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Item 1. Financial Statements

2019-02-14 compared with 2018-11-13 · 403 added, 555 removed, 419 unchanged (70% of the section changed)

Financial Statements.

THE ALKALINE WATER COMPANY INC.

BALANCE SHEET

September 30, 2018

December 31, 2018

March 31, 2018

Current assets

Cash and cash equivalents

Total current assets

cash equivalents

Accounts receivable

Prepaid expenses

Total current

Fixed assets - net

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Current liabilities

Accrued expenses

Current portion of capital leases

Accounts payable

Revolving financing

portion of capital leases

Derivative liability

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

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

D issued 3,800,000

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

shares issued and outstanding at December 31, 2018 and March 31,

Additional paid in capital

Total stockholders' equity

Accumulated deficit

stockholders' equity

Total liabilities and stockholders' equity

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THE ALKALINE WATER COMPANY INC.

STATEMENT OF OPERATIONS

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months

For the Six Months

September 30, 2018

September 30, 2017

September 30, 2018

September 30, 2017

For the Nine Months

December 31, 2018

December 31, 2017

December 31, 2018

December 31, 2017

Cost of Goods Sold

Operating expenses

Sales and marketing expenses

administrative

marketing expenses

General and administrative

Total operating expenses

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Interest expense

Amortization of debt discount and

Amortization of debt discount and accretion

Total other income (expense)

EARNINGS PER SHARE (Basic)

WEIGHTED AVERAGE SHARES OUTSTANDING (Basic)

WEIGHTED AVERAGE SHARES

OUTSTANDING (Basic)

The accompanying notes are an integral part of these condensed

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months

September 30, 2018

September 30, 2017

For the Nine Months

December 31, 2018

December 31, 2017

CASH FLOWS FROM OPERATING ACTIVITIES

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common stock, net

from the exercise of warrants, net

Proceeds from advance by

notes payable

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THE ALKALINE WATER COMPANY INC.

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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 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,

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 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, 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

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.

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.

carrying value of these investments approximates fair value.

The Company had

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

March 31, 2018, respectively.

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 $3,087,445 and $988,905

in cash and cash equivalents at December 31, 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.

Accounts receivable consisted of the following as of September

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 December

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

Inventory represents raw and blended chemicals 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 December 31, 2018, and March, 31 2018, inventory

consisted of the following:

September 30,

December 31, 2018

March 31, 2018

Raw materials

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

The Company accounts for stock-based compensation to other than

employees in accordance with ASC 505-50.

Equity instruments issued to other than

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

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

recognized as expense over the service period.

The Company estimates the fair

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

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

stock for common share issuances.

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

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

accordance with ASC 505-50.

Equity instruments issued to other than employees

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

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

expense over the service period.

The Company estimates the fair value of

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

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

for common share issuances.

Revenue recognition

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Basic EPS is based on the weighted average number of common shares

Diluted EPS is based on the weighted average number of common

shares outstanding and dilutive common stock equivalents.

Basic EPS is computed

by dividing net income or loss available to common stockholders (numerator) by

the weighted average number of common shares outstanding (denominator) during

Potentially dilutive securities were excluded from the calculation

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

Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common

stock equivalents.

Basic EPS is computed by dividing net income or loss

available to common stockholders (numerator) by the weighted average number of

common shares outstanding (denominator) during the period.

Potentially dilutive

securities were excluded from the calculation of diluted loss per share, because

their effect would be anti-dilutive.

Reclassification

Certain accounts in the prior period were reclassified to

conform to the current period financial statements presentation.

Newly issued accounting pronouncements

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changes are effective.

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

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

718, Compensation Stock Compensation .

The ASU includes provisions intended to

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

for and presented in the financial statements.

Compensation cost is ultimately

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

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

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 September 2018 and believes that none of them will have a

pronouncements through December 2018 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 September 30, 2018 of ($32,103,032).

19, 2012) through the period ended December 31, 2018 of ($35,858,604).

addition, the Companys development activities since inception have been

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Fixed assets consisted of the following at:

September 30, 2018

December 31, 2018

March 31, 2018

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Fixed Assets, net

Depreciation expense for the six months ended September 30,

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

Depreciation expense for the nine months ended December 31,

2018 and December 31, 2017 was $334,769 and $286,482, respectively.

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

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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.

installments of $14,934 each and one final installment of $4,040, 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 paid on

December 1, 2018.

NOTE 4 REVOLVING FINANCING

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

The principal amount of the Revolving Facility outstanding

bears interest at a rate per annum equal to (i) a fluctuating interest rate per

annum equal at all times to the rate of interest announced, from time to time,

within Wells Fargo Bank at its principal office in San Francisco as its prime

rate, plus (ii) 3.25%, payable monthly in arrears.

