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Item 1. Financial Statements

2022-02-14 compared with 2021-11-09 · 120 added, 104 removed, 278 unchanged (45% of the section changed)

1 unchanged sentence

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2021

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2021

March 31, 2021

18 unchanged sentences

Stockholders' equity

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

Common stock, Class A - $ 0.001 par value, 200,000,000 shares authorized 104,333,373 and 87,465,178 shares issued and outstanding at September 30, 2021 and March 31, 2021, respectively

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 4,454,060 Series S issued and outstanding on December 31, 2021 and nil issued and outstanding on March 31, 2021

Common stock, Class A - $ 0.001 par value, 200,000,000 shares authorized 107,242,070 and 87,465,178 shares issued and outstanding at December 31, 2021 and March 31, 2021, respectively

Additional paid in capital

4 unchanged sentences

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED STATEMENT OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months

For the Six Months

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

For the Nine Months

December 31, 2021

December 31, 2020

December 31 , 2021

December 31, 2020

Cost of Goods Sold

5 unchanged sentences

Other expense

Gain on forgiveness of PPP loan payable

Interest expense

4 unchanged sentences

THE ALKALINE WATER COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Stock

16 unchanged sentences

Balance, September 30, 2020

Common shares issued upon exercise of warrants

Common shares issues to non-employees

Common shares issued to employees

Stock Option expense

Balance, December 31, 2020

Balance, March 31, 2021

11 unchanged sentences

Balance, September 30, 2021

Common shares issued upon exercise of warrants

Preferred Stock conversion to common stock

Common shares issued to non-employees

Stock option and RSU-related stock compensation expense

Balance, December 31, 2021

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

THE ALKALINE WATER COMPANY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

September 30, 2021

September 30, 2020

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months

December 31, 2021

December 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

Depreciation expense

Shares issued and vested, options and RSU amortized for employee

and non-employee services

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

Non-cash lease expense

12 unchanged sentences

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

SUPPLEMENTAL DISCLOSURE of NON-CASH INVESTING AND FINANCIAL ACTIVITIES

ISSUANCE OF COMMON SHARES TO SETTLE STOCK PAYABLE

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

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9 unchanged sentences

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 and six months ended September 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 and six months ended September 30, 2021 and 2020 is unaudited.

The results of operations for the three and nine months ended December 31, 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 and nine months ended December 31, 2021 and 2020 is unaudited.

The 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.

7 unchanged sentences

(a Nevada Corporation), AWC Acquisition Company Inc.

(a Nevada corporation), The Clean Beverage Company Inc (a Nevada corporation) and Alkaline 88, LLC (an Arizona Limited Liability Company).

(a Nevada corporation), The Clean Beverage Company Inc.

(a Nevada corporation) and Alkaline 88, LLC (an Arizona Limited Liability Company).

All significant intercompany balances and transactions have been eliminated.

10 unchanged sentences

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 $ 10,419,065 and $ 9,130,956 in cash at September 30, 2021 and March 31, 2021, respectively.

The Company had $ 3,293,292 and $ 9,130,956 in cash at December 31, 2021 and March 31, 2021, 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, 2021 and March 31, 2021:

September 30, 2021

March 31, 2021

Trade receivables, net

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

Trade receivables

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

September 30, 2021

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

December 31, 2021

March 31, 2021

10 unchanged sentences

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 with cash on hand and funds from the exercise of outstanding warrants will adequately fund the Company's planned operations and capital needs for the next 12 months.

The Company currently anticipates its cash on hand, funds from the exercise of outstanding warrants, and access to its ATM facility, 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.

20 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 $ 4,812,052 and $ 1,670,523 for the three months ended September 30, 2021 and 2020, respectively and $ 7,718,952 and $ 3,477,554 for the six months ended September 30, 2021 and 2020, respectively.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 4,105,279 and $ 1,837,964 for the three months ended December 31, 2021 and 2020, respectively and $ 11,824,231 and $ 5,315,518 for the nine months ended December 31, 2021 and 2020, respectively.

Concentration Risks

We have 2 major customers that together account for 30 % ( 18 % and 12 %, respectively) of accounts receivable at September 30, 2021, 3 customers that accounts for 43 % ( 21 %, 11 % and 11 %, respectively) of total revenues for the three months ended September 30, 2021 and 3 customers that accounts for 44 % ( 21 %, 13 % and 10 %, respectively) of the total revenues earned for the six months ended September 30, 2021.

