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Item 8. Financial Statements and Supplementary Data

2018-06-29 compared with 2017-07-14 · 635 added, 622 removed, 859 unchanged (59% of the section changed)

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To the Board of Directors and Stockholders of

Alkaline Water Company Inc.

We have audited the accompanying balance sheets of The Alkaline

Water Company Inc.

as of March 31, 2017 and the related statements of

operations, stockholders equity (deficit), and cash flows for the year ended

March 31, 2017.

The Alkaline Water Company Inc.s management is responsible for

these financial statements.

Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with the standards of the

Public Company Accounting Oversight Board (United States).

Those standards

require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement.

is not required to have, nor were we engaged to perform, an audit of its

internal control over financial reporting.

Our audit included consideration of

internal control over financial reporting as a basis for designing audit

procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the companys internal control

over financial reporting.

The Alkaline Water Company Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Alkaline Water Company Inc.

(the “Company”) as of March 31, 2018 and March 31, 2017 and the related consolidated statements of operations, stockholders’

equity, and cash flows for each of the years in the two-year period ended March 31, 2018, and the related notes and schedules (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018 and March 31, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

An audit also

includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements, assessing the accounting principles

used and significant estimates made by management, as well as evaluating the

overall financial statement presentation.

We believe that our audits provide a

reasonable basis for our opinion.

In our opinion, the financial statements referred to above

present fairly, in all material respects, the financial position of The Alkaline

Water Company Inc.

as of March 31, 2017 and the results of its operations and

its cash flows for the year ended ended March 31, 2017 in conformity with

accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared

assuming that the Company will continue as a going concern.

As discussed in Note

2 to the financial statements, the Company has negative working capital at March

31, 2017, has incurred recurring losses and recurring negative cash flow from

operating activities, and has an accumulated deficit which raises substantial

doubt about its ability to continue as a going concern.

Managements plans

concerning these matters are also described in Note 2.

The financial statements

do not include any adjustments that might result from the outcome of this

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company has negative working capital at March 31, 2018, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern.

Management’s plans concerning these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ AMC Auditing

Las Vegas, Nevada

July 11, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and Stockholders of

Alkaline Water Company Inc.

We have audited the accompanying balance sheets of The Alkaline

Water Company Inc.

as of March 31, 2016 and the related statements of income,

stockholders equity (deficit), and cash flows for the year ended March 31,

The Alkaline Water Company Inc.s management is responsible for these

financial statements.

Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with the standards of the

Public Company Accounting Oversight Board (United States).

Those standards

require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement.

is not required to have, nor were we engaged to perform, an audit of its

internal control over financial reporting.

Our audit included consideration of

internal control over financial reporting as a basis for designing audit

procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the companys internal control

over financial reporting.

Accordingly, we express no such opinion.

An audit also

includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements, assessing the accounting principles

used and significant estimates made by management, as well as evaluating the

overall financial statement presentation.

We believe that our audits provide a

reasonable basis for our opinion.

In our opinion, the financial statements referred to above

present fairly, in all material respects, the financial position of The Alkaline

Water Company Inc.

as of March 31, 2016, and the related statements of income,

stockholders equity (deficit), and cash flows for the year ended March 31, 2016

in conformity with accounting principles generally accepted in the United States

The accompanying financial statements have been prepared

assuming that the Company will continue as a going concern.

As discussed in Note

2 to the financial statements, the Company has incurred recurring losses and

recurring negative cash flow from operating activities, and has an accumulated

deficit which raises substantial doubt about its ability to continue as a going

Managements plans concerning these matters are also described in Note

The financial statements do not include any adjustments that might result

from the outcome of this uncertainty.

/s/ Seale and Beers, CPAs

Seale and Beers, CPAs

We have served as the Company’s auditor since 2013

Las Vegas, Nevada

July 13, 2016

June 29, 2018

THE ALKALINE WATER COMPANY INC.

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Current assets

cash equivalents

Cash and cash

Accounts receivable

Prepaid expenses

Total current assets

current assets

Fixed assets - net

LIABILITIES AND STOCKHOLDERS' DEFICIT

LIABILITIES AND

STOCKHOLDERS' DEFICIT

Current liabilities

Accounts payable

Accrued expenses

Revolving financing

portion of capital leases

Note payable, net of debt

payable with original issue discount, net of debt discount

Loans payable

Current portion of

capital leases

Derivative liability

Total current liabilities

current liabilities

Long-term Liabilities

Capitalized leases

Total long-term liabilities

Total liabilities

long-term liabilities

Stockholders' equity

stock, $0.001 par value, 100,000,000 shares authorized, Series A issued

Preferred stock,

$0.001 par value, 100,000,000 shares authorized, Series

issued 1,500,000 and

Series D issued 3,800,000 at March 31, 2018 and Series

issued 20,000,000

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

Series C issued 3,000,000 at March 31, 2017

Common stock,

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

25,991,346 and

14,568,970 share issued and outstanding at March 31, 2017 and March 31,

2016, respectively

Additional paid in

Accumulated deficit

stockholders' equity

17,532,451shares

issued and outstanding at March 31, 2018 and March 31, 2017, respectively

Additional paid in capital

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.

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Sales and marketing

General and administrative

Total operating

and administrative

Total operating expenses

Total operating loss

Other income (expense)

Interest income

Interest expense

Amortization of debt discount and

Amortization of debt discount and accretion

Change in derivative

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EARNINGS PER SHARE (Basic)

WEIGHTED AVERAGE SHARES OUTSTANDING (Basic)

WEIGHTED AVERAGE SHARES

OUTSTANDING (Basic)

The accompanying notes are an integral part of these condensed

consolidated financial statements.

THE ALKALINE WATER COMPANY INC.

