ALKALINE WATER Co INC 10-Q

Item 1. Financial Statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED BALANCE SHEETS (unaudited) September 30, 2022 March 31, 2022 ASSETS Current assets Cash $ 2,257,502 $ 1,531,062 Accounts receivable, net 7,464,009 7,927,065 Inventory 9,873,998 8,583,664 Prepaid expenses 2,403,972 2,928,085 Operating lease right-of-use asset - current portion 187,545 187,545 Total current assets 22,187,026 21,157,421 Fixed assets - net 2,027,667 1,200,797 Operating lease right-of-use asset 48,587 142,359 Total assets $ 24,263,280 $ 22,500,577 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable $ 10,902,488 $ 10,441,879 Accrued expenses 2,326,094 2,036,739 Revolving financing 7,531,935 7,043,870 Convertible note payable, net of debt discount - 2,223,633 Operating lease liability - current portion 204,405 174,565 Total current liabilities 20,964,922 21,920,686 Operating lease liability 54,108 178,753 Total liabilities 21,019,030 22,099,439 Commitments and contingencies (Note 10) 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 2,227 4,454 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 145,827 110,572 Subscription Receivable - ( 62,388 ) Additional paid in capital 128,502,392 109,864,080 Accumulated deficit ( 125,406,196 ) ( 109,515,580 ) Total stockholders' equity 3,244,250 401,138 Total liabilities and stockholders' equity $ 24,263,280 $ 22,500,577 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) For the Three Months For the Six Months September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net Revenue $ 19,574,953 $ 15,255,765 $ 36,469,356 $ 29,369,343 Cost of Goods Sold 14,948,461 10,091,415 28,348,235 19,402,426 Gross Profit 4,626,492 5,164,350 8,121,121 9,966,917 Operating expenses Sales and marketing expenses 7,120,133 10,120,875 14,041,979 17,277,275 General and administrative 2,575,986 5,251,751 5,439,979 10,216,125 Total operating expenses 9,696,119 15,372,626 19,481,958 27,493,400 Total operating loss ( 5,069,627 ) ( 10,208,276 ) ( 11,360,837 ) ( 17,526,483 ) Other (income) expense Interest expense ( 921,969 ) ( 170,197 ) ( 2,124,167 ) ( 277,616 ) Debt conversion expense ( 2,405,612 ) - ( 2,405,612 ) - Total other (income) expense ( 3,327,581 ) ( 170,197 ) ( 4,529,779 ) ( 277,616 ) Net loss $ ( 8,397,208 ) $ ( 10,378,473 ) $ ( 15,890,616 ) $ ( 17,804,099 ) LOSS PER SHARE (Basic and Diluted) $ ( 0.06 ) $ ( 0.11 ) $ ( 0.12 ) $ ( 0.20 ) WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) 137,563,831 93,669,358 127,595,784 91,020,392 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited) Preferred Stock Common Stock Additional Subscription Accumulated Number Par Value Number Par Value Paid-in Capital Stock Payable 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) ( 7,425,656 ) ( 7,425,656 ) Balance, June 30, 2021 6,681,090 $ 6,681 89,761,122 $ 89,761 $ 84,468,451 $ - $ - $ ( 77,356,876 ) $ 7,208,017 Common shares issued in connection with offerings 4,757,381 4,757 4,990,493 4,995,250 Common shares issued upon exercise of warrants 9,523,376 9,526 11,894,694 11,904,220 Common shares issued to non-employees and employees 172,802 173 307,546 307,719 Stock option and RSU-related stock compensation expense 625,556 625,556 Stock option exercise 118,692 118 59,832 59,950 Net (loss) ( 10,378,473 ) ( 10,378,473 ) Balance, September 30, 2021 6,681,090 $ 6,681 104,333,373 $ 104,335 $ 102,346,572 $ - $ - $ ( 87,735,349 ) $ 14,722,239 Balance, March 31, 2022 4,453,970 $ 4,454 110,571,812 $ 110,572 $ 109,864,080 $ - $ ( 62,388 ) $ ( 109,515,580 ) $ 401,138 Preferred stock conversion to common stock and vesting of endorsement shares ( 2,226,940 ) ( 2,227 ) 2,227,030 2,227 2,227,030 2,227,030 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 ) - Stock option and RSU-related compensation expense and common shares issued upon 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 Common shares issued in connection with conversion of note payable - 10,459,354 10,460 4,966,013 4,976,473 Common shares issued upon exercise of warrants 12,745,068 12,746 5,640,798 5,653,544 Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs 500,000 500 385,572 386,072 Net (loss) ( 8,397,208 ) ( 8,397,208 ) Balance, September 30, 2022 2,227,030 $ 2,227 145,825,459 $ 145,827 $ 128,502,392 $ - $ - $ ( 125,406,196 ) $ 3,244,250 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Six Months September 30, 2022 September 30, 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 15,890,616 ) $ ( 17,804,099 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation expense 406,385 318,030 Shares issued and vested, options and RSU expensed for employee and non-employee services 1,721,605 3,851,955 Amortization of debt discount 1,598,855 - Debt conversion expense 2,405,612 - Non-cash interest expense 47,472 - Non-cash lease expense ( 1,033 ) 8,366 Changes in operating assets and liabilities: Accounts receivable 463,056 ( 2,525,055 ) Inventory ( 1,290,334 ) ( 1,870,124 ) Prepaid expenses and other current assets 338,527 ( 1,723,026 ) Accounts payable 460,609 929,303 Accrued expenses 289,355 84,224 NET CASH USED IN OPERATING ACTIVITIES ( 9,450,507 ) ( 18,730,426 