ALKALINE WATER Co INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Alkaline Water Company Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of The Alkaline Water Company Inc. (the Company) as of March 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended March 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred accumulated net losses as of March 31, 2022, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Accrued Promotional Allowances – Refer to Note 1 to the financial statements Critical Audit Matter Description We identified accrued promotional allowances as a critical audit matter because of the extent and subjective nature of management judgment required with respect to estimating consumer participation and/or distributor and retail customer performance levels and future promotional claims. 2 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures over accrued promotional allowances, with respect to management’s judgment regarding levels of consumer participation and/or distributor and retail customer performance levels and future promotional claims, included the following, among others: • We selected a sample of accrued promotional allowances recorded for specific distributors and retail customers and (1) developed an expectation of the accrual using current-year claim and payment data, and/or (2) vouched known claim submissions, unpaid as of period-end, to underlying supporting documentation. • We tested the promotional expenditure amount recorded as a reduction to net sales and assessed the reasonableness of management’s estimate by developing an expectation of the amount, based on historical promotional expenditure amounts recorded as a percentage of sales, and compared our expectation to the recorded promotional expenditure amount. • We performed inquiries with the Company’s sales and marketing personnel to corroborate our understanding of new and existing promotional programs that may alter the relationship between gross billings and promotional allowances, as such programs are considered by management when estimating future promotional claims. • We evaluated management’s ability to estimate promotional allowances by comparing the actual promotional allowances subsequently paid to the original estimates of management. /s/ Prager Metis CPAs, LLC We have served as the Company’s auditor since 2019. Basking Ridge, NJ July 14, 2022 273 THE ALKALINE WATER COMPANY INC. CONSOLIDATED BALANCE SHEETS March 31, 2022 March 31, 2021 ASSETS Current assets Cash $ 1,531,062 $ 9,130,956 Accounts receivable, net 7,927,065 8,458,176 Inventory 8,583,664 4,407,720 Prepaid expenses 2,928,085 1,037,961 Operating lease right-of-use asset - current portion 187,545 236,446 Total current assets 21,157,421 23,271,259 Fixed assets - net 1,200,797 1,010,183 Operating lease right-of-use asset 142,359 269,167 Total assets $ 22,500,577 $ 24,550,609 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 10,441,879 $ 7,055,348 Accrued expenses 2,036,739 1,306,106 Revolving financing 7,043,870 4,324,412 Convertible note payable, net of debt discount 2,223,633 - PPP loan payable - current portion - 328,570 Operating lease liability - current portion 174,565 229,605 Total current liabilities 21,920,686 13,244,041 Operating lease liability 178,753 292,582 Total liabilities 22,099,439 13,536,623 Commitments and contingencies (Note 10) Stockholders' equity (deficit) Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 4,453,970 Series S issued and outstanding on March 31, 2022 and nil issued and outstanding on March 31, 2021 4,454 - Common stock, Class A - $ 0.001 par value, 200,000,000 shares authorized 110,571,812 and 87,465,178 shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively 110,572 87,464 Subscription Receivable ( 62,388 ) - Additional paid in capital 109,864,080 80,857,742 Accumulated deficit ( 109,515,580 ) ( 69,931,220 ) Total stockholders' equity 401,138 11,013,986 Total liabilities and stockholders' equity $ 22,500,577 $ 24,550,609 The accompanying notes are an integral part of these consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENT OF OPERATIONS For the Year Ended March 31, 2022 March 31, 2021 Net Revenue $ 60,596,247 $ 46,069,121 Cost of Goods Sold 45,377,275 29,622,361 Gross Profit 15,218,972 16,446,760 Operating expenses Sales and marketing expenses 32,636,143 16,420,520 General and administrative 21,580,739 15,860,147 Total operating expenses 54,216,882 32,280,667 Total operating loss ( 38,997,910 ) ( 15,833,907 ) Other income (expense) Gain on forgiveness of PPP loan payable 330,551 - Interest expense ( 917,001 ) ( 575,613 ) Total other income (expense) ( 586,450 ) ( 575,613 ) Net loss $ ( 39,584,360 ) $ ( 16,409,520 ) LOSS PER SHARE (Basic and Diluted) $ ( 0.40 ) $ ( 0.24 ) WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) 99,124,659 69,502,652 The accompanying notes are an integral part of these consolidated financial statements. THE ALKALINE WATER COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Preferred Stock Common Stock Additional Stock Subscription Accumulated Number Par Value Number Par Value Paid-in Capital Payable Receivable Deficit Total Balance, March 31, 2020 3,400,000 $ 3,400 45,585,592 $ 45,585 $ 54,094,848 $ 1,000,000 $ - $ ( 53,521,700 ) $ 1,622,133 Preferred Stock Conversion ( 3,400,000 ) ( 3,400 ) 3,400,000 3,400 - Common shares issued in connection with offerings 23,717,818 23,717 15,875,828 ( 1,000,000 ) 14,899,545 Common shares issued upon exercise of warrants 13,293,728 13,294 7,101,592 7,114,886 Common shares issued to non-employees 1,045,801 1,046 1,254,251 1,255,297 Common shares issued to employees 70,000 70 69,930 70,000 Stock