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Item 1. Financial Statements

2023-02-28 compared with 2022-11-14 · 152 added, 86 removed, 300 unchanged (44% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, 2022

December 31, 2022

March 31, 2022

18 unchanged sentences

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

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 1,100,000 Series E issued and outstanding on December 31, 2022 and nil issued and outstanding on March 31, 2022 and 2,227,030 Series S issued and outstanding on December 31, 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 147,930,459 and 110,571,812 shares issued and outstanding at December 31, 2022 and March 31, 2022, respectively

Discount on Preferred Stock

Subscription Receivable

9 unchanged sentences

For the Three Months

For the Six Months

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

For the Nine Months

December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

Cost of Goods Sold

7 unchanged sentences

Debt conversion expense

Gain on forgiveness of PPP loan payable

Total other (income) expense

6 unchanged sentences

Paid-in Capital

Stock Payable

Preferred Stock

Balance, March 31, 2021

11 unchanged sentences

Balance, September 30, 2021

Common shares issued upon exercise of warrants

Preferred stock conversion to common stock

Common shares issued to non-employees

Stock option and RSU-related stock compensation expense

Balance, December 31, 2021

Balance, March 31, 2022

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( 125,406,196

Preferred stock and common shares issued in connection with issuance of preferred stock series e

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

Balance, December 31, 2022

( 129,410,274

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

September 30, 2022

September 30, 2021

For the Nine Months

December 31, 2022

December 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES

18 unchanged sentences

Proceeds from sale of common stock, net

Proceeds from sale of preferred stock, net

Proceeds for the exercise of warrants, net

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

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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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.

The Company also sells a line of Alkaline88® Sports Drinks and hemp-derived CBD bottled water under the brand name "Alkaline88CBD™".

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).

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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.

The Company had $ 2,192,867 and $ 1,531,062 in cash at December 31, 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 September 30, 2022 and March 31, 2022:

September 30, 2022

March 31, 2022

Trade receivables, net

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

Trade receivables

Allowance for doubtful accounts

5 unchanged sentences

The inventory balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4.

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

September 30, 2022

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

December 31, 2022

March 31, 2022

2 unchanged sentences

Total inventory

As of March 31, 2022, the presentation in the table above has been corrected for a transposition error as the amounts for raw materials and finished goods.

Property and Equipment

7 unchanged sentences

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 recognizes revenue per ASC 606.

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

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

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.

The Company provides credit to its customers which typically require 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 Company estimates the amount of the discount that the customer is likely to take and recognizes it as variable consideration.

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.

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

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

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.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 3,021,744 and $ 4,105,279 for the three months ended December 31, 2022 and 2021, respectively and $ 10,555,978 and $ 11,824,231 for the nine months ended December 31, 2022 and 2021, respectively.

Promotional and other allowances (variable consideration) recorded as a reduction to net sales, primarily include consideration given to the Company's retail customers or distributors including, but not limited to the following:

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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

The following table reflects disaggregated net revenue by sales channel for the three months ended December 31, 2022 and December 31, 2021 are as follows:

December 31, 2022

December 31, 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

The following table reflects disaggregated net revenue by sales channel for the nine months ended December 31, 2022 and December 31, 2021 are as follows:

December 31, 2022

December 31, 2021

Ecommerce/Other

1 unchanged sentence

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.

We have 2 major customers that together account for 23 % ( 13 % and 10 %, respectively) of accounts receivable at December 31, 2022, 3 customer that accounts for 42 % ( 17 %, 15 %, and 10 % respectively) of total revenues for the three months ended December 31, 2022 and 2 customers that accounts for 30 % ( 17 % and 13 %, respectively) of the total revenues earned for the nine months ended December 31, 2022.

The Company has 1 vendors that accounts for 17 % of purchases for the three months ended December 31, 2022 and 2 vendors that accounted for 38 % ( 27 %,and 11 % respectively) of purchases for the nine months ended December 31, 2022.

The Company had 2 major customers that together accounted for 32 % ( 17 % and 15 %, respectively) of accounts receivable at December 31, 2021, 2 customer that accounted for 34 % ( 17 % and 17 %, respectively) of total revenues for the three months ended December 31, 2021 and 2 customers that accounted for 33 % ( 19 % and 14 %, respectively) of the total revenues earned for the nine months ended December 31, 2021.

