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Item 1. Financial Statements

2018-08-14 compared with 2018-02-20 · 491 added, 626 removed, 395 unchanged (74% of the section changed)

1 unchanged sentence

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED BALANCE SHEET

December 31, 2017

CONSOLIDATED BALANCE

June 30, 2018

March 31, 2018

Current assets

cash equivalents

Accounts receivable

Cash and cash equivalents

Prepaid expenses

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Accounts payable

Advance by related party

Current portion of

capital leases

Derivative liability

Total current liabilities

Long-term Liabilities

Capitalized leases

Total long-term

Accrued expenses

Loan, short-term

Total liabilities

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$0.001 par value, 100,000,000 shares authorized, Series C issued 1,500,000

1,500,000, Series

D issued 3,800,000 at

December 31, 2017 and Series A issued 20,000,000, Series C issued

3,000,000 at March 31, 2017

Series D issued

3,800,000 at June 30, 2018 and March 31, 2018

Common stock,

Class A - $0.001 par value, 200,000,000 shares authorized 31,123,011 and

17,532,451 shares issued and outstanding at

December 31, 2017 and March 31, 2017 respectively

25,991,346 shares issued

outstanding at June

30, 2018 and March 31, 2018, respectively

Additional paid in

Accumulated deficit

Total stockholders' equity

stockholders' equity

Total liabilities and stockholders' equity

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CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months

For the Nine Months

December 31, 2017

December 31, 2016

December 31, 2017

December 31, 2016

Three Months Ended

June 30, 2018

June 30, 2017

Cost of Goods Sold

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Sales and marketing

General and administrative

and administrative

Total operating expenses

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Other income (expense)

Interest income

Interest expense

Amortization of debt discount

and accretion

Change in derivative liability

Amortization of debt

discount and accretion

Total other income

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months

December 31, 2017

December 31, 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating

Three Months Ended

June 30, 2018

June 30, 2017

CASH FLOWS FROM OPERATING

Adjustments to reconcile net loss to net cash

used in operating

Depreciation expense

Stock compensation expense

Amortization of debt

discount and accretion

Interest expense converted to equity

Interest expense relating

to amortization of capital lease discount

Change in derivative liabilities

Changes in operating

assets and liabilities:

Stock compensation

Amortization of debt discount and accretion

Interest expense

relating to amortization of capital lease discount

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other

current assets

Prepaid expenses and other current assets

Accounts payable

Accrued expenses

NET CASH USED IN OPERATING

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets

Equipment Deposits -

related party

CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from notes

Proceeds from convertible note payable

Proceeds from revolving

Proceeds from sale of common stock, net

Proceeds from the exercise

of warrants, net

Proceeds from advance by related party

CASH USED IN OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING

Purchase of fixed

USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING

Proceeds from

convertible note payable

Proceeds from revolving financing

Proceeds from sale

of common stock, net

Repayment of notes payable

Repayment of capital lease

CASH PROVIDED BY FINANCING ACTIVITIES

capital lease

PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH

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

Our authorized preferred stock was not affected by the reverse stock split and continues to be 100,000,000 shares of preferred stock, with a 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 designation for our Series A Preferred Stock by filing an amendment to certificate of designation with the Secretary of State of the State of Nevada.

The Company amended the certificate of

designation for our Series A Preferred Stock by deleting Section 2.2 of the certificate of designation, which proportionately increases or decreases the number of votes per share of Series A 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,

Our authorized preferred stock was not affected by the reverse

stock split and continued to be 100,000,000 shares of preferred stock, with a

par value of $0.001 per share.

In addition, the number of issued and outstanding

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

However, holders

of Series A Preferred Stock had 0.2 votes 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

designation for our Series A Preferred Stock by filing an amendment to

certificate of designation with the Secretary of State of the State of Nevada.

The Company amended the certificate of designation for our Series A Preferred

Stock by deleting Section 2.2 of the certificate of designation, which

proportionately increases or decreases the number of votes per share of Series A

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.

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

On March 30, 2016, the Company designated 3,000,000 shares of the authorized and unissued preferred stock of our company as “Series C Preferred Stock”

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

Each share of the Series C 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) the Company achieves consolidated revenue equal to or greater than $15,000,000 in any 12 month period, ending on the last day of any quarterly period of our fiscal year;

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

which the Series C Preferred Stock will be convertible as may be agreed by our company and the holder in writing from time to time.

On May 3, 2017, we designated 3,000,000 shares of the authorized and unissued preferred stock of our company as “Series D Preferred Stock”

by filing a Certificate of Designation with the Secretary of State of the State of Nevada.

