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Item 1. Financial Statements

2022-08-15 compared with 2022-02-14 · 163 added, 203 removed, 195 unchanged (65% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2021

June 30, 2022

March 31, 2022

6 unchanged sentences

Operating lease right-of-use asset

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities

2 unchanged sentences

Revolving financing

Convertible note payable, net of debt discount

PPP loan payable - current portion

4 unchanged sentences

Commitments and contingencies (Note 8)

Stockholders' equity

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

Stockholders' equity (deficit)

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 2,227,030 Series S issued and outstanding on June 30, 2022 and 4,453,970 issued and outstanding on March 31, 2022

Common stock, Class A - $ 0.001 par value, 200,000,000 shares authorized 122,121,037 and 110,571,812 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively

Subscription Receivable

Additional paid in capital

Accumulated deficit

( 117,008,988

( 109,515,580

Total stockholders' equity

4 unchanged sentences

For the Three Months

For the Nine Months

December 31, 2021

December 31, 2020

December 31 , 2021

December 31, 2020

June 30, 2022

June 30, 2021

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)

Preferred Stock

Paid-in Capital

Stock Payable

Balance, March 31, 2021

Preferred stock conversion

Common shares issued in connection with offerings

Common shares issued upon exercise of warrants

Common shares issued to non-employees and employees

Stock Option expense

Stock Option exercise

Stock Payable

Balance, June 30, 2020

Common shares issued in connection with offerings

Common shares issued upon exercise of warrants

Common shares issued to non-employees

Stock Option expense

Stock Option exercise

Balance, September 30, 2020

Common shares issued upon exercise of warrants

Common shares issues to non-employees

Common shares issued to employees

Stock Option expense

Balance, December 31, 2020

Balance, March 31, 2021

Preferred stock issuance

4 unchanged sentences

Balance, June 30, 2021

Balance, March 31, 2022

( 109,515,580

Common Shares issued in connection with offerings

Common shares issued upon exercise of warrants

Common shares issued to non-employees

Stock option and RSU-related stock compensation expense

Stock option exercise

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

Stock option and RSU-related compensation expense and common shares issued opun conversion of RSUs

Balance, June 30, 2022

( 117,008,988

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months

December 31, 2021

December 31, 2020

For the Three Months

June 30, 2022

June 30, 2021

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 expensed for employee and non-employee services

Amortization of debt discount

Non-cash interest expense

Non-cash lease expense

10 unchanged sentences

Proceeds from (repayment of) revolving financing

Proceeds from promissory note payable

Proceeds from sale of common stock, net

6 unchanged sentences

INTEREST PAID

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

2 unchanged sentences

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.

In addition to its bottled alkaline water, the Company also offers retail consumers flavor infused bottled water in the 500-milliliter size in six flavors:

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

The Company recently introduced and began selling hemp-derived CBD topical and ingestible products under the brand name "A88CBD™".

Our hemp-derived CBD products are produced and sold in compliance with the Agriculture Improvement Act of 2018 (also known as the 2018 Farm Bill, Public Law 115-334).

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

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

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto as set forth in the Company's Form 10-K, filed with the SEC on July 2, 2021, which included all disclosures required by generally accepted accounting principles ("GAAP") In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position on a consolidated basis and the consolidated results of operations, equity and cash flows for the interim periods presented.

The results of operations for the three 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.

for complete financial statements.

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).

(a Nevada Corporation) and its wholly owned subsidiary, 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.

The Alkaline Water 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 its Alkaline 88, LLC subsidiary indicated above, unless otherwise indicated.

Use of Estimates

7 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 $ 3,293,292 and $ 9,130,956 in cash at December 31, 2021 and March 31, 2021, respectively.