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Preferred Stock

Paid-in Capital

Balance, March 31, 2016

Value of warrants issued with capital lease agreement

Shares issued for cash private

Shares issued in connection with note payable

Shares issued to contractors

Shares issued to employees

Shares issued for cash

private placement

Shares issued in connection

with note payable

Shares issued to

Warrant exercises

Stock Options issued to employees

Preferred Stock issued to directors

Stock Options issued to

Stock Repurchase

Balance, March 31, 2017

Shares issued for cash private placement

Shares issued in connection with note

Shares issued to contractors

Retirement of Preferred

Conversion of Preferred

C stock to common stock

Issuance of Preferred D

Settlement with related

parties (See Note 8)

Beneficial conversion feature on convertible note

Conversion of note

payable to common stock

Shares issued to

Warrant exercises

Stock Options issued to employees

Stock Repurchase

Stock Options issued to

Stock Option exercises

Balance, March 31, 2018

See Accompanying Notes to Consolidated Financial Statements.

THE ALKALINE WATER COMPANY INC.

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CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in

Stock compensation expense

Adjustments to reconcile net loss

to net cash used in operating

compensation expense

Amortization of

debt discount and accretion

Interest expense relating to

amortization of capital lease discount

derivative liabilities

Changes in operating assets and

Interest expense converted to equity

Interest expense

relating to amortization of capital lease discount

Change in derivative liabilities

operating assets and liabilities:

Accounts receivable

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Accounts payable

Accounts payable - related party

Accrued expenses

NET CASH USED IN

OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets

INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes payable

CASH USED IN OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING

Purchase of fixed

USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING

Proceeds from

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of common stock, net

Proceeds for the exercise of

warrants, net

Proceeds for the exercise of warrants, net

Repayment of loan payable

Repayment of notes

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Repurchase of

CASH PROVIDED BY FINANCING

PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH

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INTEREST PAID

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED

NON-CASH INVESTING AND FINANCING TRANSACTION

Conversion of note payable to common shares

The accompanying notes are an integral part of these condensed

consolidated financial statements.

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Alkaline Water Company Inc.

(a Nevada Corporation), Alkaline Water Corp.

Arizona Corporation) and Alkaline 88, LLC (an Arizona Limited Liability

(a Nevada Corporation)and its wholly owned

subsidiary, Alkaline 88, LLC (an Arizona Limited Liability Company).

All significant intercompany balances and transactions have

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The Alkaline Water Company Inc.

(a Nevada Corporation),

Alkaline Water Corp.

(an Arizona Corporation) and Alkaline 88, LLC (an Arizona

Limited Liability Company) will be collectively referred herein to as the

Any reference herein to The Alkaline Water Company Inc., the

Company, we, our or us is intended to mean The Alkaline Water Company

Inc., including the subsidiaries indicated above, unless otherwise indicated.

(a Nevada Corporation) and

Alkaline 88, LLC (an Arizona Limited Liability Company) will be collectively

referred herein to as the Company.

Any reference herein to The Alkaline Water

Company Inc., the Company, we, our or us is intended to mean The

Alkaline Water Company Inc., including the subsidiary indicated above, unless

otherwise indicated.

Reverse split

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par value of $0.001 per share.

In addition, the number of issued and outstanding

shares of Series A Preferred Stock continues to be 20,000,000.

However, holders

of Series A Preferred Stock had 0.2 vote per share of Series A Preferred Stock,

instead of 10 votes per share of Series A Preferred Stock, as a result of the

reverse stock split.

On January 22, 2016, the Company amended the certificate of

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Preferred Stock in the event of any dividend or other distribution on our common

stock payable in its common stock or a subdivision or consolidation of the

outstanding shares of its common stock.

Accordingly, holders of Series A

Preferred Stock will have 10 votes per share of Series A Preferred Stock,

instead of 0.2 votes per share of Series A Preferred Stock.

stock payable in its common stock or a subdivision or consolidation of the outstanding shares of its common stock.

Accordingly, holders of Series A Preferred Stock will have 10 votes per share of

Series A Preferred Stock, instead of 0.2 votes per share of Series A Preferred

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.

On March 30, 2016, the Company designated 3,000,000 shares of

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convertible as may be agreed by our company and the holder in writing from time

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

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

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

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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 nonassessable 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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respectively.

Accounts Receivable and Allowance for Doubtful

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the

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2018 and 2017:

Trade receivables

Trade receivables, net

Allowance for doubtful accounts

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inherent risk in the account balance and current economic conditions.

Inventory represents raw and blended chemicals and other items

Inventory represents raw materials and finished goods

valued at the lower of cost or market with cost determined using the weight

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Total inventory

Property and Equipment

The Company records all property and equipment at cost less

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Equipment under capital lease

3 years or term of the lease

Stock-Based Compensation

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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

the services, based on the consideration received or the fair value of the equity instruments issued and is

recognized as expense over the service period.

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(expense) because of the corresponding non-cash gain or loss recorded.

Concentration

The Company has 2 major customers that together account for 38%

(21% and 17% respectively) of accounts receivable at March 31, 2017, and 3

customers that together account for 58% (29% 15%, and 14%, respectively) of the

total revenues earned for the year ended March 31, 2017.

The Company has 2 vendors that accounted for 51% (37% and 14%

respectively) of purchases for the year ended March 31, 2017.

The Company has 3 major customers that together account for 57%

Concentration Risks

We have 3 major customers that together account for 51% (25%,

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, 2016.

The Company has 5 vendors that accounted for 74% (24%, 17%,

17%, and 16%, respectively) of purchases for the year ended March 31, 2016.

total revenues earned for the year ended March 31, 2018.The Company has 2

vendors that accounted for 48% (35% and 13% respectively) of purchases for the

year ended March 31, 2018.

In accordance with ASC 740 Accounting for Income

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The Company operates on one segment in one geographic location

the United States of America and, therefore, segment information is not

- the United States of America and;

therefore, segment information is not

Fair Value of Financial Instruments

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conform to the current period financial statements presentation.

Newly Issued Accounting Pronouncements

Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (FASB)

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articulate the requirements for the measurement and disclosure of inventory.

However, the Board does not intend for

those clarifications to result in any changes in practice.

Other than the change

in the subsequent measurement guidance from the lower of cost or market to the

lower of cost and net realizable value for inventory within the scope of ASU

2015-11, there are no other substantive changes to the guidance on measurement

of inventory.