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.

share of the Series D Preferred Stock will be convertible, without the payment of any additional consideration by the holder and at the option of the holder, into one fully paid and non-assessable share of our common stock at any time after (i) we

achieve the consolidated revenue of our company and all of its subsidiaries equal to or greater than $40,000,000 in any 12 month period, ending on the last day of any quarterly period of our fiscal year;

or (ii) a Negotiated Trigger Event,

defined as an event upon which the Series D Preferred Stock will be convertible as may be agreed by our company and the holder in writing from time to time.

On November 14, 2017, the Company withdrew the Certificate of Designation for our 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

the authorized and unissued preferred stock of our company as Series C

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

State of the State of Nevada.

Each share of the Series C 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) the Company achieves consolidated revenue

equal to or greater than $15,000,000 in any 12 month period, ending on the last

day of any quarterly period of our fiscal year;

or (ii) a Negotiated Trigger

Event, defined as an event upon which the Series C Preferred Stock will be

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

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ significantly from those estimates.

The preparation of financial statements in conformity with

accounting principles generally accepted in the United States of America

requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period.

Actual results could differ

significantly from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less to be considered cash equivalents.

The carrying value of these investments approximates fair value.

The Company had $425,409 and $603,805

in cash and cash equivalents at December 31, 2017 and March 31, 2017, respectively.

The Company considers all highly liquid instruments with an

original maturity of three months or less to be considered cash equivalents.

carrying value of these investments approximates fair value.

The Company had

$2,756,271 and $988,905 in cash and cash equivalents at June 30, 2018 and March

31, 2018, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

The Company generally does not require collateral, and the majority of its trade receivables are unsecured.

The carrying amount for accounts receivable approximates fair value.

The Company generally does not require collateral, and the

majority of its trade receivables are unsecured.

The carrying amount for

accounts receivable approximates fair value.

Accounts receivable consisted of the following as of June 30,

2018 and March 31, 2018:

Trade receivables

Allowance for doubtful accounts

Net accounts receivable

Accounts receivable are periodically evaluated for

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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 and other items

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

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defined as the lower of replacement cost or realizable value.

As of December 31, 2017 and March, 31 2017, inventory consisted

of the following:

December 31, 2017

March 31, 2017

As of June 30, 2018 and March 31, 2018, inventory consisted of

the following:

Raw materials

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

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

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

accordance with ASC 505-50.

Equity instruments issued to other than employees

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

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

expense over the service period.

The Company estimates the fair value of

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

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

for common share issuances.

The Company accounts for stock-based compensation to other than

employees in accordance with ASC 505-50.

Equity instruments issued to other than

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

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

recognized as expense over the service period.

The Company estimates the fair

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

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

stock for common share issuances.

Revenue Recognition

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An embedded derivative is a derivative instrument that is embedded within

another contract, which under the convertible note (the host contract)

includes the right to convert the note by the holder, certain default redemption

right premiums and a change of control premium (payable in cash if a fundamental

change occurs).

In accordance with ASC 815 Accounting for Derivative

Instruments and Hedging Activities , as amended, these embedded derivatives

are marked-to-market each reporting period, with a corresponding non-cash gain

or loss charged to the current period.

A warrant derivative liability is also

determined in accordance with ASC 815.

Based on ASC 815, warrants which are

determined to be classified as derivative liabilities are marked-to-market each

reporting period, with a corresponding non-cash gain or loss charged to the

another contract, which under the convertible note (the host contract) includes

the right to convert the note by the holder, certain default redemption right premiums and a change of

control premium (payable in cash if a fundamental change occurs).

In accordance

with ASC 815 Accounting for Derivative Instruments and Hedging

Activities , as amended, these embedded derivatives are marked-to-market

each reporting period, with a corresponding non-cash gain or loss charged to the

current period.

The practical effect of this has been that when our stock price

increases so does our derivative liability resulting in a non-cash loss charge

that reduces our earnings and earnings per share.

When our stock price declines,

the Company records a non-cash gain, increasing our earnings and earnings per

As such, fair value is a market-based measurement that should be

determined based on assumptions that market participants would use in pricing an

asset or liability.

A warrant derivative liability is also determined in accordance

with ASC 815.

Based on ASC 815, warrants which are determined to be classified

as derivative liabilities are marked-to-market each reporting period, with a

corresponding non-cash gain or loss charged to the current period.

The practical

effect of this has been that when our stock price increases so does our

derivative liability resulting in a non-cash loss charge that reduces our

earnings and earnings per share.

