ALKALINE WATER Co INC 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is quoted on the OTC Markets Group’s OTCQB under the trading symbol “WTER”. Our common stock has also been listed on the TSX Venture Exchange in Canada under the same trading symbol “WTER” since April 25, 2018. Trading in stocks quoted on the OTCQB or listed on the TSX Venture Exchange is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated or have little to do with a company’s operations or business prospects. Set forth below are the range of high and low bid quotations for the periods indicated as reported by the OTCQB. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. Quarter Ended High Bid Low Bid March 31, 2018 $1.02 $0.91 December 31, 2017 $1.41 $1.02 September 30, 2017 $1.55 $1.24 June 30, 2017 $1.67 $1.08 March 31, 2017 $1.08 $1.08 December 31, 2016 $1.35 $0.95 September 30, 2016 $1.80 $1.23 June 30, 2016 $2.00 $1.38 On June 28, 2018, the closing price of our common stock as reported by the OTCQB was $2.106 per share and the closing price of our common stock as reported by the TSX Venture Exchange was CDN$2.92. Transfer Agents Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Island Stock Transfer, located at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760. The co-transfer agent for our common stock is TSX Trust Company, located at 650 West Georgia Street, Suite 2700, Vancouver, British Columbia V6B 4N9, Canada Holders of Common Stock As of June 28, 2018, there were approximately 63 holders of record of our common stock. As of such date 30,989,727 shares were issued and outstanding. Dividends The payment of dividends, if any, in the future, rests within the sole discretion of our board of directors. The payment of dividends will depend upon our earnings, our capital requirements and our financial condition, as well as other relevant factors. We have not declared any cash dividends since our inception and have no present intention of paying any cash dividends on our common stock in the foreseeable future. Page 17 There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend: 1. We would not be able to pay our debts as they become due in the usual course of business; or 2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution. Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes certain information regarding our equity compensation plans as of March 31, 2018 . Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders (2013 Equity Incentive Plan) (1)(2) 2,434,000 $1.086 Nil Equity compensation plans not approved by security holders (2018 Stock Option Plan) (3) Nil N/A 2,737,612 Total 2,434,000 $1.086 2,737,612 (1) Effective October 7, 2013, our board of directors adopted and approved our 2013 equity incentive plan. The plan was approved by a majority of our stockholders on October 7, 2013. On October 31, 2014, our board of directors amended our 2013 equity incentive plan to, among other things, increase the number of shares of stock of our company available for the grant of awards under the plan from 20,000,000 shares to 35,000,000 shares. The purpose of the plan is to (a) enable our company and any of our affiliates to attract and retain the types of employees, consultants and directors who will contribute to our company’s long range success; (b) provide incentives that align the interests of employees, consultants and directors with those of the stockholders of our company; and (c) promote the success of our company’s business. Effective as of December 30, 2015, we effected a 50-for-1 reverse stock split of our authorized and issued and outstanding shares of common stock which decreased the number of shares of stock of our company available for the grant of awards under the plan from 35,000,000 shares to 700,000 shares. Effective as of January 20, 2016, our board of directors amended the plan to increase the number of shares of stock of our company available for the grant of awards under the plan from 700,000 to 7,700,000. The plan enabled us to grant awards of a maximum of 7,700,000 shares of our stock and awards that may be granted under the plan included incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards and performance compensation awards. (2) Our 2013 equity incentive plan has been suspended in connection with our application to list our common stock on the TSX Venture Exchange, but the suspension does not affect any awards, including any stock options, already granted under the plan. Page 18 (3) On April 25, 2018, our board of directors adopted the 2018 Stock Option Plan, pursuant to which we may grant stock options to acquire up to a total of 5,171,612 shares of our common stock, including any other shares of our common stock which may be issued pursuant to any other stock options granted by our company outside the plan. We adopted the plan in connection with our application to list our common stock on the TSX Venture Exchange. The purpose of the plan is to retain the services of valued key employees and consultants of our company and such other persons as our board of directors selects, and to encourage such persons to acquire a greater proprietary interest in our company, thereby strengthening their incentive to achieve the objectives of our stockholders, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by our board of directors. Recent Sales of Unregistered Securities Since the beginning of our fiscal year ended March 31, 2018, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K. Overview We offer retail consumers bottled alkaline water in 1-gallon, 3-liter, 1.5 -liter, 1-liter, 700-milliliter and 500-milliliter sizes under the trade name Alkaline88 ® . Our product is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce our 8.8 pH drinking water without the use of any chemicals. Our product also incorporates 84 trace minerals from Himalayan salts. Going Concern Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. As of March 31, 2018, we had an accumulated deficit of $30,077,314. Our ability to continue as a going concern is dependent on our company obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations. In its report on our financial statements for the year ended March 31, 2018, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Page 19 We will need to raise additional funds to finance continuing operations. However, there are no assurances that we will be successful in raising additional funds. Without sufficient additional financing, it would be unlikely for us to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in this annual report and