What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-02-10 compared with 2019-11-12 · 71 added, 213 removed, 299 unchanged (49% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2019

December 31, 2019

March 31, 2019

Current assets

Cash and cash equivalents

Accounts receivable

3 unchanged sentences

Property and Equipment, net

Operating lease right-of-use asset

LIABILITIES AND STOCKHOLDERS' EQUITY

4 unchanged sentences

Operating lease liability - current portion

Total current liabilities

Operating lease liability

Total liabilities

Stockholders' equity

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

Series C issued 1,500,000 and Series D issued

3,800,000 at September 30, 2019 and March 31, 2019

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

shares authorized 43,685,592 and 39,573,512 shares issued

and outstanding at September 30, 2019 and March 31, 2019, respectively

Preferred stock, $0.001 par value, 100,000,000 shares authorized, Series C issued 1,500,000 and Series D issued 3,800,000 at December 31, 2019 and March 31, 2019

Common stock, Class A - $0.001 par value, 200,000,000 shares authorized 43,685,592 and 39,573,512 shares issued and outstanding at December 31, 2019 and March 31, 2019, respectively

Additional paid in capital

2 unchanged sentences

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE ALKALINE WATER COMPANY INC.

1 unchanged sentence

For the Three Months Ended

For the Six Months Ended

September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018

For the Nine Months Ended

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Cost of Goods Sold

9 unchanged sentences

WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted)

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE ALKALINE WATER COMPANY

3 unchanged sentences

Balance, March 31, 2019

Shares issued in connection with offerings

Balance, June 30, 2018

Shares issued in connection with offerings

Balance, September 30, 2018

Balance, March 31, 2019

Warrant exercises

5 unchanged sentences

Balance, September 30, 2019

The accompanying notes are an integral part of these consolidated financial statements.

Stock option expense

Balance, December 31, 2019

Balance, March 31, 2018

Shares issued in connection with offerings

Balance, June 30, 2018

Shares issued in connection with offerings

Balance, September 30, 2018

Warrant exercises

Stock option exercise

Stock option expense

Balance, December 31, 2018

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

September 30, 2019

September 30, 2018

For the Nine Months

December 31, 2019

December 31, 2018

CASH FLOWS FROM OPERATING ACTIVITIES

14 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from revolving financing

Proceeds (payments) from revolving financing

Proceeds from sale of common stock, net

6 unchanged sentences

INTEREST PAID

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

THE ALKALINE WATER COMPANY INC.

3 unchanged sentences

The Alkaline Water Company Inc.

and its four wholly owned subsidiaries shall collectively be referred to as the “Company.”

The Company offers retail consumers bottled alkaline water in 500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 3-liter and 1-gallon sizes, all of which is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce 8.8 pH drinking water without the use of any manmade chemicals.

The Company also sells to retail customers flavor infused bottled water in the 500-milliliter size in four flavors:

Raspberry, Watermelon, Lemon and Blood Orange.

and its four wholly owned subsidiaries shall collectively be referred to as the "Company." The Company offers retail consumers bottled alkaline water in 500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 3-liter and 1-gallon sizes, all of which is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce 8.8 pH drinking water without the use of any manmade chemicals.

The Company also sells to retail customers flavor infused bottled water in the 500-milliliter size in six flavors:

Raspberry, Watermelon, Lemon, Lemon Lime, Peach Mango, and Blood Orange

Basis of presentation

1 unchanged sentence

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto as set forth in the Company's Form 10-K, filed with the SEC on July 1, 2019, which included all disclosures required by generally accepted accounting principles ("GAAP") In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position on a consolidated basis and the consolidated results of operations, equity and cash flows for the interim periods presented.

The results of operations for the three and six months ended September 30, 2019 and 2018 are not necessarily indicative of expected operating results for the full year.

The information presented throughout the document as of and for the three and six months ended September 30, 2019 and 2018 is unaudited.

The results of operations for the three and nine months ended December 31, 2019 and 2018 are not necessarily indicative of expected operating results for the full year.

The information presented throughout the document as of and for the three and nine months ended December 31, 2019 and 2018 is unaudited.

The condensed consolidated balance sheet at March 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S.

8 unchanged sentences

All significant intercompany balances and transactions have been eliminated.