To secure the payment and performance of the obligations under

the Credit Agreement, the Company granted to the Lender a continuing security

interest in all of the Companys assets and agreed to a lockbox account

arrangement in respect of certain eligible receivables.

In connection with the Credit Agreement, the Company paid to

the Lender a $30,000 facility fee.

The Company agreed to pay to Lender monthly

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

The principal amount of the Revolving Facility outstanding bears interest at a rate per annum equal to (i) a fluctuating interest rate per annum equal at all times to the rate of interest announced, from time to time, within Wells Fargo Bank at its

principal office in San Francisco as its “prime rate,”

plus (ii) 3.25%, payable monthly in arrears.

To secure the payment and performance of the obligations under the Credit Agreement, the Company granted to the Lender a continuing security interest in all of the Company’s assets and agreed to a lockbox account arrangement in respect of

certain eligible receivables.

In connection with the Credit Agreement, the Company paid to the Lender a $30,000 facility fee.

The Company agreed to pay to Lender monthly 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.

The unused line fee will be payable monthly in arrears.

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

default under the Credit Agreement.

Events of default under the Credit

Agreement, some of which are subject to certain cure periods, include a failure

to pay obligations when due, the making of a material misrepresentation to the

Lender, the rendering of certain judgments or decrees against the Company and

the commencement of a proceeding for the appointment of a receiver, trustee,

liquidator or conservator or filing of a petition seeking reorganization or

liquidation or similar relief.

The Credit Agreement contains customary representations and

warranties and various affirmative and negative covenants including the right of

first refusal to provide financing for the Company and the financial and loan

covenants, such as the loan turnover rate, minimum EBTDA, fixed charge coverage

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 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 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.

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 default under the Credit Agreement.

Events of default under the Credit Agreement, some of which are subject to certain cure periods, include a failure to pay obligations when due, the

making of a material misrepresentation to the Lender, the rendering of certain judgments or decrees against the Company and the commencement of a proceeding for the appointment of a receiver, trustee, liquidator or conservator or filing of a

petition seeking reorganization or liquidation or similar relief.

The Credit Agreement contains customary representations and warranties and various affirmative and negative covenants including the right of first refusal to provide financing for the Company and the financial and loan covenants, such as the loan

turnover rate, minimum EBTDA, fixed charge coverage ratio and minimum liquidity requirements.

On December 31, 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 full.

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

On May 1, 2014, the Company completed the offering and sale of

an aggregate of shares of our common stock and warrants.

Each share of common

stock sold in the offering was accompanied by a warrant to purchase one-half of

a share of common stock.

The warrants include down-round provisions that reduce

the exercise price of a warrant and convertible instrument.

As required by ASC

815 Derivatives and Hedging, if the Company either issues equity shares for a

price that is lower than the exercise price of those instruments or issues new

warrants or convertible instruments that have a lower exercise price, the

investors will be entitled to down-round protection.

The Company evaluated

whether its warrants and convertible debt instruments contain provisions that

protect holders from declines in its stock price or otherwise could result in

modification of either the exercise price or the shares to be issued under the

respective warrant agreements.

The Company determined that a portion of its

outstanding warrants and conversion instruments contained such provisions

thereby concluding were not indexed to the Companys own stock and therefore a

derivative instrument.

On August 20, 2014, the Company entered into a warrant

amendment agreement with certain holders of the Companys outstanding common

stock purchase warrants whereby the Company agreed to reduce the exercise price

of the Existing Warrants the Holders are to be issued new common stock purchase

warrants of the Company in the form of the Existing Warrants to purchase up to a

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

exercised by the Holders

The Company analyzed the warrants and conversion feature under

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

September 30, 2018 was $288.

NOTE 6 STOCKHOLDERS EQUITY

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

payments on the TOA each in the amount of $20,000 commencing on February 18, 2019 and on the first Business Day of each calendar week thereafter through and including March 18, 2019, (ii) the Company shall make ten (10) weekly principle payments

on the TOA, each in the amount of $30,000, commencing on March 25, 2018 and on the first Business Day of each calendar week thereafter through and including May 27, 2019 and (iii) repay the remaining principal balance on the TOA, if any, in full

on or prior to May 27, 2019.

On December 31, 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.

Under the Guarantee, Mr.

Guarino personally, absolutely, and unconditionally, jointly and severally, guaranteed the prompt, complete and full payment of the Company’s obligations to repay the TOA only, under the Credit Agreement, with the Lender.

NOTE 5 –

DERIVATIVE LIABILITY

On May 1, 2014, the Company completed the offering and sale of an aggregate of shares of our common stock and warrants.

Each share of common stock sold in the offering was accompanied by a warrant to purchase one-half of a share of common stock.

warrants include down-round provisions that reduce the exercise price of a warrant and convertible instrument.

