What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 125 added, 97 removed, 261 unchanged (46% of the section changed)

1 unchanged sentence

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2022

CONSOLIDATED BALANCE SHEETS

September 30, 2022

March 31, 2022

12 unchanged sentences

Convertible note payable, net of debt discount

PPP loan payable - current portion

Operating lease liability - current portion

3 unchanged sentences

Commitments and contingencies (Note 10)

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

Stockholders' equity

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 2,227,030 Series S issued and outstanding on September 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 145,825,459 and 110,571,812 shares issued and outstanding at September 30, 2022 and March 31, 2022, respectively

Subscription Receivable

7 unchanged sentences

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months

June 30, 2022

June 30, 2021

For the Six Months

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Cost of Goods Sold

4 unchanged sentences

Total operating loss

Other expense

Other (income) expense

Interest expense

Total other expense

Debt conversion expense

Total other (income) expense

LOSS PER SHARE (Basic and Diluted)

2 unchanged sentences

THE ALKALINE WATER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Preferred Stock

Paid-in Capital

Stock Payable

Balance, March 31, 2021

5 unchanged sentences

Balance, June 30, 2021

Common shares issued in connection with offerings

Common shares issued upon exercise of warrants

Common shares issued to non-employees and employees

Stock option and RSU-related stock compensation expense

Stock option exercise

Balance, September 30, 2021

Balance, March 31, 2022

( 109,515,580

Preferred stock conversion to common stock and vesting of endorsement shares

Common Shares issued in connection with offerings

Stock option exercise

Preferred stock conversion to common stock

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

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

Balance, June 30, 2022

( 117,008,988

Common shares issued in connection with conversion of note payable

Common shares issued upon exercise of warrants

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

Balance, September 30, 2022

( 125,406,196

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

THE ALKALINE WATER COMPANY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months

June 30, 2022

June 30, 2021

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

September 30, 2022

September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Amortization of debt discount

Debt conversion expense

Non-cash interest expense

10 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from (repayment of) revolving financing

Proceeds from (repayment of) revolving financing, net

Proceeds from sale of common stock, net

33 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 $ 2,945,924 and $ 1,531,062 in cash at June 30, 2022 and March 31, 2022, respectively.

The Company had $ 2,257,502 and $ 1,531,062 in cash at September 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 June 30, 2022 and March 31, 2022:

June 30, 2022

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

September 30, 2022

March 31, 2022

7 unchanged sentences

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

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

September 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 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.

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.

Stock-Based Compensation

14 unchanged sentences

Shipping and handling charges that are billed to customers are included as a component of revenue.

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

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 3,720,857 and $ 4,812,052 for the three months ended September 30, 2022 and 2021, respectively and $ 7,534,234 and $ 7,718,952 for the six months ended September 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:

7 unchanged sentences

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

The following table reflects disaggregated net revenue by sales channel for the three months ended September 30, 2022 and September 30, 2021 are as follows:

September 30, 2022

September 30, 2021

Ecommerce/Other

Total Net Revenue

The following table reflects disaggregated net revenue by sales channel for the six months ended September 30, 2022 and September 30, 2021 are as follows:

September 30, 2022

September 30, 2021

Ecommerce/Other

Total Net Revenue

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.

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.

We have 2 major customers that together account for 22 % ( 12 % and 10 %, respectively) of accounts receivable at September 30, 2022, 3 customers that accounts for 39 % ( 17 %, 12 % and 10 %, respectively) of total revenues for the three months ended September 30, 2022 and 2 customers that accounts for 29 % ( 17 % and 12 %, respectively) of the total revenues earned for the six months ended September 30, 2022.

The Company has 1 vendors that accounts for 31 % of purchases for the three months ended September 30, 2022 and 2 vendors that accounted for 43 % ( 31 %, and 12 % respectively) of purchases for the six months ended September 30, 2022.

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

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

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.

Basic and Diluted Loss Per Share

4 unchanged sentences

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.

The Company had 8,796,234 and 4,371,379 shares relating to options, 1,805,000 and 2,087,104 shares relating to warrants and 2,227,030 and 6,681,090 convertible preferred shares at September 30, 2022 and 2021, respectively that were not included in the diluted earnings per share calculation because they were antidilutive.

Business Segments

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

therefore, segment information is not presented.

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

Fair Value of Financial Instruments

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

The 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 September 30, 2022 and 2021, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

Recent Accounting Pronouncements

Standards Recently Adopted

Standards Required to be Adopted in Future Years.

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.

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.

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

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

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

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

The Company has evaluated other recent accounting pronouncements through September 30, 2022 and believes that none of them will have a material effect on our consolidated financial statements.

NOTE 2 - GOING CONCERN

1 unchanged sentence

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 ).

As a result, the Company incurred accumulated net losses from Inception (June 19, 2012) through the period ended September 30, 2022 of ($ 125,406,196 ).

In addition, the Company's development activities since inception have been financially sustained through debt and equity financing.

5 unchanged sentences

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:

June 30, 2022

Property and Equipment consisted of the following at:

September 30, 2022

March 31, 2022

2 unchanged sentences

Accumulated Depreciation

Fixed Assets, net

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

Property and Equipment, net

Depreciation expense for the three months ended September 30, 2022 and 2021 was $ 218,953 and $ 159,015 , respectively.