Option expense 1,621,199 1,621,199 Stock Option exercise 352,239 352 61,128 61,480 Restricted Stock expense 778,966 778,966 Net (loss) ( 16,409,520 ) ( 16,409,520 ) Balance, March 31, 2021 - $ - 87,465,178 $ 87,464 $ 80,857,742 $ - $ - $ ( 69,931,220 ) $ 11,013,986 Preferred stock issuance 6,681,000 6,681 2,220,350 2,227,031 Preferred stock conversion to common stock ( 2,227,030 ) ( 2,227 ) 2,227,030 2,227 - Common shares issued in connection with offerings 5,038,840 5,039 5,251,056 ( 62,338 ) 5,193,707 Common shares issued in connection with convertible note 475,000 475 344,980 345,455 Beneficial conversion feature 1,524,750 1,524,750 Common shares issued upon exercise of warrants 11,467,820 11,469 13,378,842 13,390,311 Common shares issued to non-employees 226,636 227 368,192 368,419 Stock option exercise 282,977 282 107,899 108,181 Stock option and RSU-related stock compensation expense and common shares issued upon conversion of RSU 3,388,331 3,389 5,810,269 5,813,658 Net (loss) ( 39,584,360 ) ( 39,584,360 ) Balance, March 31, 2022 4,453,970 $ 4,454 110,571,812 $ 110,572 $ 109,864,080 $ - $ ( 62,338 ) $ ( 109,515,580 ) $ 401,138 The accompanying notes are an integral part of these consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended March 31, 2022 March 31, 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 39,584,360 ) $ ( 16,409,520 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation expense 801,395 997,791 Shares issued and vested, options and RSU expensed for employee and non-employee services 8,409,108 3,725,463 Gain on forgiveness of PPP loan payable ( 330,551 ) Amortization of debt discount 271,350 Non-cash interest expense 24,468 Non-cash lease expense 6,840 4,578 Changes in operating assets and liabilities: Accounts receivable 531,111 ( 3,541,095 ) Inventory ( 4,175,944 ) ( 1,487,860 ) Prepaid expenses and other current assets ( 1,890,124 ) 659,238 Accounts payable 3,386,531 1,648,807 Accrued expenses 730,634 122,360 NET CASH USED IN OPERATING ACTIVITIES ( 31,819,542 ) ( 14,280,238 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets ( 992,009 ) ( 585,393 ) CASH USED IN INVESTING ACTIVITIES ( 992,009 ) ( 585,393 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayment of) revolving financing 2,719,458 ( 2,966,805 ) Proceeds from promissory note payable 3,800,000 325,800 Proceeds from sale of common stock, net 5,193,706 14,899,545 Proceeds for the exercise of warrants, net 13,390,313 7,114,886 Proceeds for the exercise of stock options, net 108,180 61,479 CASH PROVIDED BY FINANCING ACTIVITIES 25,211,657 19,434,905 NET CHANGE IN CASH ( 7,599,894 ) 4,569,274 CASH AT BEGINNING OF PERIOD 9,130,956 4,561,682 CASH AT END OF PERIOD $ 1,531,062 $ 9,130,956 INTEREST PAID $ 411,866 $ 526,724 TAXES PAID $ - $ - SUPPLEMENTAL DISCLOSURE of NON-CASH INVESTING AND FINANCIAL ACTIVITIES ISSUANCE OF COMMON SHARES TO SETTLE STOCK PAYABLE $ - $ 1,000,000 The accompanying notes are an integral part of these consolidated financial statements. THE ALKALINE WATER COMPANY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The Company offers retail consumers bottled alkaline water in 500-milliliter, 700-milliliter, 1-liter, 1.5 -liter, 2,-liter, 3-liter and 1-gallon sizes, all of which is produced through an electrolysis process that uses specialized electronic cells coated with a variety of rare earth minerals to produce 8.8 pH drinking water without the use of any manmade chemicals. The Company recently introduced and began selling hemp-derived CBD bottled water under the brand name "Alkaline88CBD™" and Alkaline88® Sports Drinks. Our hemp-derived CBD bottled water is produced and sold in compliance with the Agriculture Improvement Act of 2018 (also known as the 2018 Farm Bill, Public Law 115-334). Basis of presentation The consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in U.S. dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Principles of consolidation The consolidated financial statements include the accounts of The Alkaline Water Company Inc. (a Nevada Corporation) and its six wholly owned subsidiaries: A88 Infused Beverage Division Inc. (a Nevada Corporation), A88 International, Inc. (a Nevada Corporation), A88 Infused Products Inc. (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). All significant intercompany balances and transactions have been eliminated. The Alkaline Water Company Inc., A88 Infused Beverage Division, Inc., A88 Infused Products Inc., A88 International, Inc., AWC Acquisition Company Inc., The Clean Beverage Company Inc. and Alkaline 88, LLC will be collectively referred herein to as the "Company". Any reference herein to "The Alkaline Water Company Inc.", the "Company", "we", "our" or "us" is intended to mean The Alkaline Water Company Inc., including the subsidiaries indicated above, unless otherwise indicated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Cash and Cash Equivalents The Company considers all highly liquid instruments with an original maturity of three months or less to be considered cash equivalents. The carrying value of these investments approximates fair value. 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. 