When our stock price declines, the Company

records a non-cash gain, increasing our earnings and earnings per share.

such, fair value is a market-based measurement that should be determined based

on assumptions that market participants would use in pricing an asset or

As a basis for considering such assumptions, there exists a

1 unchanged sentence

fair value as follows:

unadjusted quoted prices in active markets for identical

assets or liabilities that the Company has the ability to access as of the

measurement date.

inputs other than quoted prices included within Level 1

that are directly observable for the asset or liability or indirectly

observable through corroboration with observable market data.

unobservable inputs for the asset or liability only used

when there is little, if any, market activity for the asset or liability

at the measurement date.

unadjusted quoted prices in active markets for

identical assets or liabilities that the Company has the ability to access

as of the measurement date.

inputs other than quoted prices included within

Level 1 that are directly observable for the asset or liability or

indirectly observable through corroboration with observable market data.

unobservable inputs for the asset or liability

only used when there is little, if any, market activity for the asset or

liability at the measurement date.

This hierarchy requires the Company to use observable market

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

Reclassification

Certain accounts in the prior period were reclassified to

conform to the current period financial statements presentation.

Newly Issued Accounting Pronouncements

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disposal, and transportation.

Subsequent measurement is unchanged for inventory

measured using LIFO or the retail inventory method.

The amendments in ASU

2015-11 more closely align the measurement of inventory in GAAP with the

measurement of inventory in International Financial Reporting Standards (IFRS).

The Board has amended some of the other guidance in Topic 330 to more clearly

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

Subsequent measurement is

unchanged for inventory measured using LIFO or the retail inventory method.

amendments in ASU 2015-11 more closely align the measurement of inventory in

GAAP with the measurement of inventory in International Financial Reporting

Standards (IFRS).

The Board has amended some of the other guidance in Topic 330

to more clearly 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.

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changes are effective.

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

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

718, Compensation Stock Compensation .

The ASU includes provisions intended to

simplify various provisions related to how share-based payments are accounted

for and presented in the financial statements.

Compensation cost is ultimately

only recognized for awards with performance and/or service conditions that vest

(or for awards with market conditions for which the requisite service period is

Under the new guidance, entities are permitted to make an accounting

policy election related to how forfeitures will impact the recognition of

compensation cost.

Currently entities are required to develop an assumption

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

amount of compensation cost recorded over the requisite service period.

forfeiture estimates are updated throughout the service period so that

compensation cost is ultimately only recognized for awards that vest.

Under the new guidance, entities are permitted to make an

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

or to account for forfeitures as they occur.

The Company elects to account for

forfeitures as they occur.

ASU 2O16-O9 is effective for public business entities

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

periods within that reporting period.

The Company has evaluated other recent accounting

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

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

material effect on our financial statements.

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

19, 2012) through the period ended December 31, 2017 of ($28,927,208).

In addition, the Companys

development activities since inception have been financially sustained through

debt and equity financing.

19, 2012) through the period ended June 30, 2018 of ($31,167,898).

the Companys development activities since inception have been financially

sustained through debt and equity financing.

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

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NOTE 3 PROPERTY AND EQUIPMENT

Fixed assets consisted of the following at:

December 31, 2017

Fixed assets consisted of the

following at:

June 30, 2018

March 31, 2018

Machinery and Equipment

Machinery under Capital Lease

Machinery - Construction in Progress

Office Equipment

Leasehold Improvements

Accumulated Depreciation

Fixed Assets, net

Depreciation expense for the nine months ended December 31,

2017 and December 31 2016 was $286,482 and $270,860, respectively.

Depreciation expense for the three months ended June 30, 2018

and 2017 was $114,073 and $96,279, respectively.

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.

NOTE 4 REVOLVING FINANCING

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an unused line fee in amount equal to 0.083% per month of the difference derived

by subtracting (i) the average daily outstanding balance under

the Revolving Facility during the preceding month, from (ii) the Revolving Loan

Commitment Amount.

by subtracting (i) the average daily outstanding balance under the Revolving

Facility during the preceding month, from (ii) the Revolving Loan Commitment

The unused line fee will be payable monthly in arrears.

Company also agreed to pay the Lender as additional interest a monthly

collateral management fee equal to 0.35% per month calculated on the basis of

the average daily balance under the Revolving Facility outstanding during the

preceding month.

The collateral management fee will be payable monthly in

Upon a termination of the Revolving Facility, the Company agreed to pay

the Lender a termination fee in an amount equal to 2% of the Revolving Loan

Commitment Amount if the termination occurs before February 1, 2020.

must also pay certain fees in the event that receivables are not properly

deposited in the appropriate lockbox account.