The Company had 3 vendors that accounted for 52 % ( 27 %, 14 % and 11 % respectively) of purchases for the three months ended December 31, 2021 and 3 vendors that accounted for 49 % ( 25 %, 14 % and 10 % respectively) of purchases for the nine months ended December 31, 2021.

The Company uses an estimated annual effective tax rate method in computing its interim tax provision.

5 unchanged sentences

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

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

2 unchanged sentences

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

The Company had 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.

The Company had 8,679,234 and 4,033,949 shares relating to options and 1,805,000 and 780,009 shares relating to warrants at December 31, 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 as a single operating segment for purposes of presenting financial information and evaluating performance.

As such, the accompanying consolidated financial statements present financial information in a format that is consistent with the internal financial information used by management.

Fair Value of Financial Instruments

9 unchanged sentences

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.

As of December 31, 2022, and 2021, the Company did not have any financial instruments that are measured on a recurring basis as Level 1, 2 or 3.

Correction of Previously Issued Financial Statements

The accompanying consolidated statement of operations for the three months and nine months ended December 31, 2021 have been corrected for the following:

an adjustment to reclassify Sales and marketing expenses of $ 2,010,352 for the three months ended December 31, 2021 and $ 4,795,278 for the nine months ended December 31, 2021 as a reduction of Revenue as such amounts were related to consideration payable to a customer which the Company subsequently determined was not for distinct goods or services received.

The Company assessed the materiality of the misstatement quantitatively and qualitatively and has concluded that the correction of the classification error is immaterial to the consolidated financials taken as a whole.

As a result of the correction, total Revenue decreased from $ 15,110,400 to $ 13,100,048 for the three months ended December 31, 2021 and from $ 44,479,743 to $ 39,684,465 for the nine months ended December 31, 2021 with a corresponding decrease of Gross Profit from $ 4,982,256 to $ 2,971,904 for the three months ended December 31, 2021 and from $ 14,949,173 to $ 10,153,895 for the nine months ended December 31, 2021.

The correction had no impact on Total operating loss or Net loss for either the three or nine months ended December 31, 2021.

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.

The Company has evaluated recent accounting pronouncements through December 31, 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 September 30, 2022 of ($ 125,406,196 ).

As a result, the Company incurred accumulated net losses from Inception (June 19, 2012) through the period ended December 31, 2022 of ($ 129,410,274 ).

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

NOTE 3 - PROPERTY AND EQUIPMENT

Fixed assets consisted of the following at:

Property and equipment consisted of the following at:

September 30, 2022

December 31, 2022

March 31, 2022

3 unchanged sentences

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.

Depreciation expense for the three months ended December 31, 2022 and December 31, 2021 was $ 203,777 and $ 159,014 , respectively.

Depreciation expense for the nine months ended December 31, 2022 and December 31, 2021 was $ 610,162 and $ 477,045 , 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 September 30, 2022 was $ 7,531,935

The advanced under the credit agreement as of December 31, 2022 was $ 6,391,316 .

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 .

The interest rate as of December 31, 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.

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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

NOTE 5 - STOCKHOLDER EQUITY

Preferred Shares

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

As of 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

As of December 31, 2022, the Company has paid $ 1,750,000 under this agreement.

The Company will be paying $ 250,000 in each quarter in the fiscal years ended March 31, 2023 and March 31, 2024.

In addition, the Company agreed to grant 6,681,090 shares of Series S Preferred Stock to ABG, each vested share of which is convertible into one share of the Company's common stock.

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

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.

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

The term of the Endorsement Agreement is three years, commencing on May 1, 2021 and terminating on May 1, 2024 (the " Term").

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

The Company valued each annual vested Series S Preferred Stock in the amount of $ 2,227,030 , is being expensed over twelve months, for the three and nine months ended December 31, 2022, the expense relating to the Series S Preferred Stock was $ 556,758 and $ 1,670,273 , respectively.

In the three and nine months ended December 31, 2022, the Company recognized an expense of $ 806,758 and $ 2,420,273 in connection with the agreement and anticipates recognizing an expense of $ 806,758 in the quarter ended 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.

Series E Convertible Preferred Stock

On November 23, 2022, we entered into private placement subscription agreements, whereby we issued an aggregate of 1,100,000 shares of our Series E Preferred Stock ("Series E Preferred Stock") at a deemed price of $ 1.00 per share of Series E Preferred Stock for gross proceeds of $ 1,100,000 .