For public business entities, the amendments in ASU 2015-11 are

effective for fiscal years beginning after December 15, 2016, including interim

periods within those fiscal years.

For all other entities, the amendments in ASU

2015-11 are effective for fiscal years beginning after December 15, 2016, and

interim periods within fiscal years beginning after December 15, 2017.

amendments in ASU 2015-11 should be applied prospectively with earlier

application permitted as of the beginning of an interim or annual reporting

However, the Board does not intend for those clarifications to result in any

changes in practice.

Other than the change in the subsequent measurement

guidance from the lower of cost or market to the lower of cost and net

realizable value for inventory within the scope of ASU 2015-11, there are no

other substantive changes to the guidance on measurement of inventory.

public business entities, the amendments in ASU 2015-11 are effective for fiscal

years beginning after December 15, 2016, including interim periods within those

fiscal years.

For all other entities, the amendments in ASU 2015-11 are

effective for fiscal years beginning after December 15, 2016, and interim

periods within fiscal years beginning after December 15, 2017.

The amendments in

ASU 2015-11 should be applied prospectively with earlier application permitted

as of the beginning of an interim or annual reporting period.

The Board decided that the only disclosures required at

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Machinery and Equipment

Machinery Construction in Progress

Machinery under Capital Lease

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Leasehold Improvements

Accumulated Depreciation

Fixed Assets, net

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2017 was $418,777 and $359,556, respectively.

NOTE 4 EQUIPMENT DEPOSITS RELATED PARTY

On February 1, 2018, we exercised our purchase option to

purchase four alkaline generating electrolysis system machines leased under the

master lease agreement entered into on October 22, 2014, as amended on February

25, 2015 with Veterans Capital Fund, LLC for a total of $160,000.

price bears interest of 12% per annum and is payable in eleven equal monthly

installments of $14,934.00 each and one final installment of $4,040.41, with the

first installment due on February 1, 2018 and on the remaining eleven

installments due on the first of each month thereafter with the final

installment due and payable on January 1, 2019.

The Company paid for equipment to Water Engineering Solutions,

LLC, a related party, $104,619 and $312,500 for the years ended March 31, 2017

and March 31, 2016.

At March 31, 2017 and March 31, 2016, the Company owed $0.00

and $43,036 respectively to Water Engineering Solutions, LLC.

The equipment was

being manufactured by and under an exclusive manufacturing contract from Water

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

Nickolas and Richard A.

Wright, for the production of our alkaline

LLC, a related party, $-0- and $104,619 for the years ended March 31, 2018 and

March 31, 2017.

Water Engineering Solutions, LLC is an entity that is controlled

and owned by our former president and chief executive officer, Steven P.

Nickolas, and our current president and chief executive officer, Richard A.

The Company no longer has any business relationship with Water

Engineering Solutions, LLC and has not engaged in any business with Water

Engineering Solutions, LLC, for the entirety of fiscal year 2018.

NOTE 4 REVOLVING FINANCING

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of determination, 85% of net eligible billed receivables plus 65% of eligible

unbilled receivables, minus certain reserves).

unbilled receivables, minus certain reserves, and is subject to certain customer

specific requirements).

The Credit Agreement has a term of three years, unless earlier

terminated by the parties in accordance with the terms of the Credit Agreement.

terminated by the parties in accordance with the terms of the Credit

The principal amount of the Revolving Facility outstanding

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ratio and minimum liquidity requirements.

As of February 1, 2017, the Company and Gibraltar

(Gilbralter) entered into a payoff agreement (the Payoff Agreement),

pursuant to which the Company agreed to pay an amount equal to the outstanding

indebtedness and obligations owing from the Company to Gibraltar (the Gibraltar

Obligations).

The Payoff Agreement provided that the Payoff Agreement will confirm that, upon receipt via

wire transfer of immediately available funds to Gibraltar in the aggregate

amount of $628,782.94, all of the Gibraltar Obligations will be terminated and

satisfied in full as of the close of business on February 1, 2017.

On February 20, 2014, The Alkaline Water Company Inc., and

subsidiaries, Alkaline 88, LLC and Alkaline Water Corp., entered into a

revolving accounts receivable funding agreement with Gibraltar Business Capital,

LLC (Gibraltar).

Under the agreement, from time to time, the Company agreed to

tender to Gibraltar all of our accounts (which is defined as our rights to

payment whether or not earned by performance, (i) for property that has been or

is to be sold, leased, licensed, assigned or otherwise disposed of, or (ii) for

services rendered or to be rendered, or (iii) as otherwise defined in the

Uniform Commercial Code of the State of Illinois).

Gibraltar will have the

right, but will not be obligated, to purchase such accounts tendered in its sole

If Gibraltar purchases such accounts, Gibraltar will make cash

advances to us as the purchase price for the purchased accounts.

The initial indebtedness is $500,000 and the Company increased

the amount available under the revolving accounts receivable funding agreement

to $900,000 on May 12, 2016.

The Company may request further increase(s) to the

in $100,000 increments up to $5,000,000, subject the Companys financial

performance and/or projections are satisfactory to Gibraltar, and absent an

event of default.

The Company also granted to Gibraltar a security interest in

all of our presently-owned and hereafter-acquired personal and fixture property,

wherever located.

The agreement will continue until the first to occur of (i)

demand by Gibraltar;

or (ii) 24 months from the first day of the month following

the date that the first purchased account is purchased and will be automatically

renewed for successive periods of 12 months thereafter unless, at least 30 days

prior to the end of the term, the Company gives Gibraltar notice of our

intention to terminate the agreement.

In addition, the Company will be able to

exit the agreement at any time for a fee of 2% of the line of credit in place at

the time of prepayment.

On March 31, 2016 the amount borrowed on this facility

was $475,273.

On February 13, 2018, the Lender agreed to provide the Company

a $400,000 Temporary Over Advance (TOA) under the Credit Facility Agreement.