The Company also

agreed to pay the Lender as additional interest a monthly collateral management

fee equal to 0.35% per month calculated on the basis of the average daily

balance under the Revolving Facility outstanding during the preceding month.

collateral management fee will be payable monthly in arrears.

Upon a termination

of the Revolving Facility, the Company agreed to pay the Lender a termination

fee in an amount equal to 2% of the Revolving Loan Commitment Amount if the

termination occurs before February 1, 2020.

The Company must also pay certain

fees in the event that receivables are not properly deposited in the appropriate

lockbox account.

The interest rate will be increased by 5% in the event of a

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ratio and minimum liquidity requirements.

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.

As of June 30, 2018, the TOA was repaid in

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 Lender.

As of June 30, 2018, the TOA was repaid in full.

NOTE 5 DERIVATIVE LIABILITY

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

December 31, 2017 was $3,407.

June 30, 2018 was $288.

NOTE 6 STOCKHOLDERS EQUITY

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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

On October 8, 2013, the Company issued a total of 20,000,000 shares of non-convertible Series A Preferred Stock to Steven P.

Nickolas and Richard 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 per share.

The Company valued these shares based on the cost considering the time and average billing rate of these individuals and recorded a $20,000 stock compensation cost for the year ended

March 31, 2014.

Our authorized preferred stock was not affected by the reverse stock split and continues to be 100,000,000 shares of preferred stock, with a 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.

The Company amended the certificate of

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.

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

On March 30, 2016, the Company designated 3,000,000 shares of the authorized and unissued preferred stock of our company as “Series C Preferred Stock”

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

after (i) the Company achieves consolidated revenue equal to or greater than $15,000,000 in any 12 month period, ending on the last day of any quarterly period of our fiscal year;

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

which the Series C Preferred Stock will be convertible as may be agreed by our company and the holder in writing from time to time.

Effective March 31, 2016, the Company issued a total of 3,000,000 shares of our Series C Preferred Stock to Steven P.

Nickolas and Richard A.

Wright (1,500,000 shares to each), pursuant to their employment agreements dated effective March 1, 2016.

On August 17, 2017, Steven P.

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

Grant of Series D Convertible Preferred Stock

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

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

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;

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

the authorized and unissued preferred stock of our company as Series C

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

State of the State of Nevada.

Each share of the Series C 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) the Company achieves consolidated revenue

equal to or greater than $15,000,000 in any 12 month period, ending on the last

day of any quarterly period of our fiscal year;

or (ii) a Negotiated Trigger

Event, defined as an event upon which the Series D Preferred Stock will be convertible as may be agreed by our company and the holder in writing from time to time.

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:

(a) 300,000 shares to Steve Nickolas pursuant to the Settlement Agreement detailed below;

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.

The Company was authorized to issue 1,125,000,000 shares of $0.001 par value common stock.

On May 31, 2013, the Company effected a 15-for-1 forward stock split of our $0.001 par value common stock.

All shares and per share amounts have been

retroactively restated to reflect such split.

Prior to the acquisition of Alkaline Water Corp., the Company had 109,500,000 shares of common stock issued and outstanding.

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

interest in Alkaline Water Corp.

Event, defined as an event upon which the Series C Preferred Stock will be

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

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

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

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

effective March 1, 2016.

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

In November, 2017, the company issued an additional 800,000 shares of

our Series D Preferred Stock as follows:

(a) 300,000 shares to Steve Nickolas

pursuant to the Settlement Agreement detailed below;

and (b) 500,000 shares to

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.

On May 31, 2013, the Company

effected a 15-for-1 forward stock split of our $0.001 par value common stock.

All shares and per share amounts have been retroactively restated to reflect

Prior to the acquisition of Alkaline Water Corp., the Company had

109,500,000 shares of 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.

by The Alkaline Water Company Inc.

has been recorded as a reverse acquisition of a company and recapitalization of Alkaline Water Corp.

factors demonstrating that 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.

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.

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 reverse stock split of its authorized and issued and outstanding shares of common stock.

As a result, the authorized common stock has decreased from 1,125,000,000 shares of common stock,

with a par value of $0.001 per share, to 22,500,000 shares of common stock, with a par value of $0.001 per share.

All shares and per share amounts have been retroactively restated to reflect such split.

On January 21, 2016, stockholders of our company approved, by written consents, an amendment to the articles of incorporation of our company to increase the number of authorized shares of our common stock from 22,500,000 to 200,000,000.

The Company received written consents representing 20,776,000 votes from the holders of shares of its common stock and our Series A Preferred Stock voting as a single class, representing approximately 61% of the voting power of its outstanding

common stock and its outstanding Series A Preferred Stock voting as a single class as of the record date (January 12, 2016).