eventually secure other sources of financing and attain profitable operations. Results of Operations Years Ended March 31, 2018 and March 31, 2017 The following summary of our results of operations should be read in conjunction with our audited consolidated financial statements for the years ended March 31, 2018 and March 31, 2017 which are included herein: Year Ended Year Ended March 31, 2018 March 31, 2017 Revenue $ 19,812,199 $ 12,763,630 Cost of goods sold 11,687,017 7,350,394 Gross profit 8,125,182 5,413,236 Net Loss (after operating expenses and other expenses) (6,687,280 ) (3,454,600 ) Revenue and Cost of Goods Sold We had revenue from sales of our product for the year ended March 31, 2018 of $19,812,199 as compared to $12,763,630 for the year ended March 31, 2017, an increase of 55%, 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 March 31, 2018, the product is now available in all 50 states at over 40,000 retail locations. As of March 31, 2017, the product was available in all 50 states at over 31,000 retail locations. This increase has occurred primarily through the addition of a number of top national and regional grocery retailers as customer during the year ended March 31, 2018. 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 retailers. Some examples of retail clients are: Walmart, Food Lion, Albertson’s, Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas’, Stater Bros. Markets, Unified Grocers, Bristol Farms, Vallarta, Superior Foods, Ingles, HEB and Brookshire’s. Cost of goods sold is comprised of production costs, shipping and handling costs. For the year ended March 31, 2018, we had cost of goods sold of $11,687,017, or 59% of net sales, as compared to cost of goods sold of $7,350,394, or 57.6% of net sales, for the year ended March 31, 2017. The increase in cost of goods sold as a percentage of net sales compared to the same period last year was due to increased raw material cost and associated freight as a result of our east coast expansion. Expenses Our operating expenses for the years ended March 31, 2018 and March 31, 2017 are as follows: Year Ended Year Ended March 31, 2018 March 31, 2017 Sales and marketing expenses $ 7,211,399 $ 4,428,572 General and administrative expenses 6,425,069 3,164,101 Depreciation expenses 418,777 359,556 Total operating expenses $ 14,055,245 $ 7,952,229 Page 20 During the year ended March 31, 2018, our total operating expenses were $14,055,245, as compared to $7,952,229 for the year ended March 31, 2017. For the year ended March 31, 2018, the total included $7,211,399 of sales and marketing expenses and $6,425,069 of general and administrative expenses, consisting primarily of $1,255,183 of professional fees and $3,385,340 in stock compensation expense. Our stock compensation expense was incurred as a part of our issuance of certain stock options and stock grants to employees, board members, and key consultants to develop our business. For the year ended March 31, 2017, the total included $4,428,572 of sales and marketing expenses and $3,164,101 of general and administrative expenses, consisting primarily of approximately $1,107,577 in stock compensation expense and $379,125 of professional fees. Our stock 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 year ended March 31, 2017. Liquidity and Capital Resources Working Capital At March 31, 2018 At March 31, 2017 Current assets $ 4,886,491 $ 3,150,321 Current liabilities 5,595,885 3,429,437 Working capital (deficiency) $ (709,394 ) $ (279,116 ) Current Assets Current assets as of March 31, 2018 and March 31, 2017 primarily relate to $988,905 and $603,805 in cash, $2,599,095 and $1,419,281 in accounts receivable and $1,002,020 and $819,988 in inventory, respectively. Current Liabilities Current liabilities as of March 31, 2018 and March 31, 2017 primarily relate to $2,052,988 and $1,343,824 in accounts payable, revolving financing of $2,592,015 and $1,436,083, accrued expenses of $819,011 and $455,916, and current portion of capital leases of $-0- and $190,207, respectively. Cash Flow Our cash flows for the years ended March 31, 2018 and March 31, 2017 are as follows: Year Year Ended Ended March 31, March 31, 2018 2017 Net Cash used in operating activities $ (2,625,849 ) $ (2,554,253 ) Net Cash used in investing activities (317,855 ) (253,170 ) Net Cash provided by financing activities 3,328,804 2,219,109 Net (decrease) increase in cash and cash equivalents $ 385,100 $ (588,314 ) Operating Activities Net cash used in operating activities was $2,625,849 for the year ended March 31, 2018, as compared to $2,554,253 used in operating activities for the year ended March 31, 2017. The increase in net cash used was primarily due to the change in cash used for accounts receivable of ($1,179,814) for the year ended March 31, 2018 compared to ($507,891) for the year ended March 31, 2017. Page 21 Investing Activities Net cash used in investing activities was $317,855 for the year ended March 31, 2018, as compared to $253,170 used in investing activities for the year ended March 31, 2017. The increase net cash used by investing activities was from increased purchases of production equipment. Financing Activities Net cash provided by financing activities for the year ended March 31, 2018 was $3,328,804, as compared to $2,219,109 for the year ended March 31, 2017. The increase of net cash provided by financing activities was mainly attributable to an exercise of warrants of $1,950,000 in the year ended March 31, 2018 compared to $300,000 in the year ended March 31, 2017. Subsequent Financing Activities On May 25 and 30, 2018, we completed private placements of an aggregate of 5,131,665 units of our securities at a price of $0.75 per unit for aggregate gross proceeds of $3,848,748.75. Each unit consisted of one share of our common stock and one-half of one share purchase warrant, with each whole share purchase warrant entitling the holder to acquire one additional share of our common stock at a price of $0.90 per share for a period of two years. Cash Requirements We believe that cash flow from operations will not meet our present and near-term cash needs and thus we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We estimate that our capital needs over the next 12 months will be up to approximately $3,000,000. We will require additional cash resources to, among other things, expand broker network, increase manufacturing capacity, expand retail distribution and add support staff. If our own financial resources and future cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Page 22