The Company has 3 vendors that accounts for 53 % ( 32 %, 11 % and 10 % respectively) of purchases for the three months ended September 30, 2021 and 3 vendors that accounted for 53 % ( 30 %, 13 % and 10 % respectively) of purchases for the six months ended September 30, 2021.

We have 2 major customers that together account for 27 % ( 15 % and 12 %, respectively) of accounts receivable at September 30, 2020, 1 customer that accounts for 25 % of total revenues for the three months ended September 30, 2020 and 2 customers that accounts for 40 % ( 22 % and 18 %, respectively) of the total revenues earned for the six months ended September 30, 2020.

The Company has 3 vendors that accounts for 58 % ( 25 %, 21 % and 12 % respectively) of purchases for the three months ended September 30, 2020 and 3 vendors that accounted for 55 % ( 24 %, 19 % and 12 % respectively) of purchases for the six months ended September 30, 2020.

We have 2 major customers that together account for 32 % ( 17 % and 15 %, respectively) of accounts receivable at December 31, 2021, 2 customer that accounts for 34 % ( 17 % and 17 %, respectively) of total revenues for the three months ended December 31, 2021 and 2 customers that accounts for 33 % ( 19 % and 14 %, respectively) of the total revenues earned for the nine months ended December 31, 2021.

The Company has 3 vendors that accounts for 52 % ( 27 %, 14 % and 11 % respectively) of purchases for the three months ended December 31, 2021 and 3 vendors that accounted for 49 % ( 25 %, 14 % and 10 % respectively) of purchases for the nine months ended December 31, 2021.

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 53 % ( 23 %, 19 % and 11 % respectively) of purchases for the nine months ended December 31, 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 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 4,371,379 and 1,951,490 shares relating to options, 2,087,104 and 1,734,443 shares relating to warrants and 2,227,030 and - 0 - million convertible preferred shares at September 30, 2021 and 2020, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

The Company had 4,033,949 and 1,348,566 shares relating to options and 780,009 and 2,453,243 shares relating to warrants at December 31, 2021 and 2020, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

Business Segments

11 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, 2021 and 2020, 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, 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 and six months ended September 30, 2020 has been corrected for the following:

The accompanying consolidated statement of operations for the three and nine months ended December 31, 2020 has been corrected for the following:

a reclassification of depreciation expense of $ 278,751 and $ 686,372 , respectively, to cost of goods sold related to assets utilized in the production of inventory and an adjustment to reclassify sales and marketing expenses of $ 563,495 and $ 1,946,003 , respectively, 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 for the three and six months ended September 30, 2020, cost of goods sold increased from $ 6,326,958 to $ 6,509,264 and from $ 14,696,484 to $ 15,104,105 , respectively, and revenue decreased from $ 10,755,946 to $ 10,160,552 and $ 24,975,370 to $ 23,592,862 , respectively which combined resulted in a decrease of gross profit from $ 4,428,988 to $ 3,651,288 and from $ 10,278,886 to $ 8,488,757 , respectively.

As a result of the correction for the three and nine months ended December 31, 2020, cost of goods sold increased from $ 5,985,210 to $ 6,263,961 and from $ 20,681,694 to $ 21,368,066 , respectively, and revenue decreased from $ 10,179,695 to $ 9,616,200 and $ 35,155,065 to $ 33,209,062 , respectively which combined resulted in a decrease of gross profit from $ 4,194,485 to $ 3,352,239 and from $ 14,473,371 to $ 11,840,996 , respectively.

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

7 unchanged sentences

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

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.

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.

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, 2021 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, 2021 and believes that none of them will have a material effect on our consolidated financial statements.

NOTE 2 - PROPERTY AND EQUIPMENT

Fixed assets consisted of the following at:

Property and equipment consisted of the following at:

September 30, 2021

December 31, 2021

March 31, 2021

Machinery and equipment

2 unchanged sentences

Property and equipment, net

Depreciation expense for the three months ended September 30, 2021 and 2020 was $ 159,015 and $ 184,406 , respectively.

Depreciation expense for the six months ended September 30, 2021 and 2020 was $ 318,030 and $ 412,317 , respectively.