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 $ 1,531,062 and $ 9,130,956 in cash at March 31, 2022 and March 31, 2021, respectively. Accounts Receivable and Allowance for Doubtful Accounts The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value. Accounts receivable consisted of the following as of March 31, 2022 and 2021: 2022 2021 Trade receivables, net $ 8,397,065 $ 8,798,176 Less: Allowance for doubtful accounts ( 470,000 ) ( 340,000 ) Net accounts receivable $ 7,927,065 $ 8,458,176 Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions. The accounts receivable balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4. Inventory Inventory represents raw materials and finished goods valued at the lower of cost or market with cost determined using the weight average method which approximates first-in first-out method, and with market defined as the lower of replacement cost or realizable value. The inventory balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4. As of March 31, 2022 and 2021, inventory consisted of the following: 2022 2021 Raw materials $ 3,848,750 $ 3,055,951 Finished goods 4,734,914 1,351,769 Total inventory $ 8,583,664 $ 4,407,720 Property and Equipment The Company records all property and equipment at cost less accumulated depreciation. Improvements are capitalized while repairs and maintenance costs are expensed as incurred. Depreciation is calculated using the straight-line (half-life convention) method over the estimated useful life of the assets or the lease term, whichever is shorter. The Company evaluated its property and equipment for impairment and concluded for the year ended March 31, 2022, there was no impairment. Stock-Based Compensation The Company accounts for stock-based compensation is in accordance with Accounting Standards Codification ("ASC") 718. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the closing price of the Company's common stock for common share issuances. Advertising Advertising costs are charged to operations when incurred. Advertising expenses for the years ended March 31, 2022 and 2021 were approximately $ 2.7 million and $ 0.8 million, respectively. Revenue Recognition We recognize revenue when our performance obligations are satisfied. Our primary performance 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. However, the Company will provide credit to our customers for damaged goods. The Company provides credit to its customers which typically requires payment within 30 days. As an incentive to pay early the Company also typically provides a 2% discount if the customer pays within 10 days. The Company estimates the amount of the discount that the customer is likely to take and records it as reduction in revenue. The amounts are not considered material. The Company's bottled water product represents substantially all revenue for all periods presented. 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 $ 13,850,620 and $ 7,432,077 (which are not included in revenue) for the years ended March 31, 2022 and 2021, respectively. Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company’s retail customers or distributors including, but not limited to the following: (a) discounts granted off list prices to support price promotions to end-consumers by retailers; (b) reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; and (c) the Company’s agreed share of slotting, shelf space allowances and other fees given directly to retailers, club stores and/or wholesalers; The Company’s promotional allowance programs with its retailers or distributors are executed through separate agreements in the ordinary course of business. These agreements generally provide for one or more of the arrangements described above and are of varying durations, typically ranging from one week to one year. The Company’s promotional and other allowances are calculated based on various programs with retailers and distributors, and accruals are established at the time of initial product sale for the Company’s anticipated liabilities. The Company believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience. Disaggregated Net Revenues The following table reflects disaggregated net revenue by sales channel for the years ended March 31, 2022 and March 31, 2021 are as follows: Year Year Ended Ended March 31, March 31, 2022 2021 Retailers $ 41,139,443 $ 32,078,181 Distributors 18,006,093 12,922,907 Ecommerce/Other 1,499,900 1,068,033 Total Net Revenue $ 60,596,247 $ 40,069,121 Concentration Risks We have 3 major customers that together account for 43 % ( 19 %, 12 % and 12 %, respectively) of accounts receivable at March 31, 2022, and 2 customers that together account for 34 % ( 19 % and 15 %, respectively) of the total revenues earned for the year ended March 31, 2022.The Company has 3 vendors that accounted for 47 % ( 24 %, 12 %, and 11 % respectively) of purchases for the year ended March 31, 2022. Income Taxes In accordance with ASC 740 " Accounting for Income Taxes ", the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. 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 EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Potentially dilutive securities were excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. For the year ended March 31, 2022, and 2021, respectively, the Company had 1,158,353 shares and 2,908,233 shares relating to options that were not included in the diluted earnings per share calculation because they were antidilutive. For the year ended March 31, 2022 and 2021, no shares relating to warrants and/or preferred stock, for either year, 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. 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 these instruments. The company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the company. Unobservable inputs are inputs that reflect the company's assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on reliability of the inputs as follows: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. As of March 31, 2022 and 2021, the company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3. Recent Accounting Pronouncements Recently Adopted Standards . The following recently issued accounting standards were adopted during fiscal year 2020. 