Any reference herein to “The Alkaline Water Company Inc.”, the “Company”, “we”, “our”

or “us”

is intended to mean The Alkaline Water Company Inc., including the subsidiaries indicated above, unless otherwise indicated.

Any reference herein to "The Alkaline Water Company Inc.", the "Company", "we", "our" or "us" is intended to mean The Alkaline Water Company Inc., including the subsidiaries indicated above, unless otherwise indicated.

Use of Estimates

5 unchanged sentences

As of the balance sheet date and periodically throughout the period, the Company has maintained balances in various operating accounts in excess of federally insured limits.

The Company had $6,870,906 and $11,032,451 in cash at September 30, 2019 and March 31, 2019, respectively.

The Company had $4,173,551 and $11,032,451 in cash at December 31, 2019 and March 31, 2019, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

1 unchanged sentence

The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of September 30, 2019 and March 31, 2019:

September 30, 2019

March 31, 2019

Trade receivables, net

Accounts receivable consisted of the following as of December 31, 2019 and March 31, 2019:

Trade receivables

Allowance for doubtful accounts

Accrual for 2% 10 days discount

Net accounts receivable

4 unchanged sentences

The inventory balance is pledged as collateral for the Company's revolving financing as disclosed in Note 3.

As of September 30, 2019 and March 31, 2019, inventory consisted of the following:

September 30, 2019

As of December 31, 2019, and March, 31 2019, inventory consisted of the following:

December 31, 2019

March 31, 2019

23 unchanged sentences

Shipping and handling charges that are billed to customers are included as a component of revenue.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $1,496,708 and $1,376,967 for the three months ended September 30, 2019 and 2018, respectively and $2,928,163 and $2,900,243 for the six months ended September 30, 2019 and 2018, respectively.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $1,175,274 and $1,266,031 for the three months ended December 31, 2019 and 2018, respectively and $4,103,437 and $4,166,274 for the nine months ended December 31, 2019 and 2018, respectively.

Concentration Risks

We have 2 major customers that together account for 41% (23% and 18%, respectively) of accounts receivable at September 30, 2019, and 2 customers that together account for 41% (24% and 17%, respectively) of the total revenues earned for the three months and six months ended September 30, 2019.

The Company has 2 vendors that accounts for 43% (24% and 19% respectively) of purchases for the three months ended September 30, 2019 and 3 vendors that accounted for 54% (23%, 20% and 11% respectively) of purchases for the six months ended September 30, 2019.

We had 2 major customers that together accounted for 33% (17% and 16%, respectively) of accounts receivable at September 30, 2018.

The Company has 2 customers that together accounted for 40% (24% and 16%, respectively) of the total revenues earned for the three months ended September 30, 2018 and 2 customers that together accounted for 41% (22% and 19% respectively) of the total revenues earned for the six months ended September 30, 2018.

The Company has 3 vendors that accounts for 58% (33%, 13%, and 12% respectively) of purchases for the three months ended September 30, 2018 and 3 vendors that accounted for 58% (35%, 12% and 11% respectively) of purchases for the six months ended September 30, 2018.

We have 3 major customers that together account for 51% (22%, 16% and 13%, respectively) of accounts receivable at December 31, 2019.

The Company has 2 customers that together accounted for 40% (26% and 14%, respectively) of the total revenues earned for the three months ended December 31, 2019 and 2 customers that together accounted for 40% (24% and 16% respectively) of the total revenues earned for the nine months ended December 31, 2019.

The Company has 2 vendors that accounts for 42% (23% and 19% respectively) of purchases for the three months ended December 31, 2019 and 3 vendors that accounted for 52% (21%, 21% and 10% respectively) of purchases for the nine months ended December 31, 2019.

We had 2 major customers that together accounted for 45% (29% and 16%, respectively) of accounts receivable at December 31, 2018.

The Company has 2 customers that together accounted for 47% (28% and 19%, respectively) of the total revenues earned for the three months ended December 31, 2018 and 2 customers that together accounted for 43% (24% and 19% respectively) of the total revenues earned for the nine months ended December 31, 2018.

The Company has 3 vendors that accounts for 58% (36%, 11%, and 11% respectively) of purchases for the three months ended December 31, 2018 and 3 vendors that accounted for 59% (36%, 12% and 11% respectively) of purchases for the nine months ended December 31, 2018.