The Company had $ 2,945,924 and $ 1,531,062 in cash at June 30, 2022 and March 31, 2022, 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 December 31, 2021 and March 31, 2021:

Trade receivables

Accounts receivable consisted of the following as of June 30, 2022 and March 31, 2022:

June 30, 2022

March 31, 2022

Trade receivables, net

Allowance for doubtful accounts

5 unchanged sentences

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

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

December 31, 2021

As of June 30, 2022 and March 31, 2022, inventory consisted of the following:

June 30, 2022

March 31, 2022

5 unchanged sentences

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, which the Company has determined to be 3 years .

Going Concern

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

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

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

The Company currently anticipates 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.

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

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

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

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

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 quarter ended June 30, 2022, there was no impairment.

Stock-Based Compensation

3 unchanged sentences

Revenue Recognition

The Company recognizes revenue per ASC 606.

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

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

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 require payment within 30 days.

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 recognizes it as variable consideration.

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.

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

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

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 $ 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.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 3,813,376 and $ 2,906,900 (which are not included in revenue) for the quarter ended June 30, 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 June 30, 2022 and June 30, 2021 are as follows:

June 30, 2022

June 30, 2021

Ecommerce/Other

Total Net Revenue

Concentration Risks

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.

This effective tax rate is based on forecasted annual pre-tax income (loss), permanent tax differences and statutory tax rates.

Deferred income taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes.

The differences relate principally to net operating loss carryforwards.

Deferred tax assets and liabilities represent the future tax consequence for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has 2 major customers that account for 25 % ( 13 % and 12 % respectively) of accounts receivable at June 30, 2022, and 2 customers that together account for 31 % ( 18 % and 13 %, respectively) of the total revenues earned for the quarter ended June 30, 2022.

The Company has 2 vendors that accounted for 48 % ( 31 %, and 17 % respectively) of purchases for the quarter ended June 30, 2022.

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

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

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 with ASC 260- 10 " Earnings per Share ", which establishes the requirements for presenting EPS.

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

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

2 unchanged sentences

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

The Company had 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.

For the three months ended June 30, 2022 and 2021, respectively, the Company had 4,518,132 and 3,897,897 shares relating to options, nil and 4,761,690 shares relating to warrants and nil and 2,227,030 convertible preferred shares that were not included in the diluted earnings per share calculation because they were antidilutive.

Business Segments

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

Fair Value of Financial Instruments

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

The 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:

Observable inputs such as quoted prices in active markets;

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;

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

As of December 31, 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 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 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.

The misstatement was identified by the Company and corrected initially in the year end results for the twelve months ending March 31, 2021.

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

therefore, segment information is not presented.

Recent Accounting Pronouncements

Standards Required to be Adopted in Future Years.

Standards Recently Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

3 unchanged sentences

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

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

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

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

The Company has evaluated other recent accounting pronouncements through December 31, 2021 and believes that none of them will have a material effect on our consolidated financial statements.

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

The Company has evaluated other recent accounting pronouncements through June 30, 2022 and believes that none of them will have a material effect on our consolidated 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 June 30, 2022 of ($ 117,008,988 ).

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

Property and equipment consisted of the following at:

December 31, 2021

Fixed assets consisted of the following at:

June 30, 2022

March 31, 2022

2 unchanged sentences

Accumulated Depreciation

Property and equipment, net

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.

Fixed Assets, net

Depreciation expense for the quarter ended June 30, 2022 and 2021 was $ 187,432 and $ 159,015 , respectively.

NOTE 4 - REVOLVING FINANCING

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

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

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

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

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

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

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

Under the terms of the Credit Agreement, SCM has agreed to make cash advances to our company in an aggregate principal at any one time outstanding not to exceed the lesser of (i) $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 June 30, 2022 was $ 6,539,787 .

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 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 interest rate as of March 31, 2022 was 8.0%

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

The Company agreed to pay to SCM monthly an unused line fee in amount equal to 0.083 % per month of the difference derived by subtracting (i) the average daily outstanding balance under the Revolving Facility during the preceding month, from (ii) the Revolving Loan Commitment Amount.

The unused line fee will be payable monthly in arrears.

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

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

The collateral management fee will be payable monthly in arrears.