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 adoption resulted in a lease liability of approximately $ 185,510 and a right of use asset of approximately $ 165,699 . The Company's undiscounted minimum lease commitments under its operating leases are disclosed in Note 8. The Company adopted ASU 2018-07, "Improvements to Nonemployee Share-Base Payment Accounting" on April 1, 2019. Standards Required to be Adopted in Future Years. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. 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. The Company does not believe that the impact of adopting this standard will have a material effect on its financial statements. NOTE 2 - GOING CONCERN The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in developing its business plan and building its initial customer and distribution base for its products. As a result, the Company incurred accumulated net losses from Inception (June 19, 2012) through the period ended March 31, 2022 of ($ 109,295,337 ). In addition, the Company's development activities since inception have been financially sustained through debt and equity financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the of the date that the financial statements are issued. The Company’s cash position may not be sufficient to support the Company’s daily operations. Management plans to raise additional funds by way of a private or ongoing public offering. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. NOTE 3 - PROPERTY AND EQUIPMENT Fixed assets consisted of the following at: March 31, 2022 March 31, 2021 Machinery and Equipment $ 4,766,303 $ 4,812,344 Office Equipment 55,439 55,439 Less: Accumulated Depreciation ( 3,620,945 ) ( 3,857,600 ) Fixed Assets, net $ 1,200,797 $ 1,010,183 Depreciation expense for the years ended March 31, 2022 and March 31, 2021 was $ 801,395 and $ 997,791 (of which $ 792,268 was part of cost of goods sold and $ 9,127 was part of general and administrative expenses), respectively. The Company records all property and equipment at cost less accumulated depreciation. Depreciation is calculated using the straight-line (half-life convention) method over the estimated useful life of the assets (which the Company estimates to be three years). The Company determined that certain of its machinery and equipment was no longer in service as of March 31, 2022, thus machinery and equipment was reduced by approximately $ 1 million with a corresponding reduction in accumulated depreciation. NOTE 4 - 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) $10 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 advanced under the credit agreement as of March 31, 2022 was $ 7,043,870 . The Credit Agreement expires on July 3, 2023, 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 March 31, 2022 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. 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, 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 3, 2023. 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 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. The Company received a waiver of its loan turnover rate covenant, which was not met, from its Lender and therefore, was in compliance with financial covenants as of March 31, 2022. NOTE 5 - 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. 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 6 - STOCKHOLDERS' EQUITY (DEFICIT) Preferred Shares On October 7, 2013, the Company amended its articles of incorporation to create 100,000,000 shares of preferred stock by filing a Certificate of Amendment to Articles of Incorporation with the Secretary of State of Nevada. The preferred stock may be divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and terms as fixed and determined by our board of directors. 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. O'Neal. 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. Mr. 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. O'Neal. As of March 31, 2022, 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. The term of the Endorsement Agreement is three years, commencing on May 1, 2021 and terminating on May 1, 2024 (the " Term"). The Series S Preferred Stock was value at $ 6,681,090 based on the Company's closing stock price of $ 1.00 per share on May 12, 2021. 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 March 31, 2022 was $ 185,584 . The Company recognized an expense of $ 3,041,444 for the year ended March 31, 2022. In the years ended March 31, 2023, March 31, 2024 and March 31, 2025, the Company anticipates recognizing an expense in the amount of $ 3,227,030 , $ 3,227,030 , and $ 185,586 respectively. Common Stock 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. 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. 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 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. On March 1, 2021, we completed a private placement of 9,523,378 units of our securities at a price of US$ 1.05 per unit for gross proceeds of US$ 9,999,546.90 . Each Unit is comprised of one share of our common stock, one-half of one Class A common share purchase warrant (each whole Class A common share purchase warrant, a "Class A Warrant") and one-half of one Class B common share purchase warrant (each whole Class B common share purchase warrant, a "Class B Warrant"). Each Class A Warrant will entitle the holder thereof to acquire one Share (each, a "Warrant Share") at $1.25 per Warrant Share for a period commencing on the date of the closing of the Offering (the "Closing Date") and ending three (3) years following the Closing Date. Each Class B Warrant will entitle the holder thereof to acquire one Warrant Share at $1.25 per Warrant Share for a period commencing six (6) months and one day after the Closing Date and ending three (3) years following the Closing Date. 