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Item 1. Financial Statements

2021-08-16 compared with 2021-02-16 · 140 added, 346 removed, 232 unchanged (68% of the section changed)

1 unchanged sentence

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2020

CONSOLIDATED BALANCE SHEETS

June 30, 2021

March 31, 2021

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Total current liabilities

PPP loan payable

Operating lease liability

Total liabilities

Commitments and contingencies (Note 10)

Stockholders' equity

Preferred stock, $0.001 par value, 100,000,000 shares authorized, nil issued and outstanding on December 31, 2020 and 3,400,000 Series D issued and outstanding on March 31, 2020

Common stock, Class A - $0.001 par value, 200,000,000 shares authorized 73,637,115 and 45,585,592 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 6,681,090 Series S nil issued and outstanding on June 30, 2021 and nil issued and outstanding on March 31, 2021

Common stock, Class A - $ 0.001 par value, 200,000,000 shares authorized 89,761,122 and 87,465,178 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively

Additional paid in capital

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THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended

For the Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months

June 30, 2021

June 30, 2020

Cost of Goods Sold

11 unchanged sentences

THE ALKALINE WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Stock

5 unchanged sentences

Common shares issued upon exercise of warrants

Common shares issued to non-employees

Common shares issued to employees

Common shares issued to non-employees and employees

Stock Option expense

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Balance, June 30, 2020

Common shares issued in connection with offerings

Common shares issued upon exercise of warrants

Common shares issued to non-employees

Stock Option expense

Stock Option exercise

Balance, September 30, 2020

Common shares issued upon exercise of warrants

Common shares issued to non-employees

Common shares issued to employees

Stock Option expense

Balance, December 31, 2020

Balance, March 31, 2021

Common shares issued upon exercise of warrants

Stock Option expense

Balance, June 30, 2019

Preferred stock issuance

Common shares issued upon exercise of warrants

Stock Option expense

Common shares issued to non-employees and employees

Stock option and RSU - related stock compensation expense

Stock option exercise

Balance, September 30, 2019

Stock Option expense

Balance, December 31, 2019

Balance, June 30, 2021

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 Nine Months Ended

December 31, 2020

December 31, 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months

June 30, 2021

June 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

Depreciation expense

Stock compensation expense

Right-of-use asset amortization

Shares issue and vested, options and RSU amortized for employee and non-employee services

Non-cash lease expense

Changes in operating assets and liabilities:

8 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of revolving financing

Proceeds from (repayment of) revolving financing

Proceeds from promissory note payable

Proceeds from sale of common stock, net

Proceeds from stock payable

Proceeds for the exercise of warrants, net

5 unchanged sentences

INTEREST PAID

SUPPLEMENTAL DISCLOSURE of NON-CASH INVESTING and FINANCING ACTIVITIES

OPERATING LEASE RIGHT OF USE ASSET

OPERATING LEASE LIABILITY

ISSUANCE OF COMMON SHARES TO SETTLE STOCK PAYABLE

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Basis of presentation

These unaudited financial statements represent the condensed consolidated financial statements of the Company.

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 August 13, 2020, 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 nine months ended December 31, 2020 and 2019 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, 2020 and 2019 is unaudited.

These unaudited financial statements represent the condensed consolidated financial statements of The Alkaline Water Company and its wholly owned subsidiaries (collectively, the "Company").

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 2, 2021, 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 months ended June 30, 2021 and 2020 are not necessarily indicative of expected operating results for the full year.

The information presented throughout the document as of and for the three months ended June 30, 2021 and 2020 is unaudited.

The condensed consolidated balance sheet at March 31, 2021 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.

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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 $1,716,944 and $4,561,682 in cash at December 31, 2020 and March 31, 2020, respectively.

In addition, the Company has maintained balances in its attorney's client trust account in both C$ and US$.

The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

The Company had $ 4,497,905 and $ 9,130,956 in cash at June 30, 2021 and March 31, 2021, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

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The carrying amount for accounts receivable approximates fair value.

Accounts receivable consisted of the following as of December 31, 2020 and March 31, 2020:

Trade receivables

Accounts receivable consisted of the following as of June 30, 2021 and March 31, 2021:

June 30, 2021

March 31, 2021

Trade receivables, net

Allowance for doubtful accounts

5 unchanged sentences

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

As of December 31, 2020, and March 31, 2020, inventory consisted of the following:

December 31, 2020

As of June 30, 2021 and March 31, 2021, inventory consisted of the following:

June 30, 2021

March 31, 2021

6 unchanged sentences

Depreciation is calculated using the straight-line (half-life convention) method over the estimated useful life of the assets, which the Company has determined to be 3 years .

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

The Company has not generated sufficient revenues from product sales to provide for cash flows to enable the Company to finance its operations internally thus there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.

The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital.

The Company currently anticipates the release of the funds from escrow from the July 6, 2021 private placements subject to shareholder approval (Note 5) and funds from the exercise of outstanding warrants (Note 9) will adequately fund the Company’s planned operations and capital needs for the next 12 months.

However, if our current plans change or are accelerated or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors.

The sale of additional equity securities will result in dilution to our stockholders.

The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business.

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

Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to continue as a going concern.

Stock-Based Compensation

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The Company recognizes revenue per ASC 606.

The Company recognizes revenue when the Company's performance obligations are satisfied.