The TOA is to be repaid as follows:

(i) the Company shall make five (5) weekly

principal payments on the TOA each in the amount of $20,000 commencing on April

23, 2018 and on the first Business Day of each calendar week thereafter through

and including May 21, 2018, (ii) the Company shall make ten (10) weekly

principle payments on the TOA, each in the amount of $30,000, commencing on May

28, 2018 and on the first Business Day of each calendar week

thereafter through and including July 30, 2018 and (iii) repay the remaining

principal balance on the TOA, if any, in full on or prior to July 30, 2018.

On February 14, 2018, David A.

Guarino entered into a Guarantee

Agreement (the Guarantee) with the Lender in order for the Lender to agree to

provide the Company the $400,000 TOA under the Credit Agreement.

Guarantee, Mr.

Guarino personally, absolutely, and unconditionally, jointly and

severally, guaranteed the prompt, complete and full payment of the Companys

obligations to repay the TOA only, under the Credit Agreement, with the

NOTE 5 DERIVATIVE LIABILITY

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terms as fixed and determined by our board of directors.

The Series A Preferred

Stock had 10 votes per share (reduced to 0.2 votes per share as a result of the

fifty for one reverse stock split, which became effective as of December 30,

2015) and are not convertible into shares of our common stock.

Grant of Series A Preferred Stock

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instead of 0.2 votes per share of Series A 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.

Grant of Series C Convertible Preferred Stock

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effective March 1, 2016.

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

Nickolas converted his 1,500,000 shares of Series C

Preferred Stock to Common Stock on July 11, 2017.

Wright continues to hold

his 1,500,000 shares of Series C Preferred Stock.

Grant of Series D Convertible Preferred Stock

On May 3, 2017, the Company 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 nonassessable 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.

In May, 2017, the company issued a

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

officers, consultants and employees.

In November, 2017, the company issued an

additional 800,000 shares of our Series D Preferred Stock as follows:

300,000 shares to Steve Nickolas pursuant to the Settlement Agreement detailed

and (b) 500,000 shares to Richard A.

Wright pursuant to the Exchange

Agreement and stock option forfeitures detailed below.

We issued these shares

relying on the registration exemption provided for in Section 4(a)(2) of the

Securities Act of 1933.

Upon incorporation in 2011, the Company was authorized to issue 75,000,000 shares of

$0.001 par value common stock.

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common stock issued and outstanding.

On May 31, 2013, the Company issued 43,000,000 shares in exchange for a 100% interest in Alkaline

For accounting purposes, the acquisition of Alkaline Water Corp.

The Alkaline Water Company Inc.

has been recorded as a reverse acquisition of a

company and recapitalization of Alkaline Water Corp.

based on the factors

demonstrating that Alkaline Water Corp.

On May 31, 2013, the Company issued

43,000,000 shares in exchange for a 100% interest in Alkaline Water Corp.

accounting purposes, the acquisition of Alkaline Water Corp.

by The Alkaline

Water Company Inc.

has been recorded as a reverse acquisition of a company and

recapitalization of Alkaline Water Corp.

based on the factors demonstrating that

Alkaline Water Corp.

represents the accounting acquirer.

Consequently, after the closing of this agreement the Company adopted the

business of Alkaline Water Corp.s wholly-owned subsidiary, Alkaline 88, LLC.

part of the acquisition, the former management of the Company agreed to cancel

75,000,000 shares of common stock.

Consequently, after the

closing of this agreement the Company adopted the business of Alkaline Water Corp.s wholly-owned subsidiary,

Alkaline 88, LLC.

As part of the acquisition, the former management of the

Company agreed to cancel 75,000,000 shares of common stock.

On December 30, 2015, the Company effected a fifty for one

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representing a vote against, abstention or broker non-vote with respect to the

Sale of Restricted Shares

On June 10, 2016, the Company entered into loan agreements with

five lenders, pursuant to which the Company issued promissory notes in the

aggregate principal amount of $260,000 in exchange for the loan in the amount of

The promissory notes bear interest at the rate of 10% per annum,

payable quarterly.

Payment of the principal and interest is due and payable on

or before June 10, 2017.

The lenders have the option to convert the amount due

under the promissory notes into shares of our common stock at a conversion price

of $1.00 per share.

On June 14, 2016, pursuant to the May Exchange Agreement, the

Company issued an aggregate of 163,202 shares of our common stock upon exchange

of the above mentioned May Warrants valued at the market value on that date of

$1.98 per share.

On July 6, 2016, the Company issued an aggregate of 425,000

shares of our common stock to three investors in a private placement, at a

purchase price of $1.00 per share for gross proceeds of $425,000.

Common Stock Issued for Services

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

In the year ended March 31, 2017, the company issued 251,200

shares of restricted common stock to consultants for services rendered that were

valued at 379,125.

In issuing these shares, we relied on an exemption from the

registration requirements of the Securities Act of 1933 provided by Section

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

Common Stock Issued in Conjunction with Notes and Warrant

On May 22, 2015, the Company issued 20,000 restricted common

shares in conjunction with a $250,000 note payable that were valued at the

market value on that date of $3.95 per share.

On August, 20, 2015, the Company issued 20,000 restricted

common shares in conjunction with a $240,000 note payable that were valued at

the market value on that date of $5.75 per share.

On October 28, 2015, the Company issued 10,000 restricted

common shares in conjunction with a $62,000 note payable that were valued at the

market value on that date of $4.25 per share.

On March 30, 2016 pursuant to a convertible note issued

September 28, 2015 the $89,100 of principal balance was converted to 270,000

common shares of the Company Stock.

On March 31, 2016, the Company entered into a promissory note

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May Warrants and any agreement or instrument pursuant to which such May Warrants

As of March 31, 2017, pursuant to a Note Exchange Agreements,

we issued an aggregate of 210,000 shares of our common stock upon exchange of

the above mentioned Notes.

In issuing these shares, we relied on an exemption

from the registration requirements of the Securities Act of 1933 provided by

Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933.

As of March 31, 2017, pursuant to a Warrant Exchange

Agreements, we issued an aggregate of 25,716 shares of our common stock upon

exchange of the above mentioned Warrants.