On January 21, 2016, there were no written consents received by the Company representing a vote against, abstention or

broker non-vote with respect to the proposal.

Common Stock Issued for Services

Effective April 28, 2017, we issued 610,000 shares of common stock to six persons, one of whom is a director and officer of our company.

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

In consideration for services rendered and to be rendered to our company pursuant to a services agreement dated July 26, 2016, we issued consultant 262,596 shares of our common stock on August 23, 2017.

Common Stock Issued to Insiders

On or about October 31, 2017, the Company issued Steve Nickolas 700,000 shares of common stock pursuant to the Settlement Agreement (see Note 8 –

Related Party Transactions)..

On or about November 8, 2017, the Company issued Richard Wright 700,000 shares of common stock pursuant to the Exchange Agreement (see Note 8 –

Related Party Transactions).

NOTE 7 –

STOCK OPTIONS

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 six and one-half years from the

date of grant.

360,000 of the stock options vest as follows:

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

and (ii) 120,000 on each anniversary date of grant.

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

(i) 357,500 upon the date of grant;

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.

In June 2017, two option holders elected to exercise their stock options.

A total of 181,000 stock options were surrendered in exchange for 121,288 common stock shares.

On October 25, 2017, Richard Wright forfeited stock options to purchase a total of 148,000 shares of the Company’s common stock at prices ranging from $5.75 and $7.50.

On October 31, 2017, Steven 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 (See Note 8 –

Related Party Transactions).

On November 8, 2017, Richard Wright forfeited stock options to purchase 1,500,000 shares of the Company’s common stock at $0.52 per share.

NOTE 8 –

RELATED PARTY TRANSACTIONS

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

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

finding that there was “just cause”

for termination of Mr.

Nickolas’s

employment and of our company’s intent to terminate the employment of Mr.

Nickolas for “just cause”

pursuant to the provision of the Employment Agreement with Mr.

Nickolas dated March 1, 2016.

Under the Employment Agreement, Mr.

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

for termination.

Nickolas failed to cure such failure and breaches and, on April 7, 2017, our company terminated the employment of Mr.

Nickolas for cause.

In addition, our company removed Mr.

Nickolas as the president and chief executive officer of our company.

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

On April 28, 2017, our board of directors appointed David Guarino as chief financial officer, treasurer, secretary president of our company.

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

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.

Wright forfeited stock options to purchase 148,000 shares of the Company’s common stock.

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 following:

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;

c) upon the full execution of the Settlement Agreement, Mr.

Nickolas and our company agreed to file the stipulations to dismiss the complaints and counterclaim filed by each of them with prejudice, with

each side to bear its own costs and attorney’s fees.

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

fees and costs;

acknowledged and agreed that the employment agreement between Mr.

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

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

set out in the employment agreement;

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

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

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

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

Nickolas ceased being a director of our company;

the parties also agreed to mutual release of claims.

On November 8, 2017, Richard A.

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

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

a) in exchange

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

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

consideration;

and b) Richard A.

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

Also on November 8, 2017, Richard A.

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

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

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

On 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.

NOTE 9 –

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

The lease is expected to be

secured by three new alkaline generating electrolysis system machines.

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

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

owned by our former president and 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 Lessor’s 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.

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 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 and 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 Lessor’s

capital cost.

In connection with the entering into the master lease agreement, the Company entered into a warrant agreement with the Lessor, pursuant to which the Company agreed to cancel the previously issued warrant certificate for 72,000 warrants

and issue a warrant certificate for warrants to purchase 102,000 shares of our common stock to the Lessor and/or its affiliates at an exercise price of $5.00 per share for a period of five years.

18,000 shares vested on October 22, 2014, 13,316

shares on October 28, 2014, 13,606 shares on December 22, 2014, 6,945 shares on February 3, 2015 and 15,799 shares on March 5, 2015.

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

pursuant to any lease schedules under the master lease agreement, provided that if the Company draws on 90% or more of the total lease line under the master lease agreement, then all such shares will be deemed to be 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 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 the lease is a capital asset.

As of December 31, 2017 the balance owed to Veterans Capital Fund, LLC under the lease is $48,703.

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 Payment”).

Purchase Payment bears interest of 12% per annum and is payable in twelve equal monthly installments of $14,934.00 each, 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 10 –

NOTES PAYABLE

On September 20, 2016, we entered into a loan facility agreement (the “Loan Agreement”) with Turnstone Capital Inc., whereby Turnstone Capital Inc.

agreed to make available to our company a loan in the aggregate principal amount of

$1,500,000 (the “Loan Amount”).