The Company's primary obligation (the distribution and sale of beverage products) is satisfied upon the delivery of products to the Company's customers, which is also when control is transferred.

The Company recognizes revenue when our performance obligations are satisfied.

Our primary obligation (the distribution and sale of beverage products) is satisfied upon the delivery of products to our customers, which is also when control is transferred.

The Company does not accept returns due to the nature of the product.

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After evaluating the revenue disclosure requirements, the Company does not believe that any revenues are required to be disaggregated.

Revenue consists of the gross sales price, less variable consideration, consisting of estimated allowances for which provisions are made at the time of sale, and less certain other discounts, allowances, and rebates that are accounted for as a reduction from gross revenue.

Revenue consists of the gross sales price, less variable consideration, including estimated allowances for which provisions are made at the time of sale, and less certain other discounts and allowances.

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 $1,837,964 and $1,175,274 for the three months ended December 31, 2020 and 2019, respectively and $5,315,518 and $4,103,437 for the nine months ended December 31, 2020 and 2019, respectively.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 2,906,900 and $ 1,807,030 for the quarters ended June 30, 2021 and 2020, respectively.

Concentration Risks

We have 2 major customers that together account for 35% (18% and 17%, respectively) of accounts receivable at December 31, 2020, 2 customer that accounts for 40% (25% and 15%, respectively) of total revenues for the three months ended December 31, 2020 and 2 customers that accounts for 40% (23% and 17%, respectively) of the total revenues earned for the nine months ended December 31, 2020.

The Company has 2 vendors that accounts for 48% (24% and 24% respectively) of purchases for the three months ended December 31, 2020 and 3 vendors that accounted for 52% (23%, 19% and 11% respectively) of purchases for the nine months ended December 31, 2020.

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

The Company had 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.

The Company has 1 major customer that accounts for 12 % of accounts receivable at June 30, 2021, and 2 customers that together account for 36 % ( 20 % and 16%, respectively) of the total revenues earned for the quarter ended June 30, 2021.

The Company has 2 vendors that accounted for 43 % ( 27 %, and 16 % respectively) of purchases for the quarter ended June 30, 2021.

The Company has 2 major customers that together account for 32 % ( 22 % and 10 %, respectively) of accounts receivable at June 30, 2020, and 2 customers that together account for 45 % ( 25 % and 20 %, respectively) of the total revenues earned for the quarter ended June 30, 2020.

The Company has 3 vendors that accounted for 55 % ( 27 %, 15 % and 13 % respectively) of purchases for the quarter ended June 30, 2020.

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 with 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 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 1,348,566 and 250,506 shares relating to options and 2,453,243 and -0- shares relating to warrants at December 31, 2020 and 2019, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

For the three months ended June 30, 2021 and 2020, respectively, the Company had 3,897,897 and 2,417,322 shares relating to options, 4,761,690 and 5,559,205 shares relating to warrants and 2,227,030 and nil convertible preferred shares that were not included in the diluted earnings per share calculation because they were antidilutive.

Business Segments

The Company operates on one segment in one geographic location - the United States of America and therefore, segment information is not presented.

The Company operates on one segment in one geographic location - the United States of America and;

therefore, segment information is not presented.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period for maturity of these instruments.

The carrying amounts of the company's financial instruments including accounts payable, accrued expenses, and notes payable approximate fair value due to the relative short period for maturity these instruments.

The company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.

7 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 December 31, 2020, and 2019, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

As of June 30, 2021 and 2020, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

Correction of Previously Issued Financial Statements

The accompanying consolidated statement of operations for the three months ended June 30, 2020 has been corrected for the following:

a reclassification of depreciation expense of $ 225,315 to cost of goods sold related to assets utilized in the production of inventory and ad adjustment to reclassify sales and marketing expenses of $ 787,114 as a reduction in revenue as such amounts were related to consideration payable to a customer which the Company determined was not for distinct goods or services received.

The Company assessed the materiality of the misstatement quantitively and qualitatively and has concluded that the correction of the classification error is immaterial to the consolidated financials taken as a whole.

As a result of the correction, cost of goods sold increased from $ 8,369,526 to $ 8,594,841 and revenue decreased from $ 14,219,424 to $ 13,432,310 which combined resulted in a decrease of gross profit from $ 5,849,898 to $ 4,837,469 .

The correction had no impact on total operating loss and net loss.

Recent Accounting Pronouncements

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Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses.

In November 2019,the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).

ASU 2019-10 changes the effective date of the credit loss standard (ASU 2016-13) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies Further, the ASU clarifies that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842.

In November 2018, ASU 2016-13 was amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

ASU 2018-19 changes the effective date of the credit loss standards (ASU 2016-13) to fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Further, the ASU clarifies that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842.

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 December 31, 2020 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 June 30, 2021 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:

December 31, 2020

Fixed assets consisted of the following at:

June 30, 2021

March 31, 2021

2 unchanged sentences

Accumulated Depreciation

Property and equipment, net

Depreciation expense for the three months ended December 31, 2020 and December 31, 2019 was $281,962 and $254,220, respectively.

Depreciation expense for the nine months ended December 31, 2020 and December 31, 2020 was $694,279 and $727,917, respectively.

Fixed Assets, net

Depreciation expense for the quarter ended June 30, 2021 and 2020 was $ 159,015 and $ 227,911 , respectively.