In issuing these shares, we relied on

an exemption from the registration requirements of the Securities Act of 1933

provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act of

As of March 31, 2017, pursuant to a Note Exchange Agreement, we

issued an aggregate of 210,000 shares of our common stock upon exchange of the

applicable Notes.

In issuing these shares, we relied on an exemption from the

registration requirements of the Securities Act of 1933 provided by Section

3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933.

As of March 31, 2017, pursuant to a Warrant Exchange Agreement,

we issued an aggregate of 25,716 shares of our common stock upon exchange of the

applicable Warrants.

In issuing these shares, we relied on an exemption from the

registration requirements of the Securities Act of 1933 provided by Section

3(a)(9) and/or Section 4(a)(2) of the Securities Act of 1933.

NOTE 7 OPTIONS AND WARRANTS

Stock Option Awards

On January 29, 2016, the Company granted a total of 1,310,000

stock options to certain employees.

The stock options are exercisable at the

exercise price of $0.52 per share for a period of 7.6 years from the date of

grant and vested upon the date of grant.

On January 29, 2016, the Company granted a total of 3,000,000

stock options Steven A.

Nickolas and Richard A.

Wright (1,500,000 stock options

The stock options are exercisable at the exercise price of $0.52 per

share for a period of 7.6 years from the date of grant and vested upon the date

On March 4, 2016, the Company completed the offering and sale

of an aggregate of 9,000,000 shares of our common stock the offering included

warrants to purchase an aggregate of 4,500,000 shares of our common stock, at an

exercise price of $0.50 per share for a period of two years from the date of

Effective April 28, 2017, we granted a total of 1,790,000 stock

options to our directors, officers, consultants employees.

The stock options are

exercisable at the exercise price of $1.29 per share for a period of ten years

from the date of grant.

360,000 of the stock options vest as follows:

120,000 upon the date of grant;

and (ii) 120,000 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.

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.

On March 1, 2018, pursuant to Warrant Amendment Agreements

dated February 22, 2018 with 16 holders (the Holders ) of our common

stock purchase warrants (the existing warrants), we issued an aggregate of

3,900,000 shares of our common stock upon exercise of the Existing Warrants at

an exercise price of $0.50 per share for aggregate gross proceeds of $1,950,000.

The Existing Warrants were issued by us as part of an offering that closed on

March 4, 2016 and were included in our registration statement on Form S-1 (File

In addition, pursuant to the Warrant Amendment Agreements, we

issued new common stock purchase warrants of our company (the New

Warrants ) in the form of the Existing Warrants to purchase up to a number

of shares of our common stock equal to the number of Existing Warrants exercised

by the Holders, provided that (i) the exercise price of the New Warrants is

$0.60 per share, subject to adjustment in the New Warrants, (ii) the expiry date

of the New Warrants is September 1, 2019 and (iii) the New Warrants are

non-transferable.

For the years ended March 31, 2018 and March 31, 2017 the

Company has recognized compensation expense of $0 and $2,425,495 respectively,

on the stock options granted that vested.

The fair value of the unvested shares

is $0 as of March, 2017.

The aggregate intrinsic value of these options was $0

at March 31, 2016.

Stock option activity summary covering options is presented

in the table below:

Company has recognized compensation expense of $549,602 and $0 respectively, on

the stock options granted that vested.

The fair value of the unvested shares is

$0 as of March, 2018.

The aggregate intrinsic value of these options was $0 at

March 31, 2017.

Stock option activity summary covering options is presented in

the table below:

Outstanding at March 31, 2016

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The following is a summary of the status of all of our warrants

as of March 31,

2017 and changes during the period ended on

as of March 31, 2018 and changes during the period ended on that date:

Exercise Price

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On October 22, 2014, the Company entered into a master lease

agreement with Veterans Capital Fund, LLC (the Lessor) for the secured lease

agreement with Veterans Capital Fund, LLC (the Lessor) for a secured lease

line of credit financing in an amount not to exceed $600,000.

expected to be secured by three new alkaline generating electrolysis system

Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC acted as

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

owned by our President, Chief Executive Officer, director and major stockholder,

Nickolas, and our Vice-President, Secretary, Treasurer and director,

Pursuant to the master lease agreement, the Lessor agreed to

lease to us the equipment described in any equipment schedule signed by us and

approved by the Lessor.

It is expected that any lease under the master lease

agreement will be structured for a three-year lease term with fixed monthly

lease rental payments based on a monthly lease rate factor of 3.4667% of the

Lessors capital cost.

In connection with the entering into the master lease

agreement, the Company also entered into a warrant agreement with the Lessor,

pursuant to which the Company agreed to issue a warrant to purchase 72,000

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

price of $6.25 per share for a period of five years.

18,000 shares vested.

The lease was

secured by three new alkaline generating electrolysis system machines.

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 former President, Chief Executive Officer, director

and major stockholder, Steven P.

Nickolas, and our current President, Chief

Executive Officer, director, and major stockholder, Richard A.

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.

three leases under the master lease agreement were structured for a three-year

lease term with fixed monthly lease rental payments based on a monthly lease

rate factor of 3.4667% of the Lessors capital cost.

In connection with the

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

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

a warrant to purchase 72,000 shares of our common stock to the Lessor and/or its

affiliates at an exercise price of $6.25 per share for a period of five

On February 25, 2015, the Company amended the master lease

agreement with Veterans Capital Fund, LLC for the increase in the secured lease

agreement with Veterans Capital Fund, LLC for an increase in the secured lease

line of credit financing to an amount not to exceed $800,000.

The lease was

secured by new alkaline generating electrolysis system machines by our

secured by a new fourth alkaline generating electrolysis system machines.

wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC

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

our President, Chief Executive Officer, director and major stockholder, Steven

Nickolas, and our Vice-President, Secretary, Treasurer and director, Richard

Pursuant to the master lease agreement, the Lessor agreed to lease to

us the equipment described in any equipment schedule signed by us and approved

by the Lessor.

