ALKALINE WATER Co INC 10-Q

Item 1. Financial Statements THE ALKALINE WATER COMPANY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, 2022 March 31, 2022 ASSETS Current assets Cash $ 2,945,924 $ 1,531,062 Accounts receivable, net 8,422,415 7,927,065 Inventory 10,678,339 8,583,664 Prepaid expenses 4,362,972 2,928,085 Operating lease right-of-use asset - current portion 187,545 187,545 Total current assets 26,597,195 21,157,421 Fixed assets - net 1,868,362 1,200,797 Operating lease right-of-use asset 95,473 142,359 Total assets $ 28,561,030 $ 22,500,577 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable $ 11,934,494 $ 10,441,879 Accrued expenses 5,946,778 2,036,739 Revolving financing 6,539,787 7,043,870 Convertible note payable, net of debt discount 3,208,445 2,223,633 PPP loan payable - current portion - - Operating lease liability - current portion 199,430 174,565 Total current liabilities 27,828,934 21,920,686 Operating lease liability 106,727 178,753 Total liabilities 27,935,661 22,099,439 Commitments and contingencies (Note 8) 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 2,227 4,454 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 122,121 110,572 Subscription Receivable - ( 62,388 ) Additional paid in capital 117,510,009 109,864,080 Accumulated deficit ( 117,008,988 ) ( 109,515,580 ) Total stockholders' equity 625,369 401,138 Total liabilities and stockholders' equity $ 28,561,030 $ 22,500,577 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) For the Three Months June 30, 2022 June 30, 2021 Net Revenue $ 16,894,403 $ 14,113,578 Cost of Goods Sold 13,399,774 9,311,011 Gross Profit 3,494,629 4,802,567 Operating expenses Sales and marketing expenses 6,921,846 7,156,400 General and administrative 2,863,993 4,964,374 Total operating expenses 9,785,839 12,120,774 Total operating loss ( 6,291,210 ) ( 7,318,207 ) Other expense Interest expense ( 1,202,198 ) ( 107,419 ) Total other expense ( 1,202,198 ) ( 107,419 ) Net loss $ ( 7,493,408 ) $ ( 7,425,626 ) LOSS PER SHARE (Basic and Diluted) $ ( 0.06 ) $ ( 0.08 ) WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) 117,518,198 88,342,316 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) (unaudited) Preferred Stock Common Stock Additional Subscription Accumulated Number Par Value Number Par Value Paid-in Capital Receivable Deficit Total Balance, March 31, 2021 - $ - 87,465,178 $ 87,464 $ 80,857,742 $ - $ ( 69,931,220 ) $ 11,013,986 Preferred stock issuance 6,681,090 6,681 2,220,350 2,227,031 Common shares issued upon exercise of warrants 1,277,777 1,278 651,499 652,777 Common shares issued to non-employees and employees 855,499 856 39,144 40,000 Stock option and RSU-related stock compensation expense 651,648 651,648 Stock option exercise 162,668 163 48,068 48,231 Net (loss) ( 7,425,626 ) ( 7,425,626 ) Balance, June 30, 2021 6,681,090 $ 6,681 89,761,122 $ 89,761 $ 84,468,451 $ - $ ( 77,356,846 ) $ 7,208,047 Balance, March 31, 2022 4,453,970 $ 4,454 110,571,812 $ 110,572 $ 109,864,080 $ ( 62,388 ) $ ( 109,515,580 ) $ 401,138 Common Shares issued in connection with offerings 9,083,574 9,083 5,197,121 62,388 5,268,592 Stock option exercise 16,956 17 ( 17 ) - Preferred stock conversion to common stock ( 2,226,940 ) ( 2,227 ) 2,227,030 2,227 2,227,030 2,227,030 Stock option and RSU-related compensation expense and common shares issued opun conversion of RSUs 221,665 222 221,795 222,017 Net (loss) ( 7,493,408 ) ( 7,493,408 ) Balance, June 30, 2022 2,227,030 $ 2,227 122,121,037 $ 122,121 $ 117,510,009 $ - $ ( 117,008,988 ) $ 625,369 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Three Months June 30, 2022 June 30, 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 7,493,408 ) $ ( 7,425,626 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation expense 187,432 159,015 Shares issued and vested, options and RSU expensed for employee and non-employee services 2,449,047 2,918,680 Amortization of debt discount 935,102 - Non-cash interest expense 49,710 - Non-cash lease expense ( 275 ) 5,084 Changes in operating assets and liabilities: Accounts receivable ( 495,350 ) 236,803 Inventory ( 2,094,675 ) ( 629,855 ) Prepaid expenses and other current assets ( 1,434,887 ) ( 2,028,928 ) Accounts payable 1,492,615 653,199 Accrued expenses 3,910,039 56,315 NET CASH USED IN OPERATING ACTIVITIES ( 2,494,650 ) ( 6,055,313 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets ( 854,997 ) ( 61,444 ) CASH USED IN INVESTING ACTIVITIES ( 854,997 ) ( 61,444 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayment of) revolving financing ( 504,083 ) 782,699 Proceeds from sale of common stock, net 5,268,592 - Proceeds for the exercise of warrants, net - 652,777 Proceeds for the exercise of stock options, net - 48,230 CASH PROVIDED BY FINANCING ACTIVITIES 4,764,509 1,483,706 NET CHANGE IN CASH 1,414,862 ( 4,633,051 ) CASH AT BEGINNING OF PERIOD 1,531,062 9,130,956 CASH AT END OF PERIOD $ 2,945,924 $ 4,497,905 INTEREST PAID $ 215,164 $ 105,197 TAXES PAID $ - $ - The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 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. 