NOTE 3 - REVOLVING FINANCING

On February 1, 2017, the Company entered into a Credit and Security Agreement (the "Credit Agreement") with CNH Finance Fund I, L.P.

(fka SCM Specialty Finance Opportunities Fund, L.P.) (the "Lender") which has been amended from time to time the last of which was March 2020.

The Credit Agreement provides the Company with a revolving credit facility (the "Revolving Facility"), the proceeds of which are to be used to repay existing indebtedness of the Company, transaction fees incurred in connection with the Credit Agreement and for working capital needs of the Company.

Under the terms of the Credit Agreement, the Lender has agreed to make cash advances to the Company in an aggregate principal at any one time outstanding not to exceed the lesser of (i) $7 million (the "Revolving Loan Commitment Amount") and (ii) the Borrowing Base (defined to mean, as of any date of determination, 85% of net eligible billed receivables plus 65% of eligible unbilled receivables, minus certain reserves, and is subject to certain customer specific requirements).

On February 1, 2017, we entered into a credit and security agreement (the "Credit Agreement") with SCM Specialty Finance Opportunities Fund, L.P.

("SCM" or "Lender"), which subsequently changed its name to CNH Finance Fund I, L.P.

The Credit Agreement provides our company with a revolving credit facility (the "Revolving Facility"), the proceeds of which are to be used to repay existing indebtedness of our company, transaction fees incurred in connection with the Credit Agreement and for the working capital needs of our company.

Under the terms of the Credit Agreement, SCM has agreed to make cash advances to our company in an aggregate principal at any one time outstanding not to exceed the lesser of (i) $7 million (the "Revolving Loan Commitment Amount") and (ii) the Borrowing Base (defined to mean, as of any date of determination, 85% of net eligible billed receivables plus 65% of eligible unbilled receivables, minus certain reserves).

The Credit Agreement expires on July 1, 2022, unless earlier 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.

The interest rate as of December 31, 2020 was 6.5%.

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 the 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 interest rate as of March 31, 2021 was 7.0%

To secure the payment and performance of the obligations under the Credit Agreement, we granted to SCM a continuing security interest in all of our assets and agreed to a lockbox account arrangement in respect of certain eligible receivables.

The Company agreed to pay to SCM 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.

We also agreed to pay SCM 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 1% of the Revolving Loan Commitment Amount if the termination occurs before July 1, 2022.

The Company must also pay certain fees in the event that receivables are not properly deposited in the appropriate lockbox account.

Upon a termination of the Revolving Facility, we agreed to pay SCM a termination fee in an amount equal to 1 % of the Revolving Loan Commitment Amount if the termination occurs before July 1, 2022.

We 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 EBITDA, fixed charge coverage ratio and minimum liquidity requirements.

The Company was in compliance with those covenants as of December 31, 2020.

In March 2020, 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 2 each in the amount of $20,000 commencing on May 18, 2020 and on the first Business Day of each calendar week thereafter through and including June 15, 2020, (ii) the Company shall make ten (10) weekly principal payments on the TOA, each in the amount of $30,000, commencing on June 22, 2020 and on the first Business Day of each calendar week thereafter through and including August 24, 2020 and (iii) repay the remaining principal balance on the TOA, if any, in full on or prior to August 24, 2020.

As of December 31, 2020, the balance of the TOA was zero.

In March 2020, David Guarino, the Company's Chief Financial Officer, 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.

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 SCM, the rendering of certain judgments or decrees against our 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 our company and the financial and loan covenants, such as the loan turnover rate, minimum EBITDA, fixed charge coverage ratio and minimum liquidity requirements.

NOTE 4 - PAYCHECK PROTECTION PROGRAM LOAN

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Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

The Company will apply for loan forgiveness with the Lender.

NOTE 5 - STOCKHOLDER EQUITY

NOTE 5 - STOCKHOLDERS' EQUITY

Preferred Shares

1 unchanged sentence

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.

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, The Company 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) the Company achieved 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.

Effective as of April 1, 2020, the Company issued an aggregate of 3,400,000 shares of our common stock upon conversion of an aggregate of 3,400,000 shares of our Series D Preferred Stock without the payment of any additional consideration.

Of the 3,400,000 shares that the Company issued, 1,500,000 shares were issued to Richard A.

Wright, our president, chief executive officer and director, 1,000,000 shares were issued to David A.

Guarino, our treasurer, secretary, chief financial officer and director and 900,000 shares were issued to three other individuals.

Common Shares

Private Placement

On April 17, 2020, the Company completed a private placement of 9,750,000 units of our securities at a price of $0.40 per unit for gross proceeds of $3,900,000, of which $1,000,000 was received on March 18,2020 and thus on March 31, 2020, the Company had $1 million as stock payable.

Each unit consisted of one share of our common stock and one share purchase warrant, with each share purchase warrant entitling the holder to acquire one additional share of our common stock at a price of $0.50 per share for a period of three years.

Of the 9,750,000 units the Company issued:

(i) 1,250,000 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 one investor who is an "accredited investor" within the respective meanings ascribed to that term in Regulation D promulgated under the Securities Act of 1933, as amended;

and (ii) 8,500,000 units were issued to 5 non-U.S.

persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act of 1933, as amended.

