preferred Stock to Steven Nickolas and

Richard Wright (10,000,000 shares to each), our directors and executive

shares of non-convertible Series A Preferred Stock to Steven P.

Wright (10,000,000 shares to each), our directors and executive

officers, in consideration for the past services, at a deemed value of $0.001

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Effective March 31, 2016, the Company issued a total of

3,000,000 shares of our Series C Preferred Stock to Steven Nickolas and Richard

Wright (1,500,000 shares to each), pursuant to their employment agreements dated

effective March 1, 2016.

3,000,000 shares of our Series C Preferred Stock to Steven P.

Wright (1,500,000 shares to each), pursuant to their employment

agreements dated effective March 1, 2016.

On August 17, 2017, Steven P.

converted his 1,500,000 shares of Series C Preferred Stock to 1,500,000 shares

of Common Stock.

Grant of Series D Convertible Preferred Stock

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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 fiscal year;

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 company then issued a total of 3,000,000 shares

of our Series D Preferred Stock to our directors, officers, consultants and

We issued these shares relying on the registration exemption provided

for in Section 4(a)(2) of the Securities Act of 1933.

The Company is authorized to issue 1,125,000,000 shares of

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 fiscal year;

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 company then issued a total of

3,000,000 shares of our Series D Preferred Stock to our directors, officers,

consultants and employees.

We issued these shares relying on the registration

exemption provided for in Section 4(a)(2) of the Securities Act of 1933.

The Company was authorized to issue 1,125,000,000 shares of

$0.001 par value common stock.

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these shares, 560,000 are restricted from transfer for a period of two years.

In consideration for services rendered and to be rendered to

our company pursuant to a services agreement dated July 26, 2016, we issued

consultant 262,596 shares of our common stock on August 23, 2017.

NOTE 7 OPTIONS AND WARRANTS

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The stock options are

exercisable at the exercise price of $1.29 per share for a period of six and one-half years from the date of grant.

exercisable at the exercise price of $1.29 per share for a period of six and

one-half years from the date of grant.

360,000 of the stock options vest as

(i) 120,000 upon the date of grant;

and (ii) 120,000 on each

anniversary date of grant.

1,430,000 of the stock options vest as follows:

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and (ii) 357,500 on each anniversary date of

1,430,000 of the stock options vest as follows:

(i) 357,500 upon the date

and (ii) 357,500 on each anniversary date of grant.

We granted the

stock options to 12 U.S.

We granted the stock options to 12 U.S.

Persons and 3 non U.S.

Persons (as that term is defined

in Regulation S of the Securities Act of 1933) and in issuing securities we

relied on the registration exemption provided for in Regulation S and/or Section

4(a)(2) of the Securities Act of 1933.

(as that term is defined in Regulation S of the Securities Act of 1933) and in

issuing securities we relied on the registration exemption provided for in Regulation

S and/or Section 4(a)(2) of the Securities Act of 1933.

In June 2017, two option holders elected to exercise their

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NOTE 8 RELATED PARTY TRANSACTIONS

On November 18, 2016, our company provided notice to Steven

Nickolas, our CEO and President, of our board of directors finding that there

is just cause for termination of Mr.

Nickolass employment and of our

companys intent to terminate the employment of Mr.

Nickolas for just cause

pursuant to the provision of the Employment Agreement with Mr.

Nickolas dated

March 1, 2016.

On November 18, 2016, our company provided notice to Steven P.

Nickolas, our then-president and chief executive officer, of our board of

directors finding that there was just cause for termination of Mr.

employment and of our companys intent to terminate the employment of Mr.

Nickolas for just cause pursuant to the provision of the Employment Agreement

Nickolas dated March 1, 2016.

Under the Employment Agreement, Mr.

Nickolas had 30 days to cure

the failures and breaches creating just cause for termination.

failed to cure such failure and breaches and, on April 7, 2017, our company

terminated the employment of Mr.

Nickolas had 30 days to cure the failures and breaches creating just cause for

Nickolas failed to cure such failure and breaches and, on April

7, 2017, our company terminated the employment of Mr.