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 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. 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, December 16, 2020, January 14, 2021, February 22, 2021, and March 23, 2021, the Company issued 18,779 shares, 53,256 shares, 28,985 shares, 24,844 shares, 35,398 shares, 37,735 shares, 37,037 shares, 28,169 shares, and 34,482 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 , $ 40,000 , $ 40,000 , $ 40,000 , and $ 40,000 respectively based upon the $ 2.13 , $ 1.72 , $ 1.38 , $ 1.61 , $ 1.13 , $ 1.06 , $ 1.08 , $ 1.42 , and $ 1.16 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, December 18, 2020, January 14, 2021, February 22, 2021, and March 23, 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. The Company agreed to pay a retainer in the amount of $ 40,000 per month, for a total of $ 480,000 to be paid in the form of the common stock of the Company, which shares are to be issued monthly. This agreement was terminated in April 2021. Effective as of January 14, 2021, the Company issued an aggregate of 205,000 shares of our common stock to an non-employee in consideration for services rendered to our Company. The total fair value of the shares is $ 221,400 based on the $ 1.08 per share closing price of the Company's common stock on the NASDAQ stock exchange on January 14, 2021. 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 March 4, 2022, the Company entered into private placement subscription agreements, whereby it issued unsecured convertible notes (the "Notes") to three subscribers in the aggregate principal amounts of US$ 3,800,000 . The Notes will mature on September 4, 2022 and will accrue interest at 8 % per annum, which interest will be payable on the date of the maturity. Pursuant to the terms of the Notes, the holders of the Notes may convert all or any part of the principal amount outstanding under the Notes into units (the "Conversion Units") at a conversion price of US$ 0.80 per Conversion Unit. Each Conversion Unit will consist of one share of the Company's common stock and one share purchase warrant. Each share purchase warrant will entitle the holder thereof to acquire one share of the Company's common stock at a price of US$ 1.10 per share until March 4, 2025. Pursuant to the aforementioned subscription agreements, in consideration for the subscribers' execution and delivery of the subscription agreements, the Company issued an aggregate of 475,000 shares to three subscribers which the Company recognized a debt discount in the amount of 345,455 which will be amortized over the term of the Notes. As of March 31, 2022, the Notes on the Company's balance sheet is $3,528,141 comprised of the principal amount of the notes ($ 3,800,000 ) less the remaining debt discount ( 294,346 ) plus accrued interest ($ 22,488 ). During March 2022, the Company sold a total of 281,459 common shares through the Agent under the Sales Agreement for its ATM facility. 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 Wright, our president, chief executive officer and director, and an award of 100,000 shares of our common stock went to David 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. On March 31, 2021, the Company granted awards of an aggregate of 565,000 shares of our common stock as "restricted awards" under our 2020 Equity Incentive Plan to certain directors, officers, employees, and consultants. These shares vest on the one-year anniversary of the grant date. 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 150,000 shares of our common stock went to Richard Wright, our president, chief executive officer and director, and an award of 100,000 shares of our common stock went to David Guarino, our chief financial officer, secretary, treasurer, and director. The Company granted these shares as "restricted awards" under our 2020 Equity Incentive Plan. The Company's total stock compensation expense on account of the 1,065,000 shares of its common stock granted on April 30, 2020, the 20,000 shares of its common stock granted on August 27, 2020, and the 565,000 shares of its common stock granted on March 31, 2021, as "restricted awards" for the year ended March 31, 2021, was $ 828,967 . Additional expense will be recognized in the next 3 fiscal years of $ 818,067 , $ 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. 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. The Company recognized an expense of $ 3,280,000 in the year ended March 31, 2022 in connection with this grant. 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. The Company recognized an expense of $ 20,700 in the year ended March 31, 2022 in connection with the award. On January 15, 2022, the Company issued 2,006,666 shares of our common stock to employees and directors upon the exercise of vested restricted awards under our 2020 Equity Incentive Plan. On March 31, 2022, the Company issued 565,000 shares of our common stock to employees and directors upon the exercise of vested restricted awards under our 2020 Equity Incentive Plan. NOTE 7 - OPTIONS AND WARRANTS Stock Option Plans Effective October 7, 2013, our board of directors adopted and approved our 2013 equity incentive plan. The plan was approved by a majority of our stockholders on October 7, 2013. On October 31, 2014, our board of directors amended our 2013 equity incentive plan to, among other