In connection with this private placement, the Company agreed with each subscriber who purchased these units to prepare and file a registration statement with respect to (i) the shares of our common stock comprising these units and (ii) the shares of our common stock issuable upon exercise of the share purchase warrants comprising these units with the Securities and Exchange Commission within 90 days following the closing of the private placement and agreed to use commercially reasonable efforts to have the registration statement declared effective by the Securities and Exchange Commission as soon as possible.

The Company filed the foregoing registration statement on Form S-3 with the SEC on May 27, 2020, and the registration statement was declared effective by the SEC on June 8, 2020.

On May 11, 2020, the Company completed a private placement of 4,444,440 subscription receipts at a price of $0.45 per subscription receipt for total gross proceeds of $1,999,998, which is being held in escrow until the subscription receipts are converted into common shares.

To convert these subscription receipts to common shares in the Company and thereby satisfy the escrow condition, the Company needs the approval of its shareholders by July 15, 2020 or the funds held in escrow will be refunded to the subscribers.

As of June 30, 2020, the Company has recognized the $1,999,998 as restricted cash and recognized the same amount as stock payable on the financial statements.

On July 14, 2020 after receiving the Shareholder Approval, the Company issued 4,444,440 units pursuant to the foregoing private placement completed on May 11, 2020.

Accordingly, gross proceeds of $1,999,998, previously held in escrow, have been released to our company.

Each unit consists of one share of our common stock and one transferable share purchase warrant, for no additional consideration.

Each warrant will entitle the holder thereof to acquire one share of our common stock until May 11, 2023 at a price of $0.55 per share.

In the event that our common stock has a closing price on the TSX Venture Exchange (or such other exchange on which our common stock may be traded at such time) of $1.75 or greater per share for a period of 20 consecutive trading days at any time from the closing date of the private placement, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof (by disseminating a news release advising of the acceleration of the expiry date of the warrants) and, in such case, the warrants will expire on the thirtieth day after the date of such notice.

The proceeds of the private placement are expected to be used to fund our company's general working capital and expansion of production capacity.

Of the 4,444,440 units the Company issued:

(i) 444,443 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 three investors, each of who is an "accredited investor" within the meaning ascribed to that term in Regulation D promulgated under the Securities Act of 1933, as amended;

and (ii) 3,999,997 units were issued to three non-U.S.

In connection with the private placement, the Company agreed with each subscriber who purchased these subscription receipts to prepare and file a registration statement with respect to (i) the shares of our common stock comprising these subscription receipts and (ii) the shares of our common stock issuable upon exercise of the share purchase warrants comprising these subscription receipts with the Securities and Exchange Commission within 30 days following the satisfaction of the Release Condition and agreed to use commercially reasonable efforts to have the registration statement declared effective by the Securities and Exchange Commission as soon as possible.

The Company filed the foregoing registration statement on Form S-3 with the SEC on May 27, 2020, and the registration statement was declared effective by the SEC on June 8, 2020.

Series S Convertible Preferred Stock

On May 12, 2021, The Alkaline Water Company Inc.

(the "Company") entered into an Endorsement Agreement (the "Endorsement Agreement"), with ABG-Shaq, LLC ("ABG-Shaq"), an entity affiliated with Shaquille O'Neal, for the personal services of Mr.

Pursuant to the Endorsement Agreement, the Company received the right and license to use Mr.

O'Neal's name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights, in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of the Company's branded products.

O'Neal will also provide brand ambassador services related to appearances, social media and public relations matters.

The Endorsement Agreement also includes customary exclusivity, termination, and indemnification clauses.

As consideration for the rights and services granted under the Endorsement Agreement, the Company agreed to pay to ABG-Shaq aggregate cash payments of $ 3 million over the three years of the Endorsement Agreement.

The Company will also pay expenses related to the marketing and personal services provided by Mr.

As of June 30, 2021, the Company has paid $ 500,000 under this agreement and anticipates paying an additional $ 500,000 in the quarter ended September 30, 2020 and the Company will be paying $ 250,000 in each quarter in the fiscal years ended March 31, 2023 and March 31, 2024

In addition, the Company agreed to grant 6,681,090 shares of Series S Preferred Stock to ABG, each vested share of which is convertible into one share of the Company's common stock.

The shares of Series S Preferred Stock will vest as to 1/3 on May 12, 2021, May 1, 2022, and May 1, 2023.

The term of the Endorsement Agreement ends on May 1, 2024.

The Series S Preferred was value at $ 6,681,090 based on the Company's closing stock price of $ 1.00 on May 12, 2021.

The Company the value of the vested Series S Preferred Stock in the amount of $ 2,227,030 was recognized as a prepaid expense which is being expense over the initial twelve months of the agreement.

The prepaid expense at June 30, 2021 was $ 1,855,858 .

In the quarter ended June 30, 2021, the Company recognized an expense of $ 871,172 in connection with the agreement and anticipates recognizing an expense in quarter ended September 30, 2021 in the amount of 1,056,758 and $ 556,758 for the quarter ended December 31, 2021 and March 31, 2022 for a total expense of $ 3,041,444 for the year ended March 31, 2022.

In the years ended March 31, 2023 and March 31, 2024, the Company anticipates recognizing an expense in the amount of $ 3,227,030 and $ 3,227,030 respectively.

Share Issuance

On April 30, 2020, the Company issued an aggregate of 247,000 shares of our common stock to non-employees in consideration for services rendered to our company.