In June, 2017, the Loan Agreement was amended to increase the Loan amount to $1,700,000.

Pursuant to the Loan Agreement, Turnstone Capital Inc.

agreed to make one or more advances of the Loan

Amount to our company as requested from time to time by our company in an amount to be agreed upon by our company and the Lender (each, an “Advance”).

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

made advances totaling $1,000,000.

This amount together with accrued interest of $30,000 was converted to 1,030,000 shares of our common stock on March 31, 2017.

In June, 2017, Turnstone Capital Inc.

advanced an additional $500,000 under the Loan Agreement.

The Company evaluated this transaction under ASC 470-20-30 “Debt –

liability and equity component”

and determined that a

debt discount of $295,000 was provided and will be amortized over the remaining term of the Loan Agreement.

On September 29, 2017, Turnstone Capital Inc.

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

NOTE 11 –

SUBSEQUENT EVENTS

Managements Discussion and Analysis of Financial

Condition and Results of Operations.

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.

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

reverse stock split of its authorized and issued and outstanding shares of

common stock.

As a result, the authorized common stock has decreased from

1,125,000,000 shares of common stock, with a par value of $0.001 per share, to

22,500,000 shares of common stock, with a par value of $0.001 per share.

shares and per share amounts have been retroactively restated to reflect such

On January 21, 2016, stockholders of our company approved, by

written consents, an amendment to the articles of incorporation of our company

to increase the number of authorized shares of our common stock from 22,500,000

to 200,000,000.

The Company received written consents representing 20,776,000

votes from the holders of shares of its common stock and our Series A Preferred

Stock voting as a single class, representing approximately 61% of the voting

power of its outstanding common stock and its outstanding Series A Preferred

Stock voting as a single class as of the record date (January 12, 2016).

January 21, 2016, there were no written consents received by the Company

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

Private Placement

On May 30, 2018, we completed private placements of an

aggregate of 5,131,665 units of our securities at a price of US$0.75 per unit

for aggregate gross proceeds of US$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 US$0.90 per share for a period of two

Of the 5,131,665 units we issued:

(i) 906,666 units were issued

pursuant to the exemption from registration under the Securities Act of 1933, as

amended provided by Section 4(a)(2) and/or Rule 506 of Regulation D promulgated

under the Securities Act of 1933, as amended to four investors who were

accredited investors within the respective meanings ascribed to that term in

Regulation D promulgated under the Securities Act of 1933, as amended;

4,224,999 units were issued to 26 non-U.S.

persons (as that term is defined in

Regulation S of the Securities Act of 1933, as amended) in an offshore

transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act

of 1933, as amended.

In connection with these private placements, we agreed with

each subscriber who purchased these units to prepare and file a registration

statement with respect to (i) the shares of our common stock comprising these

units and (ii) the shares of our common stock issuable upon exercise of the

share purchase warrants comprising these units with the Securities and Exchange

Commission within 90 days following the closing of the private placements and

agreed to use commercially reasonable efforts to have the registration statement

declared effective by the Securities and Exchange Commission as soon as possible

after filing.

NOTE 7 OPTIONS AND WARRANTS

On May 30, 2018, we completed private placements of an

aggregate of 5,131,665 units of our securities at a price of US$0.75 per unit

for aggregate gross proceeds of US$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 US$0.90 per share for a period of two

NOTE 8 RELATED PARTY TRANSACTIONS

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.

Wright, our President and CEO, and Mr.

Guarino, our Chief Financial Officer, Secretary, and Treasurer, were each issued

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

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 Lender.

As of June 30, 2018, the TOA was repaid in full.

NOTE 9 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 10 SUBSEQUENT EVENTS

Managements Discussion and Analysis of

Financial Condition and Results of Operations

Forward-Looking Statements

1 unchanged sentence

statements other than statements of historical fact are forward-looking

statements for purposes of federal and state securities laws, including, but

not limited to, any projections of earnings, revenue or other financial items;

any statements of the plans, strategies and objections of management for future

statements for purposes of applicable securities laws, including, but not

limited to, any projections of earnings, revenue or other financial items;

statements of the plans, strategies and objections of management for future

any statements concerning proposed new services or developments;

11 unchanged sentences

Except as required by applicable

law, including the securities laws of the United States, we do not intend, and

undertake no obligation, to update any forward-looking statement.

law, including the securities laws of the United States and Canada, we do not

intend, and undertake no obligation, to update any forward-looking statement.