Nickolas for cause.

In addition, our company

Nickolas as the President and Chief Executive Officer of our

addition, our company removed Mr.

Nickolas as the president and chief executive

officer of our company.

On April 7, 2017, our board of directors appointed Richard A.

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Wright and Mr.

Guarino were each issued 1,000,000 shares each of

the Series D Preferred Stock.

Guarino were each issued 1,000,000 shares

each of the Series D Preferred Stock.

On September 14, 2017, Wright Investment Group LLC, an entity

controlled by Richard A.

Wright, chief executive officer, president and

director, advanced $200,000 to the Company.

NOTE 9 CAPITAL LEASE

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Water Engineering Solutions, LLC is an

entity that is controlled and owned by our former President, Chief Executive

entity that is controlled and owned by our former president and chief executive

officer, Steven P.

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Water Engineering Solutions, LLC is an entity that is controlled and owned by

our former President, Chief Executive Officer, Steven P.

our former president and chief executive officer, Steven P.

Nickolas, and our

Vice-President, Secretary, Treasurer and director, Richard A.

to the master lease agreement, the Lessor agreed to lease to us the equipment

current president and chief executive officer, Richard A.

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.

is expected that any lease under the master lease agreement will be structured

for a three year lease term with fixed monthly lease rental payments based on a

monthly lease rate factor of 3.4667% of the Lessors capital cost.

In connection

with the entering into the master lease agreement, the Company entered into a

warrant agreement with the Lessor, pursuant to which the Company agreed to

cancel the previous issued warrant for72,000 and issue a warrant to purchase

102,000 shares of our common stock to the Lessor and/or its affiliates at an

exercise price of $5.00 per share for a period of five years.

18,000 shares

vested on October 22, 2014, 13,316 shares on October 28, 2014, 13,606 shares on

December 22, 2014, 6,945 shares on February 3, 2015 and 15,799 shares on March

The remaining 18,105 shares will vest on a pro rata basis according to

any mounts the Lessor funds pursuant to any lease schedules under the master

lease agreement, provided that if the Company draws on 90% or more of the total

lease line under the master lease agreement, then all such shares will be deemed

to be vested.

The Company recorded the bifurcated value of $309,028 of the

warrants issued as additional paid in capital, the value was determine using a

for a three year lease term with fixed monthly lease rental payments based on a monthly lease rate factor of 3.4667% of the Lessors

capital cost.

In connection with the entering into the master lease agreement,

the Company entered into a warrant agreement with the Lessor, pursuant to which

the Company agreed to cancel the previously issued warrant certificate for

72,000 warrants and issue a warrant certificate for warrants to purchase 102,000

shares of our common stock to the Lessor and/or its affiliates at an exercise

price of $5.00 per share for a period of five years.

18,000 shares vested on

October 22, 2014, 13,316 shares on October 28, 2014, 13,606 shares on December

22, 2014, 6,945 shares on February 3, 2015 and 15,799 shares on March 5, 2015.

The remaining 18,105 shares will vest on a pro rata basis according to any

mounts the Lessor funds pursuant to any lease schedules under the master lease

agreement, provided that if the Company draws on 90% or more of the total lease

line under the master lease agreement, then all such shares will be deemed to be

The Company recorded the bifurcated value of $309,028 of the warrants

issued as additional paid in capital, the value was determine using a

Black-Scholes, a level 3 valuation measure.

During the year ended March 31, 2015 the Company agreed to

lease the specialized equipment used to make our alkaline water with a value of

lease specialized equipment used to make our alkaline water with a value of

$735,781 under the above master lease agreement.

The Company evaluated this

lease under ASC 840-30 Leases- Capital Leases and concluded that these lease

where a capital asset.

lease under ASC 840-30 Leases-Capital Leases and concluded that the lease is a

capital asset.

As of September 30, 2017 the balance owed to Veterans Capital

Fund, LLC under the lease is $112,752.