Effective as of May 22, 2020, the Company issued 170,000 shares of our common stock to non-employees in consideration for services to be rendered to our company.

Effective as of August 18, 2020, the Company issued 90,116 shares of our common stock to non-employees in consideration for services to be rendered to our company.

The total fair value of the shares is $155,000 based on the $1.72 per share closing price of the Company's common stock on the NASDAQ stock exchange on August 18, 2020.

These shares were issued pursuant to an agreement dated July 30, 2020, whereby an entity was engaged to provide investor relations management services through its online platform for the Company for an initial term beginning on August 3, 2020 and ending on November 3, 2020.

The Company agreed to pay a one-time annual platform access fee in the amount of $40,000 plus pay for an additional deliverables during the term in the amount of $115, 000 for a total of $155,000, which amount was paid in the form of 90,116 shares of common stock of the Company.

Effective as of July 17, 2020, August 28, 2020, September 23,2020, October 16, 2020, November 18, 2020 and December 16, 2020 the Company issued 18,779 shares, 53,256 shares, 28,985 shares, 24,844 shares, 35,398 shares and 37,735 shares respectively of our common stock to non-employees in consideration for services to be rendered to our company.

The total fair value of the shares is $40,000, $91,600, $40,000, $40,000, $40,000 and $40,000 respectively based upon the $2.13, $1.72, $1.38, $1.61, $1.13 and $1.06 per share closing price of the Company's common stock on the NASDAQ stock exchange on July 17, 2020, August 28, 2020, September 23, 2020, October 16, 2020, November 19, 2020 and December 18, 2020.

Effective as April 15, 2021, the Company issued 38,834 shares, respectively of our common stock to non-employees in consideration for services to be rendered to our company.

The total fair value of the shares is $ 40,000 based upon the per share closing price of the Company's common stock on the NASDAQ stock exchange April 15, 2021.

These shares were issues pursuant to a consulting agreement dated June 15, 2020, whereby the Company engaged an entity to perform consulting services for the Company for a period of one year.

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Restricted Awards

On April 30, 2020, the Company granted awards of an aggregate of 1,065,000 shares of our common stock as "restricted awards" under our 2020 Equity Incentive Plan to certain directors, officers, employees and consultants.

Of these shares, 645,000 vest on the one-year anniversary of the grant date, 200,000 vest as to 50% on the one-year anniversary of the grant date and 50% vest on the second year anniversary of the grant date, 165,000 vest as to one-third on each anniversary of the grant date and 55,000 vest immediately.

On April 30, 2020, the Company issued the immediately vested awards, 35,000 to a non-employee, and 20,000 to an employee.

The grantees have no rights or privileges as stockholders of our company with respect to the unvested shares including, without limitation, the right to vote such shares and receive all dividends or other distributions paid with respect to such shares.

Of these restricted awards granted on April 30, 2020, an award of 200,000 shares of our common stock went to Richard A.

Wright, our president, chief executive officer and director, and an award of 100,000 shares of our common stock went to David A.

Guarino, our chief financial officer, secretary, treasurer and director.

The Company granted these shares as "restricted awards" under our 2020 Equity Incentive Plan.

These shares vest on the one-year anniversary of the grant date.

The grantees have no rights or privileges as a stockholder of our company with respect to the unvested shares including, without limitation, the right to vote such shares and receive all dividends or other distributions paid with respect to such shares.

The total fair value of the 1,065,000 shares of the Company's common stock granted as "restricted awards" is $1,065,000, based upon the $1.00 per share closing price of the Company's common stock on the NASDAQ stock exchange on April 29, 2020.

On August 27, 2020, the Company granted an award of 20,000 shares of our common stock as "restricted awards" under our 2020 Equity Incentive Plan to new employee.

These shares vest one-third on each anniversary date over three years.

The grantee has no rights or privileges as stockholders of our company with respect to the unvested shares including, without limitation, the right to vote such shares and receive all dividends or other distributions paid with respect to such shares.

The total fair value of the 20,000 shares of the Company's common stock granted as "restricted awards" is $30,400 based upon the $1.52 per share closing price of the Company's common stock on the NASDAQ stock exchange on August 27, 2020.

The Company's total stock compensation expense on account of the 1,065,000 shares of its common stock granted on April 30, 2020 and the 20,000 shares of its common stock granted on August 27, 2020 as "restricted awards" for the three-month period ended December 31, 2020 was $210,172 and for the nine-month period ended December 31, 2020 was $576,600.

An additional expense will be recognized of $ 198,367 will be recognized in the year ended March 31, 2021 for a total of $773,967 expense in the fiscal year ended March 31, 2021.

Additional expense will be recognized in the next 3 fiscal years of $202,217, $56,800 and $7,417, respectively.

During October 2020, the Company issued 50,000 shares of our common stock to an employee upon his exercise of vested restricted awards under our 2020 Equity Incentive Plan.

On May 3, 2021, the Company issued 816,665 shares of our common stock to employees upon the exercise of vested restricted awards under our 2020 Equity Incentive Plan.

NOTE 6 - OPTIONS AND WARRANTS

Issuance of Options

On April 3, 2020, the Company granted an aggregate of 2,737,000 stock options to certain directors, officers, consultants and employees for the purchase of up to 2,737,000 shares of our common stock pursuant to our 2018 Stock Option Plan.