things, increase the number of shares of stock of our company available for the grant of awards under the plan from 20,000,000 shares to 35,000,000 shares. The purpose of the plan is to (a) enable our company and any of our affiliates to attract and retain the types of employees, consultants and directors who will contribute to our company's long-range success; (b) provide incentives that align the interests of employees, consultants, and directors with those of the stockholders of our company; and (c) promote the success of our company's business. Effective as of December 30, 2015, we effected a 50-for-1 reverse stock split of our authorized and issued and outstanding shares of common stock which decreased the number of shares of stock of our company available for the grant of awards under the plan from 35,000,000 shares to 700,000 shares. Effective as of January 20, 2016, our board of directors amended the plan to increase the number of shares of stock of our company available for the grant of awards under the plan from 700,000 to 7,700,000 . The plan enabled us to grant awards of a maximum of 7,700,000 shares of our stock and awards that may be granted under the plan included incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards and performance compensation awards. On April 25, 2018, our board of directors adopted the 2018 Stock Option Plan, pursuant to which we may grant stock options to acquire up to a total of 5,171,612 shares of our common stock, including any other shares of our common stock which may be issued pursuant to any other stock options granted by our company outside the plan. We adopted the plan in connection with our prior application to list our common stock on the TSX Venture Exchange. The purpose of the plan is to retain the services of valued key employees and consultants of our company and such other persons as our board of directors selects, and to encourage such persons to acquire a greater proprietary interest in our company, thereby strengthening their incentive to achieve the objectives of our stockholders, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons selected by our board of directors. Effective February 28, 2020, our board of directors adopted and approved our 2020 equity incentive plan, pursuant to which we may grant stock options to acquire up to a maximum of 9,000,000 shares of our common stock and non-stock option awards to acquire up to a maximum of 1,650,000 shares of our common stock. The plan was approved by a majority of our stockholders on March 30, 2020. The purpose of our 2020 equity incentive plan is to: (i) enable our company and any affiliate of our company to attract and retain the types of employees, consultants, directors and such other persons as the plan administrator may select who will contribute to our company's long range success; (ii) provide incentives that align the interests of employees, consultants, directors and such other persons as the plan administrator may select with those of our company's stockholders; and (iii) promote the success of our company's business. Under the plan, either stock options or non-stock option awards may be granted. Non-stock option awards mean a right granted to an award recipient under the plan, which may include the grant of stock appreciation rights, restricted awards, performance compensation awards or other equity-based awards. Issuance of Options Effective April 28, 2017, we granted a total of 1,790,000 stock options to our directors, officers, consultants, employees. The stock options are exercisable at the exercise price of $ 1.29 per share for a period of ten years from the date of grant. 360,000 of the stock options vest as follows: (i) 120,000 upon the date of grant; and (ii) 120,000 on each anniversary date of grant for 2 years. 1,430,000 of the stock options vest as follows: (i) 357,500 upon the date of grant; and (ii) 357,500 on each anniversary date of grant for 3 years. We granted the stock options to 12 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 we relied on the registration exemption provided for in Regulation S and/or Section 4(a)(2) of the Securities Act of 1933. During the years ended March 31, 2020, and March 31, 2019, a total of 239,000 and 161,100 options were exercised, respectively, all on a cashless exercise basis. For the years ended March 31, 2020 and March 31, 2019 the Company has recognized compensation expense of $ 3,725,465 and $ 1,591,555 respectively, on the stock options granted in April 2017 that vested. As of March 31, 2021, all of the stock options granted in April, 2017 have vested. 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. 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 $ 1.71 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, the Company 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. Effective March 31, 2021, the Company granted an aggregate of 1,990,000 stock options to certain directors, officers, consultants and employees for the purchase of up to 1,990,000 shares of our common stock pursuant to our 2018 Stock Option Plan. Each stock option is exercisable at a price of $ 1.09 per share until March 31, 2031. Of these stock options, 1,060,000 vest as to 50% on the grant date and 50% on the one-year anniversary of the grant date and the remaining amount of 930,000 options vest one-half on the first anniversary date and one-half on the second anniversary date. Of these options, 250,000 were granted to Richard A. Wright, our president, chief executive officer and director, and 200,000 were granted to David A. Guarino, our chief financial officer, secretary, treasurer, and director. These stock options are exercisable at the exercise price of $ 1.09 per share until March 31, 2031. 