Although we believe the expectations reflected in any of our

6 unchanged sentences

are not limited to:

our current lack of working capital;

lack of working capital;

inability to raise additional financing;

the fact that our accounting policies and methods are fundamental to how

we report our financial condition and results of operations, and they may

require our management to make estimates about matters that are inherently

deterioration in general or regional economic conditions;

adverse state or federal legislation or regulation that increases the

costs of compliance, or adverse findings by a regulator with respect to

existing operations;

the fact that our accounting policies and methods are

fundamental to how we report our financial condition and results of

operations, and they may require our management to make estimates about

matters that are inherently uncertain;

deterioration in general or regional economic

adverse state or federal legislation or

regulation that increases the costs of compliance, or adverse findings by

a regulator with respect to existing operations;

inability to efficiently manage our operations;

inability to achieve future sales levels or other operating results;

the unavailability of funds for capital expenditures.

inability to achieve future sales levels or

other operating results;

the unavailability of funds for capital

expenditures.

As used in this quarterly report on Form 10-Q, the terms we,

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

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

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

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

unless otherwise specified.

Results of Operations

Our results of operations for the three months ended

December 31, 2017 and December 31, 2016 are as follows:

For the three

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

2018 and June 30, 2017 are as follows:

Cost of goods sold

Net Loss (after operating expenses and

other expenses)

Net Loss (after operating expenses and other

Revenue and Cost of Goods Sold

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

ended December 31, 2017 of $3,816,661 as compared to $2,973,689 for the three

months ended December 31, 2016, an increase of 28% generated by sales of our

ended June 30, 2018 of $7,880,865, as compared to $5,180,194 for the three

months ended June 30, 2017, an increase of 52% generated by sales of our

alkaline water.

1 unchanged sentence

products to additional retailers throughout the country.

As of December 31,

2017, the product is now available in all 50 states at an estimated 34,000

retail locations.

As of December 31, 2016, the product was available in all 50

states at an estimated 25,000 retail locations.

This increase has occurred

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

customers during the year ended March 31, 2017.

We distribute our product

through several channels.

We sell through large national distributors (UNFI,

KeHe, C&S, and Core-Mark), which together represent over 150,000 retail

We also sell our product directly to retail clients, including

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

national retailers.

As of June 30, 2018,

the product is now available in all 50 states at an estimated 40,000 retail

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

estimated 31,000 retail locations.

This increase has occurred primarily through

the addition of 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

Some examples of retail clients are:

Albertsons, Safeway,

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

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

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

Walmart, Food Lion, Albertsons,

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

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

Ingles, HEB and Brookshires.

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the three months ended December 31, 2017, we had cost of

For the three months ended June 30, 2018, we had cost of

goods sold of $4,491,213, or 57% of revenue, as compared to cost of goods sold

of $1,664,459 or 56% of revenue, for the three months ended December 31, 2016.

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

through greater volume purchases from our suppliers.

Our operating expenses for the three months ended December 31,

2017 and December 31, 2016 are as follows:

For the three

of $2,951,944 or 57% of revenue, for the three months ended June 30, 2017.

Our operating expenses for the three months ended June 30, 2018

and June 30, 2017 are as follows:

Sales and marketing expenses

2 unchanged sentences

Total operating expenses

For the three months ended December 31, 2017, our total

During the for the three months ended June 30, 2018, our total

operating expenses were $4,336,630, as compared to $3,856,688 for the three

months ended December 31, 2016.

For the three months ended December 31, 2017, the total

included $1,497,594 of sales and marketing expenses and $2,692,636 of general

and administrative expenses, consisting primarily of approximately $1,702,600

resulting stock compensation expense and $481,798 professional fees.

For the three months ended December 31, 2016 the total included

months ended June 30, 2017.

For the three months ended June 30, 2018, the total included

$3,136,990 of sales and marketing expenses and $1,085,567 of general and

administrative expenses, consisting primarily of approximately $195,899 of

professional fees.

Our results of operations for the nine months ended December

31, 2017 and December 31, 2016 are as follows:

Cost of goods sold

Net Loss (after operating expenses and other expenses)

Revenue and Cost of Goods Sold

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

ended December 31, 2017 of $13,838,383 as compared to $8,927,976 for the nine

months ended December 31, 2016, 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 December 31,

2017, the product is now available in all 50 states at an estimated 34,000

retail locations.

As of December 31, 2016, the product was available in all 50

states at an estimated 25,000 retail locations.

This increase has occurred

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

customers during the year ended March 31, 2017.

We distribute our product

through several channels.

We sell through large national distributors (UNFI,

KeHe, C&S, and Core-Mark), which together represent over 150,000 retail

We also sell our product directly to retail clients, including

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

national retailers.