Depreciation expense for the three months ended December 31, 2021 and December 31, 2020 was $ 159,014 and $ 281,962 , respectively.

Depreciation expense for the nine months ended December 31, 2021 and December 31, 2020 was $ 477,045 and $ 694,279 , respectively.

NOTE 3 - REVOLVING FINANCING

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).

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).

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 September 30, 2021 and 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 interest rate as of December 31, 2021 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 unused line fee will be payable monthly in arrears.

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 Company also agreed to pay the Lender as additional interest a monthly collateral management fee equal to 0.35 % per month calculated on the basis of the average daily balance under the Revolving Facility outstanding during the preceding month.

The collateral management fee will be payable monthly in arrears.

Upon a termination of the Revolving Facility, 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.

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.

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 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.

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, 2021.

The balance of the revolving financing was $ 6,426,601 and $ 4,324,412 at December 31, 2021 and March 31, 2021, respectively.

NOTE 4 - PAYCHECK PROTECTION PROGRAM LOAN

On April 29, 2020, Alkaline 88, LLC (the "Borrower"), a wholly owned subsidiary of the Company, signed a promissory note with MidFirst Bank (the "Lender") in the amount of $ 325,800 , pursuant to the Paycheck Protection Program (the "PPP") under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The loan was forgiven on October 14, 2021 as authorized by Section 1106 of the CARES Act.

NOTE 5 - STOCKHOLDERS EQUITY

The promissory note issued by Borrower, matures on April 29, 2022 and bears interest at a rate of 1 % per annum.

Borrower shall pay principal plus interest accrued under the promissory note in 18 equal monthly installments beginning on October 29, 2020 .

The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties.

Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020.

The Company intends to use the entire Loan amount for qualifying expenses.

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.

As of October 14, 2021, the Company's loan under the Paycheck Protection Program ("PPP") was forgiven as authorized by Section 1106 of the CARES Act.

The outstanding principal balance of $ 325,800 along with accrued interest of $ 4,751 totaling $ 330,551 was forgiven.

NOTE 5 - STOCKHOLDER EQUITY

Preferred Shares

10 unchanged sentences

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

The Company paid $ 500,000 and $ 1,000,000 in the three and six months ended September 30, 2021, respectively 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 issued 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.

As of December 31, 2021, the Company has paid $ 1,000,000 under this agreement.

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, respectively.

2 unchanged sentences

The Company valued the vested Series S Preferred Stock at $ 2,227,030 , which amount was recognized by the Company as a prepaid expense that is being expensed over the initial twelve months of the Endorsement Agreement's Term.

The prepaid expense at September 30, 2021 was $ 1,299,100 .

In the three and six months ended September 30, 2021, the Company recognized an expense of 1,056,758 and $ 1,927,929 , respectively, in connection with the agreement and anticipates recognizing an expense of 556,758 in 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.

Private Placement

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 .

The subscription receipts were held in escrow until September 29, 2021 when each subscription receipt was converted 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 prepaid expense at December 31, 2021 was $ 742,342 .

In the three and nine months ended December 31, 2021, the Company recognized an expense of $ 556,758 and $ 2,484,687 respectively, in connection with the agreement.

Common Shares

Share Issuance

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

In addition, effective as of August 27, 2021 and September 29, 2021, the Company issued 73,684 and 16,118 , respectively shares of our common stock to non-employees in consideration for services rendered to the Company.

The total fair value of the shares is $ 140,000 and $ 25,789 , respectively, based upon the per share closing price of the Company's common stock on the NASDAQ stock exchange on August 20, 2021 and September 29, 2021.

All of these shares were issued 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.

The Company agreed to pay a retainer in the amount of $ 40,000 per month.

The agreement has been terminated and no further amounts are owed by the Company under this agreement.

Effective as of August 20, 2021, the Company issued 83,000 shares of our common stock to non-employees in consideration for services to be rendered to the Company.

The total fair value of the shares is $ 141,930 based upon the per share closing price of the Company's common stock on the NASDAQ stock exchange on August 20, 2021.

Effective as of November 19, 2021, we issued 2,227,030 shares of our common stock to one entity upon conversion of 2,227,030 shares of our Series S Preferred Stock without the payment of any additional consideration.

On December 20, 2021, the Issuer granted an award of 15,000 shares of common stock as a "restricted award" under their 2020 Equity Incentive Plan to a director.