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 1,990,000 stock options issued was calculated as $ 1.07 per share, which was the Black-Scholes valuation as of the grant date, corresponding to a total fair value of $ 2,129,300 for these 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. 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. The Company's total stock compensation expense for the year-ended March 31, 2021, relating to stock option grants was $ 1,697,537 . Additional stock compensation expense will be recognized in fiscal years 2023, 2024 and 2025 of $ 1,077,899 , $ 281,363 , and $ 34,875 , 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. 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. Effective as of January 31, 2022 the Company issued an aggregate of 1,617 shares of our common stock upon a cash-less exercise of stock options. Stock option activity summary covering options is presented in the table below: Weighted- Weighted- Average Average Remaining Number of Exercise Contractual Shares Price Term (years) Outstanding at March 31, 2020 2,033,900 1.11 3.5 Granted 4,897,000 1.09 10.0 Exercised ( 506,000 ) 0.76 3.7 Expired/Forfeited ( 165,333 ) 0.57 7.7 Outstanding at March 31, 2021 6,259,567 0.83 7.7 Granted 583,000 1.73 9.4 Exercised ( 362,333 ) 0.62 7.4 Expired/Forfeited ( 129,000 ) 1.54 8.4 Outstanding at March 31, 2022 6,351,234 0.91 6.9 Exercisable at March 31, 2022 4,572,567 0.84 6.1 Warrants On March 1, 2018, pursuant to Warrant Amendment Agreements dated February 22, 2018 with 16 holders (the "Holders") of our common stock purchase warrants (the "Existing Warrants"), we issued an aggregate of 3,900,000 shares of our common stock upon exercise of the Existing Warrants at an exercise price of $ 0.50 per share for aggregate gross proceeds of $ 1,950,000 . The Existing Warrants were issued by us as part of an offering that closed on March 4, 2016. In addition, pursuant to the Warrant Amendment Agreements, we issued new common stock purchase warrants of our company (the "New Warrants") in the form of the Existing Warrants to purchase up to a number of shares of our common stock equal to the number of Existing Warrants exercised by the Holders, provided that (i) the exercise price of the New Warrants is $ 0.60 per share, subject to adjustment in the New Warrants, (ii) the expiry date of the New Warrants is September 1, 2019 and (iii) the New Warrants are non-transferable. On May 31, 2018, the Company issued 5,131,665 Units of the Company at a price of $ 0.75 per Unit for aggregate gross proceeds of $ 3,848,749 . Each Unit consisted of one share of common stock of the Company (each, a " Share ") and one-half of one share purchase warrant (each whole warrant, a "Warrant"). One Warrant entitles the holder thereof to purchase one additional Share of the Company (each, a " Warrant Share " ) at a price of $ 0.90 per Warrant Share for a period of two years from closing. On October 1, 2018, the Company closed a non-brokered private placement financing (the "Financing") of 1,619,947 units (each, a "Unit") at a price of CDN$ 2.50 per Unit for gross proceeds of $ 2,979,596 . Each Unit consists of one share of common stock of the Company (each, a "Share") and one share purchase warrant (each, a "Warrant"), with each Warrant entitling the holder thereof to purchase one additional Share at a price of CDN$ 2.90 per Share for a period of two years . All securities issued in the Financing were subject to a Canadian holding period which expired on January 28, 2019. The Company paid finder's fees of $ 123,572 and issued 49,428 warrants. 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. 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 . 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 . 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 . 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 . The following is a summary of the status of all of our warrants as of March 31, 2022, and changes during the years ended on that date: Weighted- Number Average of Warrants Exercise Price Outstanding at March 31, 2020 2,086,489 1.80 Granted 23,717,818 0.81 Exercised ( 13,293,728 ) 0.54 Cancelled or Expired ( 1,709,424 ) 2.03 Outstanding at March 31, 2021 10,801,155 1.16 Granted 4,757,381 1.25 Exercised ( 11,467,822 ) 1.17 Cancelled or Expired - 0 - 0.00 Outstanding at March 31, 2022 4,090,714 1.25 Warrants exercisable at March 31, 2022 4,090,714 1.25 The following table summarizes information about stock warrants outstanding and exercisable at March 31, 2022: STOCK WARRANTS OUTSTANDING Number of Weighted-Average Warrants Remaining Contractual Exercise Price Outstanding Life in Years $ 1.25 4,090,714 2.5 NOTE 8 - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recorded the valuation allowance due to the uncertainty of future realization of federal and state net operating loss carryforwards. The deferred income tax assets are comprised of the following at March 31, 2022 and 2021: 2022 2021 Deferred income tax assets: $ 16,300,000 $ 11,700,000 Valuation allowance ( 16,300,000 ) ( 11,700,000 ) Net total $ - $ - At March 31, 2022, the Company had net operating loss carryforwards of approximately $ 65 million and net operating loss carryforwards expire in 2023 through 2037. The current year's net operating loss will carryforward indefinitely. In December 2017, the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") was enacted into law which significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including a flat corporate tax rate of 21 %, limitation of the tax deduction for interest expense to 30 % of adjusted taxable income, limitation of the deduction for newly generated net operating losses to 80 % of current year taxable income and elimination of net operating loss ("NOL") carrybacks, future taxation of certain classes of offshore earnings regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits beginning in 2018. The current income tax benefit of $ 4.5 generated for the year ended March 31, 2022 was offset by an equal increase in the valuation allowance. The valuation allowance was increased due to uncertainties as to the Company's ability to generate sufficient taxable income to utilize the net operating loss carryforwards which is the only significant component of deferred taxes. Reconciliation between the statutory rate and the effective tax rate is as follows at March 31, 2022 and 2021: 2022 2021 Effective Tax Rate Reconciliation: Federal statutory tax rate 21 % 21 % State taxes, net of federal benefit 0 % 0 % Change in valuation allowance ( 21 %) ( 21 %) Effective Tax Rate 0 % 0 % The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of March 31, 2022 and 2021 the Company has no unrecognized uncertain tax positions, including interest and penalties. The Company's federal income tax returns for tax years ended March 31, 2019 and beyond remain subject to examination by the Internal Revenue Service. The returns for Arizona, the Company's most significant state tax jurisdiction, remain subject to examination by the Arizona Department of Revenue for tax years ended March 31, 2018 and beyond. NOTE 9 - LEASES 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. 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. 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 $ 337,932 and the lease liability for this lease was $ 337,932 , at inception of this lease, respectively. As of November 1, 2020, the company entered into a lease for 2,390 square feet of corporate office space from a third party through January 2024 at a rate of $ 5,280 per month for the first twelve months starting January 2021, then at a rate of $ 5,377 for the next 12 months, and $ 5,497 for the final 13 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 $ 177,629 and the lease liability for this lease was $ 177,629 , at inception of this lease, respectively At inception the ROU and Lease Liability was calculated based on the net present value of the future lease payments over the term of the lease. When available, the Company uses the rate implicit in the lease discount payments as the incremental borrowing rate to calculate the net present value; however, the rate implicit in the lease is not readily determinable for our corporate office lease. In this case, the Company estimated its incremental borrowing rate as the interest rate it could borrow an amount equal to the lease payments over a similar term, with similar collateral as the lease, and in a similar economic environment. The Company estimated its rate using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company's estimated creditworthiness. For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. 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 year ended March 31, 2022 was $ 259,821 . Operating Leases: March 31, 2022 Operating lease right-of-use asset - current portion $ 187,545 Operating lease right-of-use asset - non-current portion 142,359 Total Operating lease right-of-use asset $ 329,904 Operating lease liability - current portion $ 174,565 Operating lease liability - non-current portion 178,753 Total Operating lease liability $ 353,318 Weighted average remaining lease term (in years): Operating leases 0.8 Weighted average discount rate: Operating leases 7 % Maturities of undiscounted lease liabilities as of March 31, 2022 are as follows: Operating Leases Year ending March 31, 2023 213,129 Year ending March 31, 2024 137,819 Year ending March 31, 2025 23,075 Total lease payments 374,022 Less: Imputed interest ( 20,704 ) Total lease obligations 353,318 NOTE 10 - 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 11 - SUBSEQUENT EVENTS During April, 2022, we sold a total of 750,240 common shares through our Agent under the Sale Agreement for our previously established ATM facility. Effective as of May 2, 2022, the Company issued 2,227,030 shares of our common stock upon conversion of 2,227,030 shares of Series S Preferred Stock without the payment of any additional consideration. On May 4, 2022, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Aegis Capital Corp. (the "Underwriter"). Pursuant to the Underwriting Agreement, the Company agreed to sell in an underwritten offering (the "Offering") an aggregate of 8,333,334 shares of the Issuer's common stock at a public offering price of US$ 0.60 per share, for gross proceeds of approximately US$ 5,000,000 , less underwriting discounts and commissions. On May 9, 2022 all 8,333,334 shares were issued to the applicable shareholders. On June 2, 2022, our company and its subsidiary entered into a Separation Agreement and Release of All Claims (the "Separation Agreement") with Richard Wright ("Wright"), a former director and chief executive officer of our company. The Separation Agreement provides, among other things, the following: (a) total severance sum of $ 550,000 payable as follows: (1) a single payment of $ 275,000 and (2) $ 275,000 paid over 24 full months at 11,458 per month; (b) reimburse Wright for his legal expenses in connection with the preparation and negotiation of the Separation Agreement up to a maximum of US$ 25,000 and (c) issuance of 100,000 restricted stock units upon the effective date of the Separation Agreement. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.