What changed in this filing

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Item 1. Financial Statements

2018-11-13 compared with 2018-08-14 · 337 added, 249 removed, 637 unchanged (48% of the section changed)

Financial Statements

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED BALANCE

June 30, 2018

BALANCE SHEET

September 30, 2018

March 31, 2018

1 unchanged sentence

Cash and cash equivalents

Prepaid expenses

Total current assets

2 unchanged sentences

Current liabilities

Accounts payable

Accrued expenses

Loan, short-term

Total liabilities

Stockholders' equity

Preferred stock,

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

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

25,991,346 shares issued

outstanding at June

30, 2018 and March 31, 2018, respectively

Additional paid in

Accumulated deficit

Current portion of capital leases

current liabilities

Stockholders' equity

stock, $0.001 par value, 100,000,000 shares

C issued 1,500,000, Series D issued 3,800,000

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

and 25,991,346 shares issued and outstanding at September 30,

March 31, 2018 respectively

Additional paid in capital

Total stockholders' equity

Total liabilities and stockholders' equity

2 unchanged sentences

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended

June 30, 2018

June 30, 2017

STATEMENT OF OPERATIONS

For the Three Months

For the Six Months

September 30, 2018

September 30, 2017

September 30, 2018

September 30, 2017

Cost of Goods Sold

Operating expenses

Sales and marketing

and administrative

Sales and marketing expenses

administrative

Total operating expenses

1 unchanged sentence

Other income (expense)

Amortization of debt

discount and accretion

Total other income

Interest expense

Amortization of debt discount and

Total other income (expense)

EARNINGS PER SHARE (Basic)

3 unchanged sentences

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended

June 30, 2018

June 30, 2017

CASH FLOWS FROM OPERATING

Adjustments to reconcile net loss to net cash

used in operating

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months

September 30, 2018

September 30, 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net

cash used in operating

Depreciation expense

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

compensation expense

Warrant Expense

Amortization of debt

discount and accretion

expense converted to equity

Interest expense relating

to amortization of capital lease discount

operating assets and liabilities:

expenses and other current assets

Accounts payable

Accrued expenses

CASH USED IN OPERATING ACTIVITIES

USED IN OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING

Purchase of fixed

USED IN INVESTING ACTIVITIES

Purchase of fixed assets

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

capital lease

Proceeds from convertible

from revolving financing

Proceeds from sale of

common stock, net

notes payable

Repayment of capital lease

PROVIDED BY FINANCING ACTIVITIES

6 unchanged sentences

THE ALKALINE WATER COMPANY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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(a Nevada Corporation) and its wholly owned

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

subsidiaries:

A88 Infused Beverage Division, Inc.

(a Nevada Corporation), A88

International, Inc.

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

Limited Liability Company).

All significant intercompany balances and transactions have

1 unchanged sentence

The Alkaline Water Company Inc.

(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.

(a Nevada Corporation), A88

Infused Beverage Division, Inc (a Nevada Corporation), A88 International, Inc.

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

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 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

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The Company had

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

31, 2018, respectively.

$4,407,223 and $988,905 in cash and cash equivalents at September 30, 2018 and

March 31, 2018, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

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accounts receivable approximates fair value.

Accounts receivable consisted of the following as of June 30,

Accounts receivable consisted of the following as of September

30, 2018 and March 31, 2018:

September 30,

Trade receivables

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inherent risk in the account balance and current economic conditions.

Inventory represents raw materials and finished goods and other items

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

average method which approximates first-in first-out method, and with market

defined as the lower of replacement cost or realizable value.

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

the following:

Inventory represents raw materials and finished goods and other

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

weight average method which approximates first-in first-out method, and with

market defined as the lower of replacement cost or realizable value.

As of September 30, 2018, and March 31, 2018, inventory

consisted of the following:

September 30,

Raw materials

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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

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

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 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

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.

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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disposal, and transportation.

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

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

other substantive changes to the guidance on measurement of inventory.

15 unchanged sentences

The Company has evaluated other recent accounting

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

pronouncements through September 2018 and believes that none of them will have a

material effect on our financial statements.

8 unchanged sentences

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

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.

19, 2012) through the period ended September 30, 2018 of ($32,103,032).

addition, the Companys development activities since inception have been

financially sustained through debt and equity financing.