As required by ASC 815 “Derivatives and Hedging”, if the Company either issues equity shares for a price that is lower than

the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price, the investors will be entitled to down-round protection.

The Company evaluated whether its warrants and convertible debt

instruments contain provisions that protect holders from declines in its stock price or otherwise could result in modification of either the exercise price or the shares to be issued under the respective warrant agreements.

The Company determined that a portion of its outstanding warrants and conversion

instruments contained such provisions thereby concluding were not indexed to the Company’s own stock and therefore a derivative instrument.

On August 20, 2014, the Company entered into a warrant amendment agreement with certain holders of the Company’s outstanding common stock purchase warrants whereby the Company agreed to reduce the exercise price of the Existing Warrants the

Holders are to be issued new common stock purchase warrants of the Company in the form of the Existing Warrants to purchase up to a number of shares of our common stock equal to the number of Existing Warrants exercised by the Holders

The Company analyzed the warrants and conversion feature under ASC 815 “Derivatives and Hedging”

to determine the derivative liability as of December 31, 2018 was $288.

NOTE 6 –

STOCKHOLDERS’

Preferred Shares

On October 7, 2013, the Company amended its articles of

incorporation to create 100,000,000 shares of preferred stock by filing a

Certificate of Amendment to Articles of Incorporation with the Secretary of

State of Nevada.

The preferred stock may be divided into and issued in series,

with such designations, rights, qualifications, preferences, limitations and

terms as fixed and determined by our board of directors.

On October 7, 2013, the Company amended its articles of incorporation to create 100,000,000 shares of preferred stock by filing a Certificate of Amendment to Articles of Incorporation with the Secretary of State of Nevada.

The preferred stock may be

divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and 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 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.

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 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 to 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.

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 July 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 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

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;

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.

For accounting purposes, the acquisition of Alkaline Water Corp.

The Alkaline Water Company Inc.

has been recorded as a reverse acquisition of a

company and recapitalization of Alkaline Water Corp.

based on the factors

demonstrating that Alkaline Water Corp.

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.

represents the accounting acquirer.

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

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

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

75,000,000 shares of common stock.

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,

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

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.

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

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

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

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.

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.

On November 20, 2018, we issued an aggregate of 1,275,832 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of US$0.90 per share for aggregate gross proceeds of US$1,148,248.80.

shares were issued were issued to 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

Compensation expense in the amount of 393,460 was recognized by the Company on account of the vesting schedule of its outstanding stock options as of April 28, 2018.

In October 2018, three option holders exercised 53,000 stock options in a cashless exchange for 46,544 common stock shares.

In December 2018, one option holder exercised 41,000 stock options in a cashless exchange for 27,677 common stock shares.

NOTE 7 –

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

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

David Guarino, our Chief Financial Officer, Secretary, and Treasurer, were each issued 1,000,000 shares each of the Series D Preferred Stock.

On December 31, 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.

Under the Guarantee, Mr.

NOTE 8 –

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 Payment”).

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 paid on December 1, 2018.

NOTE 9 –

SUBSEQUENT EVENTS

On January 24, 2019, we issued an aggregate of 512,332 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of US$0.90 per share for aggregate gross proceeds of US$461,098.80.

shares were issued to 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.

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;

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

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;

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Results of Operations

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,

Three Months Ended December 31, 2018 and December 31,

Our results of operations for the three months ended December

31, 2018 and December 31, 2017 are as follows :

For the three

Cost of goods sold

Net Loss (after operating expenses and other expenses)

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 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

ended December 31, 2018 of $7,691,013 as compared to $3,816,661 for the three

months ended December 31, 2017, an increase of 102% generated by sales of our

alkaline water.

1 unchanged sentence

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.

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:

In addition the company

offered off-invoice incentives to the companys two largest customers during the

Management believes that the resultant 102% increase in sales for the

quarter was positively impacted by these incentive programs.

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, CVS,

Albertson/Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco, Sprouts,

Bashas, Stater Bros.

Markets, Unified Grocers, Bristol Farms, Vallarta,

Superior Foods, Ingles, HEB Brookshires, Publix, Shaws, Raleys, Food Lion,

Harris Teeter, and Festival Foods.

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the three months ended December 31, 2018, we had cost of

goods sold of $4,822,694, or 63% of revenue, as compared to cost of goods sold

of $2,091,258 or 55% of revenue, for the three months ended December 31, 2017.

The decrease in gross profit rate is a direct result of off-invoice incentives

to the companys two largest customers during the quarter.

Our operating expenses for the three months ended December 31,

2018 and December 31, 2017 are as follows:

For the three

September 30,

Sales and marketing expenses

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Total operating expenses

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

For the three months ended December 31, 2018, our total

operating expenses were $6,479,285 as compared to $4,284,815 for the three

months ended September 30, 2017.