It is expected that any lease under the master lease agreement

will be structured for a three-year lease term with fixed monthly lease rental

payments based on a monthly lease rate factor of 3.4667% of the Lessors capital

In connection with the entering into the master lease agreement, the

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

Company agreed to cancel the previous issued warrant for 72,000 and issue a

warrant to purchase 102,000 shares of our common stock to the Lessor and/or its

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

acted as co-lessees.

Water Engineering Solutions, LLC is an entity that is

controlled and owned by our former President, Chief Executive Officer, director

and major stockholder, Steven P.

Nickolas, and our current President, Chief

Executive Officer, director, and major stock holder, Richard A.

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.

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.

connection with the entering into the master lease agreement, the Company

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

agreed to cancel the previous issued warrant for 72,000 and issue a warrant to

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

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

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

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 we draw on 90% or more of the

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

deemed to be vested.

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

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

a Black-Scholes, a level 3 valuation measure.

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 amounts the Lessor funds pursuant to any lease schedules under

the master lease agreement, provided that if we draw on 90% or more of the total

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

to be vested.

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

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

Black-Scholes, a level 3 valuation measure.

The fair value of the warrants granted during the year ended

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NOTE 8 RELATED PARTY TRANSACTIONS

On October 31, 2014, the Company amended the 2013 Equity

Incentive Plan to, among other things, to increase the number of shares of stock

of the Company available for the grant of awards under the plan from 20,000,000

shares to 35,000,000 shares.

On October 31, 2014, the Company reduced the exercise price of

an aggregate of 120,000 stock options granted to Steven P.

Nickolas and Richard

Wright, , to $7.50 per share as noted below:

Number of Stock

Name of Optionee

Price per Share

Expiration Date

October 9, 2013

October 9, 2023

October 9, 2013

October 9, 2023

On May 21, 2014, the Company granted a total of 120,000 stock

options Steven A.

Nickolas and Richard A.

Wright (60,000 stock options to each).

The stock options are exercisable at the exercise price of $7.275 per share for

a period of ten years from the date of grant.

60,000 stock options vested upon

the date of grant and 60,000 stock options will vest on November 21, 2014.

On October 9, 2013, the Company granted a total of 120,000

stock options to Steven A.

Nickolas and Richard A.

Wright (60,000 stock options

The stock options are exercisable at the exercise price of $30.25 per

share for a period of ten years from the date of grant.

For each individual, the

stock options vest as follows:

(i) 20,000 upon the date of grant;

10,000 per quarter until fully vested.

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

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

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

Nickolas, former

Chairman and CEO as of April 7, 2017, and Richard A.

Wright (10,000,000 shares

to each), in consideration for the past services, at a deemed value of $0.001

We valued these shares based on the cost considering the time and

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compensation cost for the year ended March 31, 2014.

On January 29, 2016, the Company granted a total of 3,000,000

stock options Steven A.

Nickolas and Richard A.

Wright (1,500,000 stock options

The stock options are exercisable at the exercise price of $0.52 per

share for a period of 7.6 years from the date of grant and vested upon the date

On October 30, 2018, Steven

Nickolas forfeited his 10,000,000 shares of our Series A Preferred Stock

pursuant to the Settlement Agreement detailed below.

On November 8, 2018,

Wright forfeited his 10,000,000 shares of our Series A Preferred

Stock pursuant to the Exchange Agreement as detailed below.

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

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officers, pursuant to their employment agreements dated effective March 1, 2016.

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

Common Stock on August 17, 2017.

Wright continues to hold his 1,500,000

shares of Series C Preferred Stock.

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

Wright as president of our company.

On April 28, 2017, Mr.

Wright resigned as

the secretary and treasurer of our company and he was appointed as the chief

executive officer of our company.

On April 28, 2017, our board of directors appointed David A.

Guarino as chief financial officer, treasurer, secretary president of our

On May 3, 2017, the Company 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 April 28, 2017, Mr.

Wright and Mr.

Guarino were each issued

1,000,000 shares each of the Series D Preferred Stock.

On October 25, 2017, Mr.

Wright and the Company entered into a

stock option forfeiture and general release agreement whereby Mr.

forfeited stock options to purchase 148,000 shares of the Companys common

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

attorneys 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

Nickolas acknowledged and agreed that the employment agreement

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;

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.

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

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 companys 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 September 14, 2017, October 17, 2017 and November 22, 2017

Wright Investment Group LLC, an entity controlled by Richard A.

Wright, chief

executive officer, president and director, advanced $200,000, $400,000 and

$400,000, respectively, to the Company for a total of $1,000,000 advanced.

$1,000,000 in advancements were repaid to Wright Investment Group, LLC on March

On February 14, 2018, David A.

Guarino entered into a Guarantee

Agreement (the Guarantee) with CNH Specialty Finance (the Lender) in order

for the Lender to agree to provide the Company a $400,000 Temporary Over Advance

(TOA) under the Credit Facility Agreement (the Credit Agreement).

Guarantee, Mr.

Guarino personally, absolutely, and unconditionally, jointly and

severally, guaranteed the prompt, complete and full payment of the Companys

obligations to repay the TOA only, under the Credit Agreement, with the

Employment Agreement with Steven P.

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agreement dated effective March 1, 2016 with Steven P.

Nickolas, our president,

chief executive officer and director, pursuant to which Mr.

Nickolas agreed to

perform such duties as are regularly and customarily performed by the president

and chief executive officer of a corporation, and any other duties consistent

Nickolas, our former

president, chief executive officer and director, pursuant to which Mr.

agreed to perform such duties as are regularly and customarily performed by the

president and chief executive officer of a corporation, and any other duties

consistent with Mr.

Nickolass position in our company.

Pursuant to the terms of the

employment agreement, the Company have agreed to (i) pay Mr.

Nickolas $15,000

per month or such other amount as may be determined by our board of directors

from time to time;

Pursuant to the terms of

the employment agreement, the Company have agreed to (i) pay Mr.

$15,000 per month or such other amount as may be determined by our board of

directors from time to time;

and (ii) issue to Mr.

Nickolas 1,500,000 shares of our Series

C Preferred Stock (issued effective as of March 31, 2016).