Each stock option is exercisable at a price of $0.53 per share until April 2, 2030.

Of these stock options, 1,217,000 vest as to 50% on the grant date and 50% on the one-year anniversary of the grant date, 640,000 vest as to one-third on the grant date and one-third on each anniversary of the grant date and 880,000 vest as to one-third on each anniversary of the grant date.

The Company granted the stock options to 31 U.S.

Persons and 3 non U.S.

Persons (as that term is defined in Regulation S of the Securities Act of 1933) and in issuing securities the Company relied on the registration exemption provided for in Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.

Of these options, 250,000 were granted to Richard A.

Wright, our president, chief executive officer and director, and 150,000 were granted to David A.

Guarino, our chief financial officer, secretary, treasurer and director.

These stock options are exercisable at the exercise price of $0.53 per share until April 2, 2030.

The stock options vest as to 50% on the date of grant and 50% on the one-year anniversary of the date of grant.

The fair value of each of the 2,737,000 stock options issued was calculated as $0.53 per share, which was the Black-Scholes valuation as of the grant date, corresponding to a total fair value of $1,450,610 for these options.

In connection with the above grant, the Company repriced a total of 600,900 stock options originally issued on April 28, 2017 from their original exercise price of $1.29 to $0.53, resulting in an additional stock compensation expense of $42,664.

Effective August 10, 2020, we granted 125,000 stock options to the new employee issued restricted shares above with an exercise price of $1.57 per share.

These options vest one-third on each anniversary of the grant date.

The fair value of these 125,000 stock options issues was calculated at $1.57 per share, which was the Black-Scholes valuation (using the exercise price of $1.57, 10 years to maturity, annual risk-free interest rate of 0.6% and annualized volatility of 107%) as of the date of grant, corresponding to a total fair value of $185,625 for these options.

Effective November 18, 2020, we granted 45,000 stock options to the new employee issued restricted shares above with an exercise price of $1.09 per share.

These options vest one-third on each anniversary of the grant date.

The fair value of these 45,000 stock options issues was calculated at $1.03 per share, which was the Black-Scholes valuation (using the exercise price of $1.09, 10 years to maturity, annual risk-free interest rate of 0.6% and annualized volatility of 121%) as of the date of grant, corresponding to a total fair value of $46,350 for these options.

The Company's total stock compensation expense for the three-month period ending December 31, 2020 was $213,698 related to the 2018 Stock Option and for the nine-month period ending December 31, 2020 was $983,685 related to the 2018 Stock Option Plan and $54,202 relating to the 2013 Stock Option Plan.

An additional expense of $226,730 will be recognized in the year ended March 31, 2021 for a total of $1,307,282 in stock compensation expense in the fiscal year ended March 31, 2021.

Additional stock compensation expense will be recognized in fiscal years 2022, 2023 and 2024 of $331,057, $104,970 and $16,557, respectively

Exercise of Options

Effective as of April 29, 2020, the Company issued an aggregate of 116,000 shares of our common stock upon exercise of stock options for gross proceeds of $61,480.

Effective as of July 9, 2020 the Company issued an aggregate of 188,081 shares of our common stock upon a cash-less exercise of stock options.

Effective as of August 4, 2020 the Company issued an aggregate of 48,158 shares of our common stock upon a cash-less exercise of stock options.

Exercise of Warrants

Effective as of May 20, 2020, the Company issued an aggregate of 287,666 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 $258,899.

Effective as of July 28, 2020 the Company issued an aggregate of 81,400 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of CAD$2.90 per share for aggregate gross proceeds of $172,521.

Effective as of August 5, 2020 the Company issued an aggregate of 7,999 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of CAD$2.90 per share for aggregate gross proceeds of $16,802.

Effective as of August 14, 2020 the Company issued an aggregate of 8,750,000 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $0.50 per share for aggregate gross proceeds of $4,375,000.

Effective as of October 19, 2020, the Company issued an aggregate of 166,000 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $0.55 per share for aggregate gross proceeds of $91,666.

The Company issued 162,668 shares of common stock during the three months ending June 30, 2021 in connection with the exercise of stock options of which 91,000 options were with a payment to the Company for the exercise price of $ 48,230 and the remaining amount of stock options were exercised as a cashless exercise under the plan.

Effective as of June 14, 2021, we issued an aggregate of 277,777 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $ 0.55 per share for aggregate gross proceeds of $ 152,777.35 .

We issued these shares to one U.S.

person (as that term is defined in Regulation S of the Securities Act of 1933) and in issuing these shares, we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 promulgated under the Securities Act of 1933.

Effective as of June 15, 2021, we issued an aggregate of 1,000,000 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $ 0.50 per share for aggregate gross proceeds of $ 500,000 .

We issued these shares to one non-U.S.

person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.

NOTE 7 - LEASES

The Company adopted ASC 842 on April 1, 2019 which requires lessees to recognize right-of-use ("ROU") asset and lease liability for all leases.

The Company elected the package of transition practical expedients for existing contracts, which allowed us to carry forward our historical assessments of whether contracts are or contain leases, lease classification and determination of initial direct costs.

The Company leases property under operating leases.

The Company extended its short-term lease for a warehouse, originally due to expire on March 31, 2020 to March 2021, thus the Company adopted ASC 842 for this lease at the time of the extension in January 2020.