NOTE 10 NOTES PAYABLE

On September 20, 2016, we entered into a loan facility

agreement (the Loan Agreement) with Turnstone Capital Inc.

(the Lender),

whereby the Lender agreed to make available to our company a loan in the

aggregate principal amount of $1,500,000 (the Loan Amount).

agreement (the Loan Agreement) with Turnstone Capital Inc., whereby Turnstone

agreed to make available to our company a loan in the aggregate

principal amount of $1,500,000 (the Loan Amount).

In June, 2017, the Loan

Agreement was amended to increase the Loan amount to $1,700,000.

Pursuant to the

Loan Agreement, the Lender agreed to make one or more advances of the Loan

Amount to our company as requested from time to time by our company in an amount

to be agreed upon by our company and the Lender (each, an Advance).

During the year ended March 31, 2017, the lender made advances

totaling $1,000,000.

This amount together with accrued interest of $30,000 was

converted to 1,030,000 common shares on March 31, 2017.

In June, 2017, Turnstone advanced the remaining $500,000

available under the Loan Agreement.

Loan Agreement, Turnstone Capital Inc.

agreed to make one or more advances of

the Loan Amount to our company as requested from time to time by our company in

an amount to be agreed upon by our company and the Lender (each, an Advance).

During the year ended March 31, 2017, Turnstone Capital Inc.

made advances totaling $1,000,000.

This amount together with accrued interest of

$30,000 was converted to 1,030,000 shares of our common stock on March 31, 2017.

In June, 2017, Turnstone Capital Inc.

advanced an additional

$500,000 under the Loan Agreement.

The Company evaluated this transaction under

ASC 470-20-30 Debt liability and equity component and determined that a

Debt Discount of $295,000 was provided and will be amortized over the remaining

term of the Loan Agreement.

ASC 470-20-30 Debt liability and equity component and determined that

a debt discount of $295,000 was provided and will be amortized over the

remaining term of the Loan Agreement.

On September 29, 2017, Turnstone Capital Inc.

converted the

$500,000 plus accrued interest of 14,583 to 514,583 common shares.

NOTE 11 SUBSEQUENT EVENTS

On August 17, 2017, we issued 1,500,000 shares of our common

stock to Steven P.

Nickolas upon conversion of 1,500,000 shares of our Series C

Preferred Stock held by Mr.

The shares of our Series C Preferred Stock

became convertible into shares of our common stock without the payment of any

additional consideration by Mr.

Nickolas and at the option of Mr.

because the termination of the employment agreement between our company and Mr.

Nickolas was an event constituting a Negotiated Trigger Event as defined in

the Certificate of Designation for our Series C Preferred Stock.

In consideration for services rendered and to be rendered to

our company pursuant to a services agreement dated July 26, 2016, we intend to

issue a consultant 262,596 shares of our common stock.

On October 17, 2017, Wright Investment Group LLC, an entity

controlled by Richard A.

Wright, advanced $400,000 to the Company.

On October 25, 2017, Richard A.

Wright forfeited stock options

to purchase a total of 148,000 shares of the Companys common stock at prices

ranging between $5.75 and $7.50.

On October 31, 2017, our company and its subsidiaries entered

into a Settlement Agreement and Mutual Release of Claims (the Settlement

Agreement ) with Steven P.

Nickolas, the Nickolas Family Trust, Water

Engineering Solutions, LLC and Enhanced Beverages, LLC, companies and trust that

are controlled or owned by Mr.

Nickolas, (collectively, the Nickolas

Parties ) and McDowell 78, LLC and Wright Investments Group, LLC, a

company controlled or owned by Richard A.

Wright, (collectively,

Wright/McDowell).

The Settlement Agreement provides, among other things, the

a) simultaneous with the full execution of the Settlement Agreement,

we agreed to pay Mr.

Nickolas $110,000 in one lump sum (paid);

b) in exchange of

700,000 shares of our common stock and 300,000 shares of our Series D Preferred

Stock described above, Mr.