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

5 unchanged sentences

NOTE 3 PROPERTY AND EQUIPMENT

Fixed assets consisted of the

following at:

June 30, 2018

Fixed assets consisted of the following at:

September 30, 2018

March 31, 2018

4 unchanged sentences

Fixed Assets, net

Depreciation expense for the three months ended June 30, 2018

Depreciation expense for the six months ended September 30,

2018 and 2017 was $224,156 and $192,559, respectively.

75 unchanged sentences

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

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 full.

On February 14, 2018, David A.

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

June 30, 2018 was $288.

September 30, 2018 was $288.

NOTE 6 STOCKHOLDERS EQUITY

19 unchanged sentences

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

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

2 unchanged sentences

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.

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

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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

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,

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.

Private Placement

18 unchanged sentences

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.

On September 27, 2018, the Company issued 1,619,947 units at a

price of CDN$2.50 per unit for aggregate gross proceeds of CDN$4,049,867 in

connection with a private placement.

Each unit consists of one share of common

stock of the Company and one non-transferable share purchase warrant, with each

warrant entitling the holder thereof to purchase one additional share of common

stock of the Company at a price of CDN$2.90 per share for a period of two years.

The Company paid finders fees of CDN$165,630 and issued 66,210 finders

warrants in connection with the private placement resulting in an expense of 131,030.

Each finders warrant is

non-transferable and entitles the holder thereof to purchase one additional

share of common stock of the Company at a price of CDN$2.90 per share for a

period of two years.

In connection with the private placement, we agreed with each

subscriber who purchased 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 on

or before November 30, 2018 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

6 unchanged sentences

share of our common stock at a price of US$0.90 per share for a period of two

On September 27, 2018, the Company issued 1,619,947 units at a

price of CDN$2.50 per unit for aggregate gross proceeds of CDN$4,049,867 in

connection with a private placement.

Each unit consists of one share of common

stock of the Company and one share purchase warrant, with each warrant entitling

the holder thereof to purchase one additional share of common stock of the

Company at a price of CDN$2.90 per share for a period of two years.

paid finders fees of CDN$165,630 and issued 66,210 finders warrants in

connection with the private placement resulting in an expense of $131.030.

The Company calculated the value of the finder fees warrants using a Black-Scholes,

a level 3 valuation measure.

Each finders warrant is non-transferable and

entitles the holder thereof to purchase one additional share of common stock of

the Company at a price of CDN$2.90 per share for a period of two years.

Company recorded the value of $131.030 of the warrants issued as additional paid

in capital, the value was determine using a Black-Scholes, a level 3 valuation

The fair value of the finder fee warrants granted during the

year quarter ending September 30.

2018 was estimated at the date of agreement

using the Black- Scholes option-pricing model and a level 3 valuation measure,

with the following assumptions:

Market value of stock on purchase date

interest rate

Dividend yield

Volatility factor

Weighted average expected life (years)

NOTE 8 RELATED PARTY TRANSACTIONS

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NOTE 10 SUBSEQUENT EVENTS

Managements Discussion and Analysis of

Financial Condition and Results of Operations

Managements Discussion and Analysis of Financial Condition and Results

of Operations

Forward-Looking Statements

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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 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;

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 conditions;

adverse state or federal legislation or regulation that increases the costs

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

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 88, LLC,

unless otherwise specified.

Inc., a Nevada corporation, and its wholly-owned subsidiaries:

Beverage Division, Inc.

(a Nevada Corporation), A88 International, Inc.

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

Company), unless otherwise specified.

Results of Operations

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

2018 and June 30, 2017 are as follows:

Three Months Ended September 30, 2018 and September 30,

Our results of operations for the three months ended September

30, 2018 and September 30, 2017 are as follows:

September 30,

Cost of goods sold

Net Loss (after operating expenses and other

Net Loss (after operating expenses and other expenses)

Revenue and Cost of Goods Sold

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

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

ended September 30, 2018 of $8,639,520, as compared to $4,481,528 for the three

months ended September 30, 2017, an increase of 78% generated by sales of our

alkaline water.

1 unchanged sentence

products to additional retailers throughout the country.

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:

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 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 $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:

As of September 30,

2018, the product is now available in all 50 states at an estimated 47,500

retail locations.

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

states at an estimated 32,000 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 and six months ended

September 30, 2018.

We distribute our product through several channels.

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

Walmart, Food Lion, Albertsons, Safeway, Kroger, Schnucks, Smart

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

Markets, Unified

Grocers, Bristol Farms, Vallarta, Superior Foods, Ingles, HEB and Brookshires.