The Company also

agreed that each of the following events constitute a Negotiated Trigger Event

as defined in the Certificate of Designation for the Series C Preferred Stock:

Nickolas 1,500,000 shares of

our Series C Preferred Stock (issued effective as of March 31, 2016).

Company also agreed that each of the following events constitute a Negotiated

Trigger Event as defined in the Certificate of Designation for the Series C

Preferred Stock:

(i) the occurrence of a change of control event;

(ii) the death of Mr.

and (iii) the termination of the employment agreement for any reason.

(ii) the death

and (iii) the termination of the employment agreement for any

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

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agreement dated effective March 1, 2016 with Richard A.

vice-president, secretary, treasurer and director, pursuant to which Mr.

Wright, our vice-

president, secretary, treasurer and director, pursuant to which Mr.

agreed to perform such duties as are regularly and customarily performed by the

89 unchanged sentences

Wrights death, Mr.

Wrights estate);

any unpaid salary and any outstanding and

accrued regular and special vacation pay through the date of termination;

reimbursement for any unreimbursed expenses incurred through to the date of

and any outstanding amounts due under any awards which will be

dealt with in accordance with our 2013 equity incentive plan and the award

any unpaid salary and any outstanding and accrued regular and special

vacation pay through the date of termination;

reimbursement for any unreimbursed

expenses incurred through to the date of termination;

and any outstanding

amounts due under any awards which will be dealt with in accordance with our

2013 equity incentive plan and the award agreement.

In the event Mr.

Wrights employment is terminated due to a

disability, the Company agreed to pay to Mr.

Wright the severance referred to

employment is terminated due to a disability, the Company agreed to pay to Mr.

Wright the severance referred to above.

The Company may terminate Mr.

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provided that, the foregoing indemnification will apply only if:

honestly and in good faith with a view to the best interests of our company, any

of its subsidiaries or any of their respective affiliates;

honestly and in good faith with a view to the best interests of our company, any of

its subsidiaries or any of their respective affiliates;

and in the case of a

34 unchanged sentences

expire in 2023 through 2037.

The valuation allowance was increased by $1,750,000 during the

year ended March 31, 2017.

The current income tax benefit of $1,750,000 and

$1,270,000 generated for the years ended March 31, 2017 and 2016, respectively,

was offset by an equal increase in the valuation allowance.

The valuation

allowance was increased due to uncertainties as to the Companys ability to

generate sufficient taxable income to utilize the net operating loss

carryforwards and other deferred income tax items.

The current years net operating loss will

carryforward indefinitely.

The valuation allowance was decreased by $490,000 during the

year ended March 31, 2018 as a result of the reduction of U.S.

tax rate to 21%.

The current income tax benefit of ($490,000) and $1,750,000 generated for the

years ended March 31, 2018 and 2017, respectively, was offset by an equal

decreased in the valuation allowance.

The valuation allowance was increased due

to uncertainties as to the Companys ability to generate sufficient taxable

income to utilize the net operating loss carryforwards and other deferred income

The Company recognizes interest and penalties related to

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NOTE 10 COMMITMENTS AND CONTINGENCIES

The Company has long-term leases for its offices under

cancelable operating leases from August 1, 2013 through September 30, 2017.

March 31, 2017, future minimum contractual obligations were as follows:

The Company has long-term leases for its office, warehouse, and

office equipment under cancelable operating leases from April 1, 2016 through

December 26, 2020.

At March 31, 2018, future minimum contractual obligations

were as follows:

Year ending March 31, 2019

Year ending March 31, 2020

Year ending March 31, 2021

Total Minimum Lease Payments:

On October 3, 2014, the Company entered into a 3-year sub-lease

agreement requiring a monthly payment of $5,000 for office space in Scottsdale,

Arizona, with a basic monthly lease increase to $6,000 per month in second year

of the lease and to $7,000 per month in the third year of the lease.

shall have the option to extend this lease for one (1) additional three (3) year

term for increased monthly rent.

On August 2, 2013, the Company entered into a 4-year lease

agreement for certain office equipment requiring a monthly payment of $870.

On April 1, 2016, the Company entered into an 18-month lease

agreement for certain warehouse space requiring a monthly payment of $1,125.

September 12, 2017, the Company extended the lease until March 31, 2020,

requiring a monthly rent payment of $1,187.50 for the period October 1, 2017 to

September 30, 2018 and a monthly rent payment of $1,250.00 for the period

October 1, 2018 to March 31, 2020.

On December 1, 2016, the Company entered into a 16-month lease

agreement for certain warehouse space requiring a monthly payment of $2,250.

May 7, 2018, the Company extended the lease until March 30, 2019, requiring a

monthly payment of $2,375 for the period June 1, 2018 to March 31, 2019.

On September 26, 2017, the Company entered into a 39-month

lease agreement for its corporate headquarters in Scottsdale, Arizona requiring

a monthly payment of $7,611.83, with a monthly lease increase to $7,751.83 per

month in months 15-26 of the lease and to $7,981.17 per month in the months

27-38 of the lease.

The Company shall have the option to extend this lease for

one (1) additional three (3) year term for increased monthly rent.

NOTE 11 CAPITAL LEASE

On October 22, 2014, the Company entered into a master lease

agreement with Veterans Capital Fund, LLC (the Lessor) for the secured lease

agreement with Veterans Capital Fund, LLC (the Lessor) for a secured lease

line of credit financing in an amount not to exceed $600,000.

expected to be secured by three new alkaline generating electrolysis system

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 former President, Chief Executive

Officer, Steven P.

Nickolas, and our current President and Chief Executive

Officer, Richard A.

Pursuant to the master lease agreement, the Lessor

agreed to lease to us the equipment described in any equipment schedule signed

by us and approved by the Lessor.

It is expected that any lease under the master

lease agreement will be structured for a three year lease term with fixed

monthly lease rental payments based on a monthly lease rate factor of 3.4667% of

the Lessors capital cost.