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

months ended December 31, 2017.

For the three months ended December 31, 2018, the total

included $3,650,105 of sales and marketing expenses and $2,718,567 of general

and administrative expenses, consisting primarily of approximately $1,707,964 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,

professional fees and 393,460 of stock option expense.

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 of professional fees.

Nine Months Ended December 31, 2018 and December 31, 2017

Our results of operations for the nine months ended December

31, 2018 and December 31, 2017 are as follows:

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 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.

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

ended December 31, 2018 of $24,211,398 as compared to $13,838,383 for the nine

months ended December 31, 2017, an increase of 75% 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.

This increase has

occurred primarily through the addition of 5 of the top national grocery

retailers as customers during the nine months ended December 31, 2018.

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,

Walmart, CVS,

Albertsons/ Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco, Sprouts,

Bashas, Stater Bros.

Markets, Unified Grocers, Bristol Farms, Vallarta,

Superior Foods, Ingles, HEB Brookshires, Publix, Shaws, Raleys, Food Lion,

Harris Teeter, and Festival Foods.

Cost of goods sold is comprised of production costs, shipping

and handling costs.

For the nine months ended December 31, 2018, we had cost of

goods sold of $14,301,068, or 59% of revenue, as compared to cost of goods sold

of $7,797,081 or 56% of revenue, for the nine months ended December 31, 2017.

The decrease in gross profit rate is a direct result of off-invoice incentives

to the companys two largest customers during the quarter ended December 31,

Our operating expenses for the nine months ended December 31,

2018 and December 31, 2017 are as follows:

Sales and marketing expenses

2 unchanged sentences

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

For the nine months ended December 31, 2018, our total

operating expenses were $15,277,752, as compared to $10,933,711 for the nine

months ended December 31, 2017.

For the nine months ended December 31, 2018, the total included

$9,846,940 of sales and marketing expenses and $5,096,043 of general and

administrative expenses, consisting primarily of approximately $2,984,247 of

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

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

professional fees and 393,460 of stock option expense.

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

$4,985,955 of sales and marketing expenses and $5,661,274 of general and

administrative expenses, consisting primarily of approximately $3,372,894 of

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

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

Liquidity and Capital Resources

Working Capital

September 30, 2018

March 31, 2018

Current assets

2 unchanged sentences

Current Assets

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

Current assets as of December 31, 2018 and March 31, 2018

primarily relate to $3,087,445 and $ 988,905 in cash, $2,077,728 and $2,599,095

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

in accounts receivable and $1,703,797 and $ 1,002,020 in inventory,

respectively.

Current Liabilities

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

Current liabilities as of December 31, 2018 and March 31, 2018

primarily relate to $2,323,242 and $2,052,988 in accounts payable, revolving

financing of $2,609,591 and $2,592,015, and accrued expenses of $774,861 and

financing of $2,749,298 and $2,592,015, accrued expenses of $679,062 and

$819,011 respectively.

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

September 30, 2017 are as follows:

September 30,

Our cash flows for the nine months ended December 31, 2018 and

December 31, 2017 are as follows:

Net cash used in operating

2 unchanged sentences

financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash

Operating Activities

Net cash used in operating activities was $4,856,749 for the

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.

nine months ended December 31, 2018, as compared to $1,262,887 used in operating

activities for the nine months ended December 31, 2017.

The increase in net

cash used in operating activities was primarily due to a large increase in net

operating loss.

Investing Activities

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.

Net cash used in investing activities was $1,174,458 for the

nine months ended December 31, 2018, as compared to $264,876 used in investing

activities for the nine months ended December 31, 2017.

The increase in net cash

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

assets and equipment deposits.

used by investing activities was the result of additional purchase of

approximately $900,000 in equipment during the nine months ended December 31,

2018 compared to the nine months ended December 31, 2017.

Financing Activities

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 was mainly attributable to proceeds from sale of common stock and

share purchase warrants.

Net cash provided by financing activities for the nine months ended December 31, 2018 was $8,129,747, as compared to $1,349,367 for the nine months ended December 31, 2017.

The increase of net cash provided by financing activities was mainly

attributable to sales of common stock and exercise of warrants of $8.1 million combined in the nine months ended December 31, 2018.

Recent Financing Activities

On January 24, 2019, we issued an aggregate of 512,332 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $0.90 per share for aggregate gross proceeds of $461,098.80.

Cash Requirements

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.

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 business.

Financing may not be available in amounts or on terms acceptable to us, if at all.

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

We have no off-balance sheet arrangements that have or are

reasonably likely to have a current or future effect on our financial condition,

changes in financial condition, revenues or expenses, results of operations,

liquidity, capital expenditures or capital resources that is material to our

stockholders.

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures

or capital resources that is material to our stockholders.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-Q

Item 1. Financial Statements