Cost of goods sold is comprised of production costs, shipping and handling

For the three months ended September 30, 2018, we had cost of goods sold

of $4,987,161, or 58% of revenue, as compared to cost of goods sold of

$2,753,879 or 57% of revenue, for the three months ended September 30, 2017.

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

greater volume purchases from our suppliers.

Our operating expenses for the three months ended September 30,

2018 and September 30, 2017 are as follows:

For the three

September 30,

Sales and marketing expenses

2 unchanged sentences

Total operating expenses

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

For the three months ended September 30, 2018, our total

operating expenses were $4,458,837 as compared to $2,792,208 for the three

months ended June 30, 2017.

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

months ended September 30, 2017.

For the three months ended September 30, 2018, the total

included $3,056,845 of sales and marketing expenses and $1,291,909 of general

and administrative expenses, consisting primarily of approximately $718,503 of

professional fees and $339,287 of wage and wage related expenses.

For the three months ended September 30, 2017 the total

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

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

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

Six Months Ended September 30, 2018 and September 30,

Our results of operations for the six months ended September

30, 2018 and September 30, 2017 are as follows:

For the six months

September 30,

Cost of goods sold

Net Loss (after operating expenses and other

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the six months ended September 30, 2018 of $16,520,385 as compared to $10,021,722 for the six months ended September 30, 2017, an increase of 65% generated by sales of our alkaline water.

The increase in sales is due to the expanded distribution of our products to additional retailers throughout the country.

As of September 30, 2018, the product is now available in all 50 states at an estimated 47,500 retail locations.

As of September 30, 2017, the product was available in all 50 states at an estimated 32,000 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 and six months ended September 30, 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 six months ended September 30, 2018, we had cost of goods sold of $9,478,374, or 57% of revenue, as compared to cost of goods sold of $5,705,823 or 57% of revenue, for the six months ended September 30, 2017.

The decrease in gross profit rate is a result of increased raw material cost from our suppliers.

Our operating expenses for the six months ended September 30,

2018 and September 30, 2017 are as follows:

September 30,

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the six months ended September 30, 2018, our total

operating expenses were $8,798,467, as compared to $6,648,896 for the six months

ended September 30, 2017.

For the six months ended September 30, 2018, the total included

$6,196,835 of sales and marketing expenses and $2,377,476 of general and

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

administrative expenses, consisting primarily of approximately $1,276,283 of

professional fees and $672,426 of wage and wage related expenses.

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

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

1 unchanged sentence

stock option compensation expense, and $572,348 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

September 30, 2018

March 31, 2018

Current assets

2 unchanged sentences

Current Assets

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 assets as of September 30, 2018 and March 31, 2018

primarily relate to $4,407,223 and $988,905 in cash, $3,296,599 and $2,599,095

in accounts receivable and $1,448,671 and $1,002,020 in inventory, respectively.

Current Liabilities

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

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

primarily relate to $2,496,771 and $2,052,988 in accounts payable, revolving

1 unchanged sentence

$819,011 respectively.

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

June 30, 2017 are as follows:

Our cash flows for the six months ended September 30, 2018 and

September 30, 2017 are as follows:

September 30,

Net Cash used in operating

2 unchanged sentences

financing activities

Net (decrease) increase in cash and cash

Net decrease in cash and cash equivalents

Operating Activities

Net cash used in operating activities was $2,998,243 for the

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

six months ended September 30, 2018, as compared to $668,505 used in operating

activities for the six months ended September 30, 2017.

The decrease 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.

prepaid expenses.

Investing Activities

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.

Net cash used in investing activities was $473,033 for the six

months ended September 30, 2018, as compared to $226,446 used in investing

activities for the six months ended September 30, 2017.

The increase in net cash

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

assets and equipment deposits.

Financing Activities

Net cash provided by financing activities for the three months

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

months ended June 30, 2017.

Net cash provided by financing activities for the six months

ended September 30, 2018 was $6,889,594, as compared to $772,977 for the six

months ended September 30, 2017.

The increase of net cash provided by financing

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

completed on May 30, 2018.

activities was mainly attributable to proceeds from sale of common stock and

share purchase warrants.

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.

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

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 believe that cash flow from operations and available cash

will meet our present and near-term cash needs.

However, 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

Financing may not be available in amounts or on terms acceptable to

us, if at all.

Any failure by us to raise any required 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

4 unchanged sentences

stockholders.

Quantitative and Qualitative Disclosures

About Market Risk

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