Nickolas forfeited his 10,000,000 shares of our

Series A Preferred Stock, to be cancelled for no further consideration;

the full execution of the

Settlement Agreement, Mr.

Nickolas and our company agreed to file the stipulations to dismiss the complaints and counterclaim filed by each of them with prejudice, with each side to bear its own costs and attorney’s fees.

In addition, our

company and Wright/McDowell agreed that they will effectuate the dismissal of an arbitration proceeding against the Nickolas Parties with prejudice, with each side to bear its own attorneys’

fees and costs;

Nickolas acknowledged and

agreed that the employment agreement between Mr.

Nickolas and our company was terminated as of April 7, 2017 and no further amounts are owed to Mr.

Nickolas under the employment agreement and we agreed to waive restrictive covenants set out in the

employment agreement;

f) we agreed to assume financial responsibility for certain obligations owed by Mr.

Nickolas acknowledged and agreed that 1,500,000 stock options with an exercise price of $0.52 issued to Mr.

Nickolas on or

about March 1, 2016 has expired and a total of 148,000 stock options issued to Mr.

Nickolas before 2016 will automatically expire 90 days from October 6, 2017, the date Mr.

Nickolas ceased being a director of our company;

and h) the parties also

agreed to mutual release of claims.

On November 8, 2017, Richard A.

Wright and the Company entered in to an Exchange Agreement and Mutual Release of Claims (the “Exchange Agreement”).

The Exchange Agreement provided, among other things, for the following:

a) in exchange

for the issuance of 700,000 shares of our common stock and 300,000 shares of our Series D Preferred Stock described above, Richard A.

Wright forfeited his 10,000,000 shares of our Series A Preferred Stock, to be cancelled for no further

consideration;

and b) Richard A.

Wright also agreed to a release of claims against the Company.

Also on November 8, 2017, Richard A.

Wright forfeited stock options to purchase 1,500,000 shares of our company’s common stock at an exercise price

of $0.52 per share in exchange for the Company agreeing to issue Richard A.

Wright an additional 200,000 shares of Series D Preferred Stock.

On November 14, 2017, we withdrew the Certificate of Designation establishing Series A Preferred Stock.

There were no shares of Series A Preferred Stock outstanding immediately prior to the withdrawal.

Managements Discussion and Analysis of Financial

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Results of Operations

Our results of operations for the three months ended June 30,

2017 and June 30, 2016 are as follows:

Our results of operations for the three months ended September

30, 2017 and September 30, 2016 are as follows:

For the three

September 30,

Cost of goods sold

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We had revenue from sales of our product for the three months

ended June 30, 2017 of $5,180,194, as compared to $2,946,749 for the three

months ended June 30, 2016, an increase of 76% generated by sales of our

ended September 30, 2017 of $4,841,528, as compared to $3,007,538 for the three

months ended September 30, 2016, an increase of 61% generated by sales of our

alkaline water.

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products to additional retailers throughout the country.

As of June 30, 2017,

the product is now available in all 50 states at an estimated 31,000 retail

As of June 30, 2016, the product was available in all 50 states at an

estimated 25,000 retail locations.

This increase has occurred primarily through

the addition of 45 of the top national grocery retailers as customer during the

year ended March 31, 2017.

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.

our product directly to retail clients, including convenience stores, natural

food products stores, large ethnic markets and national retailers.

Some examples

of retail clients are, Albertsons, Safeway, Kroger, Schnucks, Smart &

Final, Jewel-Osco, Sprouts, Bashas, Stater Bros.

Markets, Unified Grocers,

Bristol Farms, Vallarta, Superior Foods, Ingles, HEB Brookshires, Publix,

Shaws, Raleys, Food Lion, Harris Teeter, and Festival Foods.

As of September 30,

2017, the product is now available in all 50 states at an estimated 32,000

retail locations.

As of June 30, 2017, the product was available in all 50

states at an estimated 31,000 retail locations.

This increase has occurred

primarily through the addition of 5 of the top national grocery retailers as

customer during the year ended March 31, 2017.