The Company uses an estimated annual effective tax rate method in computing its interim tax provision.

5 unchanged sentences

Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share ("EPS") amounts in the consolidated financial statements are computed in accordance ASC 260- 10 " Earnings per Share ", which establishes the requirements for presenting EPS.

Basic and diluted earnings or loss per share ("EPS") amounts in the consolidated financial statements are computed in accordance with ASC 260- 10 " Earnings per Share ", which establishes the requirements for presenting EPS.

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

2 unchanged sentences

Potentially dilutive securities were excluded from the calculation of diluted loss per share, because their effect would be anti-dilutive.

The Company had 493,144 and 1,738,216 shares relating to options, 422,821 and 3,203,303 shares relating to warrants and 1.5 million convertible preferred shares at September 30, 2019 and 2018, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

The Company had 250,506 and 1,578,343 shares relating to options and -0- and 3,013,000 shares relating to warrants at December 31, 2019 and 2018, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

Business Segments

12 unchanged sentences

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

As of September 30, 2019 and 2018, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

As of December 31, 2019 and 2018, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

Recent Accounting Pronouncements

5 unchanged sentences

The Company adopted this standard as of April 1, 2019, the first day of its 2020 fiscal year, using the modified retrospective approach the impact of which was not material.

The Company, as of September 30, 2019 has a right of use asset of $84,832 and an operating lease liability of $98,095 as a result of the adoption of this standard.

Upon adoption of the new guidance, the Company recognized a right of use asset of $123,985 and an operating lease liability of $140,004 at inception.

On April 1, 2019 the Company was required to adopt new guidance for non-employee stock options as set forth in ASC 718.

1 unchanged sentence

Under the new guidance the Company determined the value of all of the options on April 1, 2019, the inception date which became the new measurement date and calculated what the straight line amortization would be by period.

As a result the Company recorded stock option expense in the amount of $1,266,345 in the six months ended September 30, 2019.

As a result the Company recorded stock option expense in the amount of $1,428,949 in the nine months ended December 31, 2019.

Standards Required to be Adopted in Future Years.

8 unchanged sentences

The Company does not believe that the impact of adopting this standard will have a material effect on its financial statements.

The Company has evaluated other recent accounting pronouncements through September 30, 2019 and believes that none of them will have a material effect on our consolidated financial statements.

The Company has evaluated other recent accounting pronouncements through December 31, 2019 and believes that none of them will have a material effect on our consolidated financial statements.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and Equipment consisted of the following at:

September 30,

December 31, 2019

March 31, 2019

Machinery and Equipment

2 unchanged sentences

Property and Equipment, net

Depreciation expense for the three months eneded September 30, 2019 and 2018 was $239,757 and $110,083, repectively.

Depreciation expense for the six months ended September 30, 2019 and 2018 was $473,697 and $224,156, respectively.

Depreciation expense for the nine months ended December 31, 2019 and December 31, 2018 was $727,917 and $334,769, respectively.

NOTE 3 - REVOLVING FINANCING

5 unchanged sentences

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.

The interest rate as of September 30, 2019 was 8.25%.

The interest rate as of December 31, 2019 was 8.0%.

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.

9 unchanged sentences

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 EBITDA, fixed charge coverage ratio and minimum liquidity requirements.

The Company was in compliance with those covenants as of September 30, 2019.

NOTE 4 - STOCKHOLDERS EQUITY

The Company was in compliance with those covenants as of December 31, 2019.

NOTE 4 - STOCKHOLDER EQUITY

Preferred Shares

5 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 to time.

At September 30, 2019 and March 31, 2019, 1,500,000 shares of Series C preferred stock were convertible into common stock.

At December 31, 2019 and March 31, 2019, 1,500,000 shares of Series C preferred stock were convertible into common stock.

Grant of Series D Convertible Preferred Stock

3 unchanged sentences

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.

At September 30, 2019 and 2018 there were 3,800,000 shares of Series D preferred stock outstanding none of which were convertible.

At December 31, 2019 and 2018 there were 3,800,000 shares of Series D preferred stock outstanding none of which were convertible.

NOTE 5 - OPTIONS AND WARRANTS

8 unchanged sentences

Under the new guidance the Company determined the value using Black-Scholes of all of the options on April 1, 2019, the inception date which became the new measurement date and calculated what the straight line amortization would be by period.