The lease rate for the extension was $3,938 per month starting April 1, 2020.

As of July 1, 2020, the Company entered into a lease for 14,530 square feet of warehouse space from a third party through December 2021 at a rate of $ 7,992 per month for the first twelve months, then at a rate of $ 8,231 per month for the last six months of the lease.

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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 nine months ended December 31, 2020 was $64,225 and $158,440, respectively.

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

Operating Lease expense for the three months ended June 30, 2021 was $ 100,915 and for the three months ended June 30, 2020 was $ 34,754 .

Operating Leases:

December 31, 2020

June 30, 2021

Operating lease right-of-use asset - current portion

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Operating leases

Supplemental cash flow information related to leases is as follows:

Maturities of undiscounted lease liabilities as of December 31, 2020 are as follows:

Year ending March 31, 2021

Maturities of undiscounted lease liabilities as of June 30, 2021 are as follows:

Operating Leases

Year ending March 31, 2022

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Total lease obligations

NOTE 8 - RISKS AND UNCERTAINTIES

In December 2019, a novel strain of COVID-19 was reported in China.

Since then, the COVID-19 has spread globally including across North America and the United States.

The spread of COVID-19 from China to other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a "pandemic," or a worldwide spread of a new disease, on March 11, 2020.

Specifically, the Company cautions that our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the outbreak of COVID-19.

To date, the Company has managed to operate successfully throughout the pandemic without any material disruptions to our supply chain.

Although retailers which carry our products may be considered essential businesses and therefore be allowed to remain operational, they may experience significantly reduced demand.

The risk of a pandemic, or public perception of the risk, could cause customers to avoid public places, including retail properties, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory to our customers.

Further, such risks could also adversely affect retail customers' financial condition, resulting in reduced spending on our products, which are marketed as premium products.

"Shelter-in-place" or other such orders by governmental entities could also disrupt our operations, if our employees or the employees of our sourcing partners who cannot perform their responsibilities from home, are not able to report to work.

Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our co-packing facilities or operations of our sourcing partners.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business.

The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its consolidated financial statements.

NOTE 9 - SUBSEQUENT EVENTS

Effective as of January 14, 2021 the Company issued an aggregate of 242,037 shares of our common stock to two non-employees in consideration for services rendered to our Company.

Effective as of February 1, 2021, the Company issued 2,000,000 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $0.55 per share for an aggregate gross proceeds of $1,100,000.

Effective as of February 8, 2021, the Company issued 1,777,777 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $0.55 per share for an aggregate gross proceeds of $977,777.

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.

In December 2019, a novel strain of COVID-19 was reported in China.

Since then, the COVID-19 has spread globally including across North America and the United States.

Specifically, we caution that our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the outbreak of COVID-19.

To date, we have managed to operate successfully throughout the pandemic without any material disruptions to our supply chain.

Although retailers which carry our products may be considered essential businesses and therefore be allowed to remain operational, they may experience significantly reduced demand.

Further, such risks could also adversely affect retail customers' financial condition, resulting in reduced spending on our products, which are marketed as premium products.

Results of Operations

Three Months Ended December 31, 2020 and December 31, 2019

Our results of operations for the three months ended December 31, 2020 and December 31, 2019 are as follows :

For the three

Cost of goods sold

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the three months ended December 31, 2020 of $10,179,695 as compared to $8,455,030 for the three months ended December 31, 2019, an increase of 20% 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 additional retailers throughout the country offset reduced demand due to Covid-19.

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, Family Dollar, Albertson/Safeway, Kroger, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros.

Markets, Unified Grocers, Bristol Farms, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, 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 December 31, 2020, we had cost of goods sold of $5,985,210, or 59% of revenue, as compared to cost of goods sold of $5,061,324 or 60% of revenue, for the three months ended December 31, 2019.

Our operating expenses for the three months ended December 31, 2020 and December 31, 2019 are as follows:

For the three

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the three months ended December 31, 2020, our total operating expenses were $8,417,902 as compared to $6,144,582 for the three months ended December 31, 2019.

For the three months ended December 31, 2020, the total included $4,654,930 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 $3,481,010, consisted primarily of approximately $2,0 million of professional fees, media fees and legal fees, stock option expense in the amount of approximately $0.4 million and approximately $0.8 million of wages and wage related expenses.

The approximate increase of $1.6 million in general and administrative expenses for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 was primarily due to an increase of $1.3 million in in professional fees, media fees and legal fees.

For the three months ended December 31, 2019, the total included $4,077,599 of sales and marketing expenses and $1,812,763 of general and administrative expenses, consisting primarily of approximately $0.7 million of professional fees, media fee and legal fees, approximately $0.6 million of wages and wages related expenses and approximately $0.2 million of non-cash stock option and stock compensation expense.

Depreciation expense for the three months ended December 31, 2020 and December 31, 2019 was $281,962 and $254,220, respectively.

Nine Months Ended December 31, 2020 and December 31, 2019

Our results of operations for the nine months ended December 31, 2020 and December 31, 2019 are as follows:

Cost of goods sold

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the nine months ended December 31, 2020 of $35,155,065 as compared to $29,053,052 for the nine months ended December 31, 2019, 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 additional 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, 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 nine months ended December 31, 2020, we had cost of goods sold of $20,681,694, or 59% of revenue, as compared to cost of goods sold of $17,048,951 or 59% of revenue, for the nine months ended December 31, 2019.