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

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

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

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

Events of default under the Credit Agreement, some of which are subject to certain cure periods, include a failure to pay obligations when due, the making of a material misrepresentation to SCM, the rendering of certain judgments or decrees against our company and the commencement of a proceeding for the appointment of a receiver, trustee, liquidator or conservator or filing of a petition seeking reorganization or liquidation or similar relief.

The Credit Agreement contains customary representations and warranties and various affirmative and negative covenants including the right of first refusal to provide financing for our company and the financial and loan covenants, such as the loan turnover rate, minimum EBITDA, fixed charge coverage ratio and minimum liquidity requirements.

NOTE 5 - STOCKHOLDERS' EQUITY

Preferred Shares

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

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.

As of June 30, 2022, the Company has paid $ 1,500,000 under this agreement and anticipates paying an additional $ 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 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 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.

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

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

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

The Company valued each annual vested Series S Preferred Stock in the amount of $ 2,227,030 , which amount was recognized as a prepaid expense on each vesting date that is being expensed over twelve months.

The prepaid expense at June 30, 2022 was $ 1,855,858 .

In the quarter ended June 30, 2022, the Company recognized an expense of $ 806,758 in connection with the agreement and anticipates recognizing an expense of 806,758 in each of the quarters ended September 30, 2022, December 31, 2022, and March 31, 2023 for a total expense of $ 3,227,030 for the year ended March 31, 2023.

In the years ended March 31, 2024 and March 31, 2025, the Company anticipates recognizing an expense in the amount of $ 3,227,030 and $ 185,586 respectively.

Share Issuances

During April, 2022, we sold a total of 750,240 common shares at an average price of $ 0.84 through our Agent under the Sales Agreement for our previously established ATM facility for net proceeds of $ 631,203 .

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 $ 0.60 per share, for net proceeds of approximately $ 4,575,000 .

On May 9, 2022 all 8,333,334 shares were issued to the applicable shareholders.

Effective as of June 15, 2022, the Company issued an aggregate of 121,665 shares of common stock upon the vesting of "restricted awards" granted April 30, 2020 as part of the Company's 2020 Equity Incentive Plan.

These shares were issued to 6 individuals.

Restricted Awards

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.

On June 10, 2022, we granted an award of 100,000 shares of our common stock as a "restricted award" under our 2020 Equity Incentive Plan to Richard A.

Wright, a former director and executive officer of our company, pursuant to a Separation Agreement and Release of All Claims dated June 2, 2022 with Mr.

These shares vested as of June 10, 2022.

NOTE 6 - OPTIONS AND WARRANTS

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 .

The Company issued 16,956 shares of common stock during the three months ending June 30, 2022 in connection with the exercise of 40,000 stock options of which 23,044 options were payment to the Company for the exercise price of $ 0.53 and the remaining amount of stock options were exercised as a cashless exercise under the plan.

NOTE 7 - LEASES

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

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

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.

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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.

As of April 1, 2022, the Company entered into a lease for 1,520 square feet of warehouse space from a third party through March 2025 at a rate of $ 1,812 per month for the first twelve months, then at a rate of $ 1,867 per month for the last next twelve months and then at a rate of $ 1,923 for the last twelve months.

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 $ 60,737 and the lease liability for this lease was $ 60,737 , 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.

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

Operating Lease expense for the three and nine months ended December 31, 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 Lease expense for the three months ended June 30, 2022 was $ 65,169 and for the three months ended June 30, 2021 was $ 100,915 .

Operating Leases:

December 31, 2021

June 30, 2022

Operating lease right-of-use asset - current portion

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Operating leases

Supplemental cash flow information related to leases is as follows:

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

Maturities of undiscounted lease liabilities as of June 30, 2022 are as follows:

Operating Leases

Year ending March 31, 2023

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Total lease payments

Adjusted for interest

Imputed interest

Total lease obligations

NOTE 8 - RISKS AND UNCERTAINTIES

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

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

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

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

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

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

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

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

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

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

NOTE 8 - COMMITMENTS AND CONTINGENCIES

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

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

NOTE 9 - SUBSEQUENT EVENTS

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.