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 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 $ 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 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 June 30, 2022 and March 31, 2022: June 30, 2022 March 31, 2022 Trade receivables, net $ 8,912,415 $ 8,397,065 Less: Allowance for doubtful accounts ( 490,000 ) ( 470,000 ) Net accounts receivable $ 8,422,415 $ 7,927,065 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 3. 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 3. As of June 30, 2022 and March 31, 2022, inventory consisted of the following: June 30, 2022 March 31, 2022 Raw materials $ 6,755,208 $ 3,848,750 Finished goods 3,923,131 4,734,914 Total inventory $ 10,678,339 $ 8,583,664 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 quarter ended June 30, 2022, there was no impairment. Stock-Based Compensation The Company accounts for stock-based compensation 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. 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 $ 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 Retailers $ 10,955,349 $ 9,404,681 Distributors 5,634,443 4,536,003 Ecommerce/Other 304,611 172,914 Total Net Revenue $ 16,894,403 $ 14,113,578 Concentration Risks 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. 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 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. Recent Accounting Pronouncements Standards Recently Adopted 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. 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 Fixed assets consisted of the following at: Fixed assets consisted of the following at: June 30, 2022 March 31, 2022 Machinery and Equipment $ 5,621,300 $ 4,766,303 Office Equipment 55,439 55,439 Less: Accumulated Depreciation ( 3,808,377 ) ( 3,620,945 ) Fixed Assets, net $ 1,868,362 $ 1,200,797 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, 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 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. 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. NOTE 5 - STOCKHOLDERS' EQUITY 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 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. 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. Common Stock 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 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. Wright. These shares vested as of June 10, 2022. NOTE 6 - OPTIONS AND WARRANTS 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 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. Previously, the Company leased its corporate office space with a size of 3,352 square feet leased from a third party which leased through November 2020 at the current rate of $ 7,891 per month. 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. 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. 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 three months ended June 30, 2022 was $ 65,169 and for the three months ended June 30, 2021 was $ 100,915 . Operating Leases: June 30, 2022 Operating lease right-of-use asset - current portion $ 187,545 Operating lease right-of-use asset - non-current portion 95,473 Total Operating lease right-of-use asset $ 283,018 Operating lease liability - current portion $ 199,430 Operating lease liability - non-current portion 106,727 Total Operating lease liability $ 306,157 Weighted average remaining lease term (in years): Operating leases 1.6 Weighted average discount rate: Operating leases 7 % Maturities of undiscounted lease liabilities as of June 30, 2022 are as follows: Operating Leases Year ending March 31, 2023 160,404 Year ending March 31, 2024 141,552 Year ending March 31, 2025 23,074 Total lease payments 325,030 Less: Imputed interest ( 18,873 ) Total lease obligations 306,157 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 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.