As a result the Company recorded stock option expense for the three and six months ended September 30, 2019 of $162,605 and $1,266,345, respectively.

As a result the Company recorded stock option expense for the three and nine months ended December 31, 2019 of $162,605 and $1,428,949 respectively.

The remaining 357,500 unvested options are valued at $216,806 and that amount will be amortized over the remaining 4 month vesting period ending April 2020.

13 unchanged sentences

The corporate office, lease also requires the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in the general and administrative expenses on the condensed consolidated statements of operations.

Operating Lease expense for the three and six months ended September 30, 2019 was $21,681 and 43,753, respectively.

The Company also has a short-term lease ending March 31, 2020 and the lease expense for this short-term lease for the three and six months ended September 30, 2019 was $11,120 and 23,597, respectively.

The right-of-use amortization for the three and six months ended September 30, 2019 was $21,681 and $43,753, respectively.

Operating Lease expense for the three and nine months ending December 31, 2019 was $23,534 and $70,043, respectively.

The Company also has a short-term lease ending March 31, 2020 and the lease expense for this short-term lease for the three and nine months ended December 31, 2019 was $12,622 and $36,749, respectively.

The right-of-use amortization for the three and nine months ended December 31, 2019 was $21,281 and $65,034, respectively.

Operating Leases:

September 30, 2019

December 31, 2019

Operating lease right-of-use asset - current portion

8 unchanged sentences

Operating leases

Supplemental cash flow information related to leases is as follows:

Six months Ended

September 30, 2019

Cash paid for amounts included in measurement of liabilities:

Operating cash flows from operating lease

Maturities of undiscounted lease liabilities as of September 30, 2019 are as follows:

Operating Leases

Year ending March 31, 2020 (remainder)

Year ending March 31, 2021

Total lease payments

Imputed interest

Total lease obligations

Note 7 - Commitments and Contingency

On September 9, 2019, the Company, AQUAhydrate, Inc.

AQUAhydrate On September 9, 2019, the Company, AQUAhydrate, Inc.

("AQUAhydrate") and AWC Acquisition Company Inc.

44 unchanged sentences

NOTE 8 - SUBSEQUENT EVENTS

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 30, 2019 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains "forward-looking statements." All statements other than statements of historical fact are "forward-looking statements" for purposes of applicable securities laws, including, but not limited to, any projections of earnings, revenue or other financial items;

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

any statements concerning proposed new services or developments;

any statements regarding future economic conditions or performance;

any statements or belief;

and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words.

These forward-looking statements present our estimates and assumptions only as of the date of this report.

Accordingly, readers are cautioned not to place undue reliance on forward- looking statements, which speak only as of the dates on which they are made.

Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.

Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

The factors impacting these risks and uncertainties include, but are not limited to:

lack of working capital;

inability to raise additional financing;

the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently 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 operations;

inability to efficiently manage our operations;

inability to achieve future sales levels or other operating results;

the unavailability of funds for capital expenditures.

Unless otherwise indicated, all reference to "dollars", "$", "USD" or "US$" are to United States dollars and all reference to "CDN$" are to Canadian dollars.

Our financial statements are stated in United States Dollars ($ or US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock.

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 subsidiaries A88 Infused Beverage Division, Inc.

(a Nevada Corporation hereinafter referred to as "A88 Infused"), A88 International, Inc.

(a Nevada Corporation), A88 Infused Products, Inc.

(a 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 September 30, 2019 and September 30, 2018 are as follows:

For the three

September 30,

Cost of goods sold

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the three months ended September 30, 2019 of $10,444,978, as compared to $8,639,520 for the three months ended September 30, 2018, an increase of 21% generated by sales of our alkaline water and flavored infused water.

The increase in sales is due to the expanded distribution of our products to existing retailers and the addition of new retailers throughout the country.

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 products 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 Brookshire's, Publix, Shaw's, Raley's, 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 September 30, 2019, we had cost of goods sold of $5,959,430 or 57% of revenue, as compared to cost of goods sold of $4,987,161 or 57% of revenue, for the three months ended September 30, 2018.

Our operating expenses for the three months ended September 30, 2019 and September 30, 2018 are as follows:

For the three

September 30,

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the three months ended September 30, 2019, our total operating expenses were $7,297,010 as compared to $4,458,837 for the three months ended September 30, 2018.