Private Placement

On July 25, 2022, the Company entered into debt settlement and subscription agreements with four creditors, and the Company issued units to three creditors and special warrants to one creditor in settlement of debt in an aggregate of $ 3,869,962 (principal of $ 3,800,000 and accrued and unpaid interest of $ 69,962 ) owing the creditors in connection with certain convertible notes.

Effective as of July 25, 2022, the Company issued an aggregate of 9,633,616 units of our company at a deemed price of $ 0.37 per unit to three creditors.

Each unit was comprised of one share of common stock and one warrant.

Each warrant entitled the holder to purchase an additional share of our common stock at a price of $ 0.44 per share for a period of three years.

As a condition of the debt settlement, each of the creditors who has received the units has agreed to immediately exercise the creditor's respective warrants.

Accordingly, the creditors exercised warrants for an aggregate of $ 4,238,791 (of which approximately $3 million was received as of June 30, 2022 and recorded as an accrued liability of the Company pending the closing of this debt settlement transaction) resulting in an aggregate of an additional 9,633,616 shares of our common stock being issued to such creditors.

Effective as of July 25, 2022, we issued 825,738 special warrants at a deemed price of $ 0.37 per special warrant to one creditor.

Each special warrant is automatically exercisable (without payment of any further consideration and subject to customary anti-dilution adjustments) into units on the date that is the earlier of:

(i) the date that is three business days following the date on which our company obtains a receipt from the British Columbia Securities Commission for a (final) short form prospectus qualifying the distribution of the units issuable upon exercise of the special warrants, and (ii) the date that is four months and one day after the issuance of the special warrants.

Each unit will be comprised of one share of common stock and one warrant.

Each warrant will entitle the holder to purchase an additional share of our common stock at a price of $0.44 per share.

As consideration for the debt settlement and the issuance of the special warrants, the creditor agreed to exercise the warrants immediately upon automatic exercise of the special warrants by payment of $363,325, which amount is held in trust by the creditor's lawyers until the automatic exercise date, for an additional 825,735 shares of our common stock.

Employment Agreement with Frank Lazaran

On July 29, 2022, The Company entered into an employment agreement with Frank Lazaran, our president, chief executive officer and director.

Pursuant to the terms of the employment agreement, we have agreed to pay Mr.

Lazaran US$ 275,000 annually or such other amount as may be determined by our board of directors from time to time, commencing on the Effective Date.

In addition, subject to compliance with all applicable laws and the rules of any stock exchange on which our common stock is listed, we have agreed to grant to Mr.

Lazaran an aggregate of 1,000,000 shares (the "Restricted Award Shares") of our common stock as "restricted awards" under our 2020 equity incentive plan and any successor equity incentive plan (collectively, the "Plan") and non-qualified stock options under the Plan to purchase an aggregate of 1,000,000 shares of our common stock on the following terms:

(i) 500,000 of the Restricted Award Shares were granted on July 29, 2022 (the "First Grant Date") and these Restricted Award Shares vested immediately;

(ii) the other 500,000 Restricted Award Shares will be granted as soon as reasonably practicable following the our stockholder approval of the amendment to the Plan or otherwise to allow the grant of such Restricted Award (the "Second Grant Date") and these Restricted Award Shares will vest on the six month anniversary of the First Grant Date, provided, however, if we do not obtain the stockholder approval by June 3, 2023, such Restricted Award Shares will not be granted and we will have no further obligation with respect to such Restricted Award Shares;

(iii) the stock options were granted on July 29, 2022 (the "Option Grant Date");

(iv) the exercise price for the stock options is $0.428 per share;

(v) the stock options will vest in two equal annual installments, with the first 500,000 stock options vesting on the one year anniversary of the Option Grant Date and the second 500,000 stock options vesting on the second anniversary of the Option Grant Date;

and (vi) vested stock options may be exercised for up to ten years from the Option Grant Date.

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