Our operating expenses for the nine months ended December 31, 2020 and December 31, 2019 are as follows:

Sales and marketing expenses

General and administrative expenses

Depreciation expenses

Total operating expenses

For the nine months ended December 31, 2020, our total operating expenses were $25,758,162, as compared to $22,527,263 for the nine months ended December 31, 2019.

For the nine months ended December 31, 2020, the total included $14,145,004 of sales and marketing expenses and $10,918,879 of general and administrative expenses, consisting primarily of approximately $5.3 million of professional fees, stock option expense in the amount of approximately $2.3 million and approximately $2.2 million of wage and wage related expenses.

For the nine months ended December 31, 2019, the total included $13,359,941 of sales and marketing expenses and $8,439,405 of general and administrative expenses, consisting primarily of approximately $4.5 million of professional fees, media fee and legal fees, approximately $1.5 million of wages and wages related expenses and approximately $1.5 million of non-cash stock option expense.

Depreciation expense for the nine months ended December 31, 2020 and December 31, 2019 was $694,297 and $727,917, respectively.

Liquidity and Capital Resources

Working Capital

Current assets

Current liabilities

Working capital

Current Assets

Current assets as of December 31, 2020 and March 31, 2020 primarily relate to $1,716,944 and $4,561,682 in cash, $4,889,660 and $4,917,081 in accounts receivable and $4,113,654 and $2,919,860 in inventory, respectively.

Current Liabilities

Current liabilities as of December 31, 2020 and March 31, 2020 primarily relate to $4,995,768 and $5,406,541 in accounts payable, revolving financing of $3,999,478 and $7,291,217, and accrued expenses of $1,728,321 and $1,186,516 respectively.

Our cash flows for the nine months ended December 31, 2020 and December 31, 2019 are as follows:

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 $9,602,288 for the nine months ended December 31, 2020, as compared to $8,879,109 used in operating activities for the nine months ended December 31, 2019.

The increase of approximately $0.7 million in net cash used in operating activities is primarily due to approximately $0.9 million increase of net loss in the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019.

Investing Activities

Net cash used in investing activities was $152,877 for the nine months ended December 31, 2020, as compared to $244,442 used in investing activities for the nine months ended December 31, 2019.

The decrease of approximately $0.1 million in net cash used in investing activities is due to a decrease of approximately $0.1 million decrease of purchase of fixed assets in the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019.

Financing Activities

Net cash provided by financing activities for the nine months ended December 31, 2020 was $6,910,427, as compared to $2,264,651 for the nine months ended December 31, 2019.

The increase of approximately $4.6 million in net cash provided by financing activities is primarily due to increase of approximately $7.3 million increase of proceeds provided by sale of common stock and proceeds from the exercise of warrants, offset by an increase of approximately $2.1 million of repayment of revolving financing in the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019.

Cash Requirements

We believe that between the cash on hand as of December 31, 2020, expected warrant exercises, and our credit line, we will have sufficient cash to sustain operations including our cash needs through at least December 31, 2021.

If our own financial resources and future cash-flows from operations beyond December 31, 2021 are insufficient to sustain operations, 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.

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

Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

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

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

On July 6, 2021, we completed a private placement of 4,757,381 subscription receipts at a price of $ 1.05 per subscription receipt for total gross proceeds of $ 4,995,250.05 .

In the event of the occurrence of the escrow release condition (as defined below), each subscription receipt will automatically convert into one unit consisting of one share of our common stock and one transferable share purchase warrant, for no additional consideration.

Each warrant will entitle the holder thereof to acquire one share of our common stock for a period of three years from the date of issuance thereof at a price of $ 1.25 per share.

The subscription amounts will be held by an escrow agent until the escrow release condition occurs.

The escrow release condition is the receipt by our company of an ordinary resolution of our stockholders approving the private placement and the issuance of the securities thereunder.

In the event that the escrow release condition is satisfied prior to 5:00 p.m.

(Vancouver time) on September 30, 2021, we will deliver a notice to the escrow agent confirming the escrow release condition has been satisfied.

Upon receipt of the notice, the escrow agent will, as soon as practicable thereafter, release the subscription amounts to our company and each subscription receipt will automatically convert into one unit without payment of any additional consideration.

If the escrow release condition is not satisfied by 5:00 p.m.

(Vancouver time) on September 30, 2021 or if we deliver a written default notice to the escrow agent that the escrow release condition will not be satisfied by that time, the subscription receipts will expire and be of no further force and effect, effective as of the earlier of (i) 5:00 p.m.

(Vancouver time) on September 30, 2021 (ii) the date of the receipt of the default notice, and the subscribers will be entitled to receive from the escrow agent a refund of the subscription amounts held in escrow, without interest and less applicable expenses.

As of August 16, 2021 since June 30, 2021, the Company has issued 4,761,688 shares in connection with the exercise of warrants at $ 1.25 per share for total proceeds received of approximately $ 6 million.

In addition, for the same time period, the Company has issued 63,692 shares in connection with the cashless exercise of 86,666 options.

On July 27, 2021, the Company granted an aggregate of 454,000 stock options to certain employees for the purchase of up to 454,000 shares of common stock pursuant to the 2020 Equity Incentive Plan.

Each stock option is exercisable at a price of $ 1.75 per share until July 27, 2031.

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