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets ( 1,233,254 ) ( 315,408 ) CASH USED IN INVESTING ACTIVITIES ( 1,233,254 ) ( 315,408 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayment of) revolving financing, net 488,065 2,673,516 Proceeds from sale of common stock, net 5,268,592 4,995,250 Proceeds for the exercise of warrants, net 5,653,544 12,556,997 Proceeds for the exercise of stock options, net - 108,108 CASH PROVIDED BY FINANCING ACTIVITIES 11,410,201 20,333,871 NET CHANGE IN CASH 726,440 1,288,037 CASH AT BEGINNING OF PERIOD 1,531,062 9,130,956 CASH AT END OF PERIOD $ 2,257,502 $ 10,418,993 INTEREST PAID $ 468,118 $ 271,190 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 $ 2,257,502 and $ 1,531,062 in cash at September 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 September 30, 2022 and March 31, 2022: September 30, 2022 March 31, 2022 Trade receivables, net $ 7,934,009 $ 8,397,065 Less: Allowance for doubtful accounts ( 470,000 ) ( 470,000 ) Net accounts receivable $ 7,464,009 $ 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 September 30, 2022 and March 31, 2022, inventory consisted of the following: September 30, 2022 March 31, 2022 Raw materials $ 6,239,929 $ 3,848,750 Finished goods 3,634,069 4,734,914 Total inventory $ 9,873,998 $ 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, which the Company has determined to be 3 years. 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 $ 3,720,857 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: (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 three months ended September 30, 2022 and September 30, 2021 are as follows: September 30, 2022 September 30, 2021 Retailers $ 12,857,303 $ 10,940,057 Distributors 6,286,113 4,104,243 Ecommerce/Other 431,537 211,465 Total Net Revenue $ 19,574,953 $ 15,255,765 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 Retailers $ 23,812,653 $ 20,344,719 Distributors 11,920,555 8,640,245 Ecommerce/Other 736,149 384,379 Total Net Revenue $ 36,469,356 $ 29,369,343 Concentration Risks 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. Income Taxes 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 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. 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. 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: Level 1: Observable inputs such as quoted prices in active markets; Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. As of 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 Required to be Adopted in Future Years. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 2018, ASU 2016-13 was amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2018-19 changes the effective date of the credit loss standards (ASU 2016-13) to fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Further, the ASU clarifies that operating lease receivables are not within the scope of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842. The Company does not believe that the impact of adopting this standard will have a material effect on its financial statements. 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 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 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. 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 NOTE 3 - PROPERTY AND EQUIPMENT Fixed assets consisted of the following at: Property and Equipment consisted of the following at: September 30, 2022 March 31, 2022 Machinery and Equipment $ 5,999,558 $ 4,766,303 Office Equipment 55,439 55,439 Less: Accumulated Depreciation ( 4,027,330 ) ( 3,620,945 ) Property and Equipment, net $ 2,027,667 $ 1,200,797 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 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 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 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. 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 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. 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 , 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. Common Stock 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 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 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 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 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 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 $ 187,545 Operating lease right-of-use asset - non-current portion 48,587 Total Operating lease right-of-use asset $ 236,132 Operating lease liability - current portion $ 204,405 Operating lease liability - non-current portion 54,108 Total Operating lease liability $ 258,513 Weighted average remaining lease term (in years): Operating leases 1.9 Weighted average discount rate: Operating leases 7 % 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 Year ending March 31, 2023 $ 107,678 Year ending March 31, 2024 141,552 Year ending March 31, 2025 23,075 Total lease payments 272,305 Less: Imputed interest ( 13,792 ) Total lease obligations $ 258,513 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 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.