Some examples of retail clients are:

Albertsons, Safeway,

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

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

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

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the nine months ended December 31, 2017, we had cost of

goods sold of $7,797,081, or 56% of revenue, as compared to cost of goods sold

of $5,351,284 or 60% of revenue, for the nine months ended December 31, 2016.

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

through greater volume purchases from our suppliers.

Our operating expenses for the nine months ended December 31,

2017 and December 31, 2016 are as follows:

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the nine months ended December 31, 2017, our total

operating expenses were $10,953,911, as compared to $5,864,021for the nine

months ended December 31, 2016.

For the nine months ended December 31, 2017, the total included

administrative expenses, consisting primarily of approximately $557,780 of professional fees and $333,139 of wages and wage related expenses.

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

$1,670,017 of sales and marketing expenses and $2,090,392 of general and

administrative expenses, consisting primarily of approximately $1,339,502 of

stock and stock option compensation expense, and $1,054,146 of professional

For the nine months ended December 31, 2016, the total included

$3,144,914 of sales and marketing expenses and $2,448,247 of general and

administrative expenses, consisting primarily of approximately $319,125 of stock

and stock option compensation expense, and $766,132 of professional fees.

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

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

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

develop our business.

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

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

months ended June 30, 2017.

Liquidity and Capital Resources

Working Capital

December 31, 2017

March 31, 2017

Current assets

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Current Assets

Current assets as of December 31, 2017 and March 31, 2017

primarily relate to $425,409and $603,805 in cash, $1,211,375 and $1,419,281 in

Current assets as of June 30, 2018 and March 31, 2018 primarily

relate to $2,756,271 and $988,905 in cash, $2,947,511 and $2,599,095 in net

accounts receivable and $1,257,897 and $1,002,020 in inventory, respectively.

Current Liabilities

Current liabilities as of December 31, 2017 and March 31, 2017

Current liabilities as of June 30, 2018 and March 31, 2018

primarily relate to $2,288,788 and $2,052,988 in accounts payable, revolving

financing of $1,495,049 and $1,436,083, advance from related party of $1,000,000

and $-, accrued expenses of $525,238 and $455,916 and current portion of capital

leases of $48,703 and $190,207 respectively.

Our cash flows for the nine months ended December 31, 2017 and

December 31, 2016 are as follows:

Net Cash used in operating activities

financing of $2,739,156 and $2,592,015, and accrued expenses of $753,744 and

$819,011, respectively.

Our cash flows for the three months ended June 30, 2018 and

June 30, 2017 are as follows:

Net Cash used in operating

Net Cash used in investing activities

Net Cash provided by financing activities

Net increase in cash and cash equivalents

Net Cash provided by

financing activities

Net (decrease) increase in cash and cash

Operating Activities

Net cash used in operating activities was $1,812,035 for the

nine months ended December 31, 2017, as compared to $2,061,719 used in operating

activities for the nine months ended December 31, 2016.

The decrease in net cash

used in operating activities was primarily due to reduction of accounts payable

in the quarter ended December 31, 2017 compared to an increase of accounts

payable in the quarter ended December 31, 2016.

three months ended June 30, 2018, as compared to $1,146,132 used in operating

activities for the three months ended June 30, 2017.

The increase in net cash

used in operating activities was primarily due to increase in inventory and

prepaid expenses in the quarter ended June 30, 2018, compared to the quarter

ended June 30, 2017.

Investing Activities

Net cash used in investing activities was $264,876 for the nine

months ended December 31, 2017, as compared to $273,450 used in investing

activities for the nine months ended December 31, 2016.

The decrease in net cash

used by investing activities was the result of a decrease of purchase of fixed

assets and equipment deposits.

Net cash used in investing activities was $375,275 for the

three months ended June 30, 2018, as compared to $77,583 used in investing

activities for the three months ended June 30, 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 nine months

ended December 31, 2017 was $1,349,367, as compared to $1,231,590 for the nine

months ended December 31, 2016.

Net cash provided by financing activities for the three months

ended June 30, 2018 was $3,954,676, as compared to $1,061,737 for the three

months ended June 30, 2017.

The increase of net cash provided by financing

activities was mainly attributable to repayment of notes payable.

activities is attributable to the $3,848,748 raised in the Private Placement

completed on May 30, 2018.

Cash Requirements

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

approximately $1,720,000.

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.

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

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stockholders.

Quantitative and Qualitative Disclosures About

Quantitative and Qualitative Disclosures

About Market Risk

Not applicable.

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

What changed 10-Q

Item 1. Financial Statements