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 convenience

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

Some examples of retail clients are:

Albertsons, Safeway, Kroger,

Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas, Stater Bros.

Unified Grocers, Bristol Farms, Vallarta, Superior Foods, Ingles, HEB

Brookshires, Publix, Shaws, Raleys, Food Lion, Harris Teeter, and Festival

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the three months ended June 30, 2017, we had cost of

goods sold of $2,951,944, or 57% of revenue, as compared to cost of goods sold

of $1,790,713 or 60.8% of revenue, for the three months ended June 30, 2016.

increase in gross profit rate is a result of reduced raw material cost through

greater volume purchases from our suppliers.

Our operating expenses for the three months ended June 30, 2017

and June 30, 2016 are as follows:

For the three months ended September 30, 2017, we had cost

of goods sold of $2,753,879, or 57% of revenue, as compared to cost of goods

sold of $1,896,112 or 63% of revenue, for the three months ended September 30,

The increase in gross profit rate is a result of reduced raw material cost

through greater volume purchases from our suppliers.

Our operating expenses for the three months ended September 30,

2017 and September 30, 2016 are as follows:

For the three

September 30,

Sales and marketing expenses

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Total operating expenses

During the for the three months ended June 30, 2017, our total

For the three months ended September 30, 2017, our total

operating expenses were $2,792,208, as compared to $2,208,089 for the three

months ended June 30, 2016.

For the three months ended June 30, 2017, the total included

months ended September 30, 2016.

For the three months ended September 30, 2017, the total

included $1,818,344 of sales and marketing expenses and $876,922 of general and

administrative expenses, consisting primarily of approximately $330,792 of stock

option compensation expense, and $273,001 of professional fees.

For the three months ended September 30, 2016 the total

included $1,060,390 of sales and marketing expenses and $1,056,741 of general

and administrative expenses, consisting primarily of approximately $176,500 of

stock option compensation expense, and $370,118 of professional fees.

Our results of operations for the six months ended September

30, 2017 and September 30, 2016 are as follows:

For the six months

September 30,

Cost of goods sold

Net Loss (after operating expenses and other expenses)

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the six months

ended September 30, 2017 of $10,021,722 as compared to $5,954,287 for the six

months ended September 30, 2016, an increase of 68% generated by sales of our

alkaline water.

The increase in sales is due to the expanded distribution of our

products to additional retailers throughout the country.

As of September 30,

2017, the product is now available in all 50 states at an estimated 32,000

retail locations.

As of September 30, 2016, the product was available in all 50

states at an estimated 25,000 retail locations.

This increase has occurred

primarily through the addition of 5 of the top national grocery retailers as

customer during the year ended March 31, 2017.

We distribute our product through

several channels.

We sell through large national distributors (UNFI, KeHe, Tree

of Life, C&S, Core-Mark and Natures Best), which together represent over

150,000 retail outlets.

We also sell our product directly to retail clients,

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

and national retailers.

Some examples of retail clients are, Albertsons,

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

Markets, Unified Grocers, Bristol Farms, Vallarta, Superior Foods,

Ingles, HEB Brookshires, Publix, Shaws, Raleys, Food Lion, Harris Teeter, and

Festival Foods.

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the six months ended September 30, 2017, we had cost of

goods sold of $5,705,823, or 57% of revenue, as compared to cost of goods sold

of $3,686,825 or 62% of revenue, for the six months ended September 30, 2016.

The increase in gross profit rate is a result of reduced raw material cost

through greater volume purchases from our suppliers.

Our operating expenses for the six months ended September 30,

2017 and September 30, 2016 are as follows:

September 30,

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the six months ended September 30, 2017, our total

operating expenses were $6,648,896, as compared to $4,224,301 for the six months

ended September 30, 2016.

For the six months ended September 30, 2017, the total included

$3,488,361 of sales and marketing expenses and $2,967,314 of general and

administrative expenses, consisting primarily of approximately $1,670,294 of

stock and stock option compensation expense, and $299,347 of professional fees.