Restricted Awards

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.

On November 11, 2021, we granted awards of an aggregate of 2,000,000 shares of our common stock as "restricted awards" under our 2020 Equity Incentive Plan to certain directors, officers, employees, and consultants, fourteen persons in total.

These shares will vest on January 15, 2022.

In the three and nine months ended December 31, 2021, the Company recognized an expense of $ 2,460,000 in connection with the grant and anticipates recognizing an expense of $ 820,000 in the quarter ended March 31, 2022 for a total expense of $ 3,280,000 for the year ended March 31, 2022.

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.

NOTE 6 - OPTIONS AND WARRANTS

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.

The Company issued 118,692 shares of common stock during the three months ending September 30, 2021 in connection with the exercise of stock options of which 55,000 options were with a payment to the Company for the exercise price of $ 59,950 and the remaining amount of stock options were exercised as a cashless exercise under the plan.

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.

The Company issued 1,277,777 shares of common stock during the three months ending June 30, 2021 in connection with the exercise of warrants with a payment to the Company for the exercise price of $ 652,777 .

The Company issued 9,523,376 shares of common stock during the three months ending September 30, 2021 in connection with the exercise of warrants with a payment to the Company for the exercise price of $ 11,904,220 .

On September 29, 2021, the Company issued 4,757,381 share purchase warrant and at exercise price of $ 1.25 per share.

These warrants were issued in connection with the private placement of common stock on September 29, 2021.

Issuance of Options

On November 11, 2021, we granted an aggregate of 129,000 stock options to five employees for the purchase of up to 129,000 shares of our common stock pursuant to our 2020 Equity Incentive Plan.

Each stock option is exercisable at a price of US$ 1.64 per share until November 10, 2031.

The stock options will vest as to 50% on each anniversary of the grant date.

Exercise of Warrants

Effective as of November 15, 2021, we issued an aggregate of 666,667 shares of our common stock to one individual upon exercise of our common stock purchase warrants with an exercise price of $ 1.25 per share for aggregate gross proceeds of $ 833,334 .

NOTE 7 - LEASES

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.

The Company determined this lease was an operating lease under ASC 842 and using an interest rate of 7 %, the Company determined that the ROU for this lease was $ 130,989 and the lease liability for this lease was $ 138,266 , at inception of this lease, respectively.

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.

As of October 1, 2020, the company entered into a lease for 9,166 square feet of corporate office and warehouse space from a third party through September 2023 at a rate of $ 10,083 per month for the first twelve months, then at a rate of $ 10,385 for the next 12 months, and $ 10,697 for the final 12 months of the lease.

11 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, 2021 was $ 91,611 and $ 192,526 , respectively.

Operating Lease expense for the three and six months ended September 30, 2020 was $ 59,461 and $ 94,215 , respectively.

September 30, 2021

Operating Lease expense for the three and nine months ended December 31, 2021 was $ 92,481 and $ 285,007 , respectively.

Operating lease expense for the three and nine months ended December 31, 2020 was $ 64,225 and $ 158,440 , respectively.

Operating Leases:

December 31, 2021

Operating lease right-of-use asset - current portion

9 unchanged sentences

Supplemental cash flow information related to leases is as follows:

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

Operating Leases

Maturities of undiscounted lease liabilities as of December 31, 2021 are as follows:

Year ending March 31, 2022

2 unchanged sentences

Total lease payments

Imputed interest

Adjusted for interest

Total lease obligations

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 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 9 - SUBSEQUENT EVENTS

As of October 14, 2021, the Company's loan under the Paycheck Protection Program ("PPP") was forgiven as authorized by Section 1106 of the CARES Act.

The outstanding principal balance of $ 325,800 along with accrued interest of $ 4,751 totalling $ 330,551 was forgiven.

On January 11, 2022, we issued 1,617 shares of our common stock on account of an employee exercising 3,000 stock options on a cashless basis with an exercise price of $ 0.53 per share.

On January 15, 2022, we issued an aggregate of 2,000,000 shares of our common stock that had vested from "restricted awards" granted on November 11, 2021 under our 2020 Equity Incentive Plan to certain directors, officers, employees, and consultants, fourteen persons in total.

On January 15, 2022, we issued 6,666 shares of our common stock to an employee that had vested from a restricted award previously granted.

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