In connection with the entering into the master lease

agreement, the Company also entered into a warrant agreement with the Lessor,

pursuant to which the Company agreed to issue a warrant to purchase 72,000

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

exercise price of $6.

25 per share for a period of five years, 18,000 shares

On February 25, 2015, the Company amended the master lease

agreement with Veterans Capital Fund, LLC for the increase in the secured lease

line of credit financing to an amount not to exceed $800,000.

The lease was

secured by new alkaline generating electrolysis system machines by our

secured by three new alkaline generating electrolysis system machines.

wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC

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

our former President, Chief Executive Officer, Steven P.

Nickolas, and our

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

acted as co-lessees.

Water Engineering Solutions, LLC is an entity that is

controlled and owned by our former President, Chief Executive Officer, director

and major stockholder, Steven P.

Nickolas, and our current President, Chief

Executive Officer, director, and major stockholder, Richard A.

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.

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

Black-Scholes, a level 3 valuation measure.

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

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

$735,781 under the above Master Lease agreement.

The Company evaluated this

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

where a capital asset.

NOTE 14 NOTES PAYABLE

On May 11, 2015, the Company entered into a securities purchase

agreement with Assurance Funding Solutions LLC, pursuant to which the Company

issued a secured term note of our company in the aggregate principal amount of

$250,000, together with 20,000 shares of our common stock, in consideration for

The secured term note bears interest at the rate of 15% per annum and

matured on May 11, 2016.

The Company prepaid the note by paying the holder 110%

of the principal amount outstanding together with accrued but unpaid interest

thereon, the Company provided written notice to the holder at least 30 days

prior to the date of prepayment which occurred in May, 2016.

three leases under the master lease agreement were structured for a three-year

lease term with fixed monthly lease rental payments based on a monthly lease

rate factor of 3.4667% of the Lessors capital cost.

In connection with the

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

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

a warrant to purchase 72,000 shares of our common stock to the Lessor and/or its

affiliates at an exercise price of $6.25 per share for a period of five

On February 25, 2015, the Company amended the master lease

agreement with Veterans Capital Fund, LLC to increase the secured lease line of

credit financing to an amount not to exceed $800,000.

The lease was secured by a

new fourth alkaline generating electrolysis system machine.

Our wholly-owned

subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC acted as

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

owned by our former President, Chief Executive Officer, director and major

stockholder, Steven P.

Nickolas, and our current President, Chief Executive

Officer, director, and major stock holder, Richard A.

Pursuant to the

securities purchase agreement, the Company paid Assurance Funding Solutions LLC

$10,000 for legal fees incurred by it and granted it piggyback registration

In connection with the securities purchase agreement, the Company also

entered into a general security agreement dated May 11, 2015 with Assurance

Funding Solutions LLC.

The Company evaluated this transaction under ASC

470-20-30 Debt liability and equity component determine that a Debt

Discount of $79,000 was provided and will be amortized over the 1-year term of

As of March 31, 2016, $13.167 was unamortized and amortization of debt

discount for the year was $65,833.

On August 19, 2015, the Company entered into a securities

purchase agreement pursuant to which the Company issued a secured term note of

our company in the aggregate principal amount of $240,000, together with 20,000

shares of our common stock, in consideration for $200,000.

The secured term note

requires monthly payments of $20,000 per month, along with a final payment on

August 20, 2016.

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.

under the master lease agreement will be structured for a three-year lease term

with fixed monthly lease rental payments based on a monthly lease rate factor of

3.4667% of the Lessors capital cost.

In connection with the entering into the

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

Lessor, pursuant to which the Company agreed to cancel the previous issued

warrant for 72,000 and issue a warrant to purchase 102,000 shares of our common

stock to the Lessor and/or its affiliates at an exercise price of $5.00 per

share for a period of five years.

18,000 shares vested on October 22, 2014,

13,316 shares on October 28, 2014, 13,606 shares on December 22, 2014, 6,945

shares on February 3, 2015 and 15,799 shares on March 5, 2015.

The remaining

18,105 shares will vest on a pro rata basis according to any amounts the Lessor

funds pursuant to any lease schedules under the master lease agreement, provided

that if we draw on 90% or more of the total lease line under the master lease

agreement, then all such shares will be deemed to be vested.

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 four pieces of specialized equipment used to make our alkaline water

with a value of $735,781 under the above Master Lease agreement.

evaluated this lease under ASC 840-30 Leases- Capital Leases and concluded

that these lease where a capital asset.

NOTE 12 LOANS PAYABLE

On December 31, 2017, the Company exercised its purchase option

with Lessor to purchase all four pieces of equipment leased under the above

referenced master lease agreement for a total of $160,000 (the Purchase

The Purchase Payment bears interest of 12% per annum and is payable

in eleven equal monthly installments of $14,934.00 each and one final

installment of $4,040.41, with the first installment due on February 1, 2018 and

on the remaining eleven installments due on the first of each month thereafter

with the final installment due and payable on January 1, 2019.

NOTE 13 CONVERTIBLE NOTES PAYABLE

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

11 unchanged sentences

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

NOTE 15 CONVERTIBLE NOTES PAYABLE

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.

On September 29, 2017, Turnstone Capital Inc.

converted the

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

During the year ended March, 31 2017, the Company entered into

4 unchanged sentences

amount of $210,000 was converted into equity on March 31, 2017.

On March 31, 2016, the Company entered into a promissory note

and warrant exchange agreement (the March Exchange Agreement) with six

On March 31, 2016, the Company entered into a promissory and

warrant exchange agreement (the March Exchange Agreement) with six

holders of our promissory notes (each, a Note) in the aggregate principal

8 unchanged sentences

NOTE 14 SUBSEQUENT EVENTS

Effective April 28, 2017, we granted a total of 1,790,000 stock

options to our directors, officers, consultants employees.

The stock options are

exercisable at the exercise price of $1.29 per share for a period of ten years

from the date of grant.

360,000 of the stock options vest as follows:

120,000 upon the date of grant;

and (ii) 120,000 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.

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.

Effective April 28, 2017, we issued 585,000 shares of common

stock to five persons, one of whom is a director and officer of our company.

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