Our stock and stock option compensation expense was incurred as a part of our

issuance of certain stock options and stock grants to employees and key

consultants to develop our business.

Although a non-cash expense, the value of

such issuances had a material impact on our general and administrative expenses

for the three months ended June 30, 2017.

For the three months ended June 30, 2016 the total included

stock option compensation expense, and $572,348 of professional fees.

For the six months ended September 30, 2016 the total included

$2,146,389 of sales and marketing expenses and $1,897,515 of general and

1 unchanged sentence

option compensation expense, and $649,881 of professional fees.

Our stock and

stock option compensation expense was incurred as a part of our issuance of

certain stock options and stock grants to employees and key consultants to

develop our business.

Although a non-cash expense, the value of such issuances

had a material impact on our general and administrative expenses for the three

months ended June 30, 2016.

Liquidity and Capital Resources

Working Capital

June 30, 2017

September 30, 2017

March 31, 2017

3 unchanged sentences

Current Assets

Current assets as of June 30, 2017 and March 31, 2017 primarily

relate to $441,827 and $603,805 in cash, $2,283,626 and $1,419,281 in accounts

receivable and $837,311 and $819,989 in inventory, respectively.

Current assets as of September 30, 2017 and March 31, 2017

primarily relate to $481,831 and $603,805 in cash, $1,848,845 and $1,419,281 in

accounts receivable and $634,347 and $819,989 in inventory, respectively.

Current Liabilities

Current liabilities as of June 30, 2017 and March 31, 2017

Current liabilities as of September 30, 2017 and March 31, 2017

primarily relate to $1,451,780 and $1,343,824 in accounts payable, revolving

2 unchanged sentences

respectively.

Our cash flows for the three months ended June 30, 2017 and

June 30, 2016 are as follows:

For the three

Our cash flows for the six months ended September 30, 2017 and

September 30, 2016 are as follows:

September 30,

Net Cash used in operating activities

1 unchanged sentence

Net Cash provided by financing activities

Net increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Operating Activities

Net cash used in operating activities was $1,146,132 for the

three months ended June 30, 2017, as compared to $993,779 used in operating

activities for the three months ended June 30, 2016.

The increase in net cash

used in operating activities was primarily due to increase in accounts receivable

in the quarter ended June 30, 2017 compared to an increase of accounts payable

in the quarter ended June 30, 2016.

Net cash used in operating activities was $668,505 for the six

months ended September 30, 2017, as compared to $1,650,263 used in operating

activities for the six months ended September 30, 2016.

The decrease in net cash

used in operating activities was primarily due to a $945,371 reduction of net

loss after adding back non cash adjustments in the six months ended September

30, 2017 compared to the six months ended September 30, 2016.

Investing Activities

Net cash used in investing activities was $77,583 for the three

months ended June 30, 2017, as compared to $116,929 used in investing activities

for the three months ended June 30, 2016.

The decrease in net cash used by

investing activities was the result of a decrease of purchase of fixed assets

and equipment deposits.

Net cash used in investing activities was $226,446 for the six

months ended September 30, 2017, as compared to $184,315 used in investing

activities for the six months ended September 30, 2016.

The increase in net cash

used by investing activities was the result of an increase of purchase of fixed

assets and equipment deposits.

Financing Activities

Net cash provided by financing activities for the three months

ended June 30, 2017 was $1,061,737, as compared to $356,309 for the three months

ended June 30, 2016.

The increase of net cash provided by financing activities

is attributable to borrowings on the loan facility agreement with Turnstone

and the credit facility with SCM Specialty Finance Opportunities

Net cash provided by financing activities for the six months

ended September 30, 2017 was $772,977, as compared to $832,170 for the six

months ended September 30, 2016.

The decrease of net cash provided by financing

activities was mainly attributable to a decrease in proceeds received from financing activities of $412,975 offset by a decrease in repayment from financing activities of $353,782.

Cash Requirements

31 unchanged sentences

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-Q

Item 1. Financial Statements