For the three months ended September 30, 2019, the total included $4,809,882 of sales and marketing expenses.

Sales and marketing expenses increased as a result of increased freight and sales promotional expenses due to our increase in sales.

General and administrative expenses of $2,247,371, consisted primarily of $1,316,661 of professional fees, media fees and legal fees, stock option expense in the amount of $162,605 and $446,031 of wages and wage related expenses.

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 $718,503 of professional fees, media and legal fees and $339,287 of wages and wage related expenses.

Six Months Ended September 30, 2019 and September 30, 2018

Our results of operations for the six months ended September 30, 2019 and September 30, 2018 are as follows:

For the six months

September 30,

Cost of goods sold

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the six months ended September 30, 2019 of $20,598,022 as compared to $16,520,385 for the six months ended September 30, 2018, an increase of 24% generated by sales of our alkaline water and flavored infused water.

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 products 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, 2019, we had cost of goods sold of $11,987,627, or 58% of revenue, as compared to cost of goods sold of $9,478,374 or 57% of revenue, for the six months ended September 30, 2018.

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, 2019 and September 30, 2018 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, 2019, our total operating expenses were $16,382,681, as compared to $8,798,467 for the six months ended September 30, 2018.

For the six months ended September 30, 2019, the total included $9,282,342 of sales and marketing expenses and $6,626,642 of general and administrative expenses, consisting primarily of $3,855,970 of professional fees, stock option expense in the amount of $1,266,345 and $878,372 of wage and wage related expenses.

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 $1,276,283 of professional fees and $672,426 of wage and wage related expenses.

Liquidity and Capital Resources

Working Capital

At September 30, 2019

At March 31, 2019

Current assets

Current liabilities

Working capital

Current Assets

Current assets as of September 30, 2019 and March 31, 2019 primarily relate to $6,870,906 and $11,032,451 in cash, $4,256,078 and $3,068,181 in accounts receivable and $1,795,245 and $2,058,012 in inventory, respectively.

Current Liabilities

Current liabilities as of September 30, 2019 and March 31, 2019 primarily relate to $4,443,601 and $2,898,958 in accounts payable, revolving financing of $4,008,199 and $3,131,279, and accrued expenses of $935,308 and $1,095,458 respectively.

Our cash flows for the six months ended September 30, 2019 and September 30, 2018 are as follows:

September 30,

Net Cash used in operating activities

Net Cash used in investing activities

Net Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Operating Activities

Net cash used in operating activities was $7,328,002 for the six months ended September 30, 2019, as compared to $2,998,243 used in operating activities for the six months ended September 30, 2018.

The increase in net cash used in operating activities was primarily due to the increase in accounts receivable and prepaid expenses and increase in net loss primarily from additional professional fees, media fees and legal fees and stock option expense.

Investing Activities

Net cash used in investing activities was $210,948 for the six months ended September 30, 2019, as compared to $473,033 used in investing activities for the six months ended September 30, 2018.

The decrease in net cash used in investing activities was from a reduction in purchases of fixed assets.

Financing Activities

Net cash provided by financing activities for the six months ended September 30, 2019 was $3,377,405, as compared to $6,889,594 for the six months ended September 30, 2018.

The decrease in net cash provided by financial activities is primarily due to the $2,500,486 proceeds from the exercise of warrants in the six months ended September 30, 2019 as compared to $6,955,798 of proceeds from sale of common stock in the six months ended September 30, 2018.

Cash Requirements

We believe that between cash on hand as of September 30, 2019 and our credit line, we will have sufficient cash to sustain operations through at least September 30, 2020.

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.

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

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

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Effective as of January 13, 2020, the Company issued 1,500,000 shares of its common stock to Richard A.

Wright, president, chief executive officer and director, upon conversion of 1,500,000 shares of its Series C Preferred Stock without the payment of any additional consideration.

On February 4, 2020, the Company terminated the Agreement and Plan of Merger (the "Merger Agreement") that it had entered into with AQUAhydrate, Inc.

and AWC Acquisition Company Inc., a wholly-owned subsidiary of the Company, on September 9, 2019 as amended.

The Company terminated the Merger Agreement pursuant to Section 7.2(a) of the Merger Agreement as the merger had not been consummated on or before January 31, 2020

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