Depreciation expense for the six months ended September 30, 2022 and 2021 was $ 406,385 and $ 318,030 , respectively.

NOTE 4 - REVOLVING FINANCING

3 unchanged sentences

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 advanced under the credit agreement as of September 30, 2022 was $ 7,531,935

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%

The interest rate as of September 30, 2022 and March 31, 2022 was 9.5% and 8.0%, respectively .

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.

21 unchanged sentences

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

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

As of September 30, 2022, the Company has paid $ 1,750,000 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.

2 unchanged sentences

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.

The Company valued each annual vested Series S Preferred Stock in the amount of $ 2,227,030 , is being expensed over twelve months, for the three and six months ended September 30, 2022, the expense relating to the Series S Preferred Stock was $ 556,758 and $ 1,113,515 , respectively.

In the three and six months ended September 30, 2022, the Company recognized an expense of $ 806,758 and $ 1,613,515 in connection with the agreement and anticipates recognizing an expense of $ 806,758 in each of the quarters ended 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.

On March 4, 2022, the Company entered into private placement subscription agreements, whereby it issued unsecured convertible notes (the "Notes") in the aggregate principal amount of $ 3.8 million.

The Notes were to mature on September 4, 2022 and will accrue interest at 8 % per annum, which interest will be payable on the date of the maturity.

Pursuant to the terms of the Notes, the holders of the Notes may convert all or any part of the principal amount outstanding under the Notes into units (the "Conversion Units") at a conversion price of $ 0.80 per Conversion Unit.

Each Conversion Unit will consist of one share of the Company's common stock and one share purchase warrant.

Each share purchase warrant would entitle the holder thereof to acquire one share of the Company's common stock at a price of $ 1.10 per share until March 4, 2025.

Pursuant to the aforementioned subscription agreements, in consideration for the subscribers' execution and delivery of the subscription agreements, the Company issued an aggregate of 475,000 shares which the Company recognized a debt discount in the amount of $ 345,455 which will be amortized over the term of the Notes.

For the three and six months ended September 30, 2022, the Company recognized interest expense in connection with the amortization of the debt discount of $ 121,619 and $ 294,346 , respectively.

In addition, the Company recognized a beneficial conversion feature in connection with the warrants in the amount of $ 1,524,750 which will be amortized over the term of the Notes.

For the three and six months ended September 30, 2022, the Company recognized interest expense in connection with the amortization of the beneficial conversion feature of $ 542,133 and $ 1,304,508 , respectively.

On July 25, 2022, the Company entered into debt settlement agreements the holders of the Notes in which the Company issued 10,459,354 common shares in settlement of the Company's Notes in an aggregate amount of $ 3,869,962 (principal of $ 3,800,000 and accrued and unpaid interest of $ 69,962 ) at settlement price per share of $ 0.37 .

The original conversion price per share of the Notes was $ 0.80 per share and the stock price at the date of the debt settlement was $ 0.429 per share.

The settlement of the debt at $ 0.37 per share resulted in a non-cash debt settlement expense of $ 2,405,612 .

Upon conversion of the Notes, the holders of the Notes received warrants to purchase 10,459,354 common shares in the Company at $ 1.10 per share.

The Company lowered the warrant exercise price from $ 1.10 to $ 0.44 for thirty days.

The holders of the Notes exercised all of the warrants, resulting in the Company receiving net proceeds of $ 4,602,116 and the issuance of 10,459,354 shares of its common stock.

In connection with this exercise of the warrants, the Company expensed the unamortized amount of the above referenced beneficial conversion feature recognized in connection with the issuance of the warrants.

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.

Effective as of August 29, 2022, we issued an aggregate of 2,285,714 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $ 0.46 per share for aggregate gross proceeds of $ 1,051,428 .

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.

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.

On July 29, 2022, we granted Frank Lazaran, our president, chief executive officer and director, an award of 500,000 shares of our common stock as a "restricted award" under the employment agreement dated July 29, 2022 with Mr.

Lazaran and our 2020 equity incentive plan.

These shares vested as of July 29, 2022 with a value of $ 214,000 based on a common share price of $ 0.428 .

NOTE 6 - OPTIONS

On July 29, 2022, we granted Frank Lazaran, our president, chief executive officer and director, stock options to purchase 1,000,000 shares of our common stock pursuant to his employment agreement dated July 29, 2022 and our 2020 equity incentive plan.

Each stock option is exercisable at a price of $ 0.428 per share until July 29, 2032.

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

On August 23, 2022, we granted an aggregate of 2,230,000 stock options to certain employees for the purchase of up to 2,230,000 shares of our common stock pursuant to our 2020 Equity Incentive Plan.

Each stock option is exercisable at a price of US$ 0.51 per share until August 23, 2032.

These stock options vest as to 50% ( 1,115,000 ) on each of the first and second anniversary of the grant date

NOTE 7 - LEASES

14 unchanged sentences

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

Operating Lease expense for the three 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 expense for the three and six months ended September 30, 2022 was $ 56,362 and $ 121,531 , respectively.

Operating Lease expense for the three and six months ended September 30, 2021 was $ 91,611 and $ 192,526 , respectively.

September 30, 2022

Operating lease right-of-use asset - current portion

8 unchanged sentences

Operating leases

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

Supplemental cash flow information related to leases is as follows:

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

Operating Leases

9 unchanged sentences

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.

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to September 30, 2022 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.

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