Pursuant to the subscription agreements, in consideration for the subscribers' execution and delivery of the subscription agreements, we also issued an aggregate of 880,000 shares of our common stock (the "Commitment Shares") at a deemed price of $ 0.25 per Commitment Share.

Holders of the Series E Preferred Stock (the "Holders") are entitled to receive dividends at the rate per share (as a percentage of the stated value per share) of 6 % per annum, payable on each anniversary date of the original issue date of shares of Series E Preferred Stock held by applicable Holders in a number of shares of our common stock per share of the Series E Preferred Stock equal to the quotient obtained by dividing the dollar amount of such dividend payment by applicable market price.

As of December 31, 2022 the company has a dividend payable of $ 5,500 .

A stated value of each share of the Series E Preferred Stock is $ 1.00 .

Any accrued but unpaid dividends on the Series E Preferred Stock being converted will be paid in our common stock upon the conversion of the Series E Preferred Stock.

If we pay a dividend on our common stock while the shares of the Series E Preferred Stock are outstanding, the Holders will be entitled to receive a dividend per share of Series E Preferred Stock equal to the dividend per share of our common stock.

Such dividend will be payable on the same terms and conditions as the payment of the dividend on our common stock.

Each share of Series E Preferred Stock will be convertible, at any time after the date that is twelve months from the original issue date, at our option, into that number of units (each, a "Unit") determined by dividing the stated value of such share of Series E Preferred Stock by $ 0.25 (the "Conversion Price").

Each Unit will consist of one share of our common stock and one-half of one common stock purchase warrant with each whole common stock purchase warrant entitling the holder thereof to acquire one additional share of our common stock at an exercise price equal of 125% of the Conversion Price for a period of three years following the conversion date.

The Company identified the conversion into a Unit (one share of preferred stock and one-half warrant) as an embedded beneficial conversion feature (ASC 470), thus the Company valued (using Black-Scholes option-pricing model for common stock options and warrants) each component of the Unit.

The Warrant was valued at in the aggregate $ 211,470 and the Common Stock was valued at $ 888,530 .

Accordingly, during the three-months ended December 31, 2022, the Company recognized an aggregate beneficial conversion feature of $ 211,470 upon issuance of the Series E Preferred Stock with a $ 211,470 increase in discount on preferred stock and a corresponding increase in additional paid-in capital.

The value of the warrant is being amortized over 1 year (the period from issuance to the earliest allowable conversion date.

As of December 31, 2022, the discount on preferred stock was $ 193,847 .

A Holder may, at its option, at any time and from time to time after January 31, 2023, convert all, but no less than all, of shares of Series E Preferred Stock held by such Holder into that number of Units determined by dividing the stated value of such shares of Series E Preferred Stock by the Conversion Price.

Each share of the Series E Preferred Stock will automatically convert, upon the occurrence of a Fundamental Transaction (as defined below), into that number of Units determined by dividing the stated value of such share of Series E Preferred Stock by the Conversion Price.

The conversion right is subject to the beneficial ownership limitation, which will be 4.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of our common stock issuable upon conversion of the Series E Preferred Stock held by the applicable Holder.

The Holder may increase or decrease the beneficial ownership limitation upon not less than 61 days' prior notice to our company, but in no event will such beneficial ownership exceed 9.99%.

Except with respect to a Fundamental Transaction, as required by law, or as required by the articles of incorporation of our company, the Holders and the holders of our common stock will be entitled to notice of any stockholders' meeting and to vote as a single class upon any matter submitted to the stockholders for a vote, on the following basis:

(i) holders of our common stock will have one vote per share of our common stock held by them;

and (ii) holders of Series E Preferred Stock will have one vote per share of Series E Preferred Stock held by them.

With respect to a Fundamental Transaction, the Holders will be entitled to notice of any stockholders' meeting and to vote as a separate class and will have one vote per share of Series E Preferred Stock by them.

A Fundamental Transaction means (i) any merger or consolidation of our company with or into another entity (but excluding a merger effected solely for the purpose of changing the jurisdiction of the incorporation of our company or changing the name of our company or liquidating, dissolving or winding-up one or more subsidiaries of our company), (ii) any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of our company's assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by our company or another individual or entity) is completed pursuant to which holders of our common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of our common stock, or (v) one or more related transactions consummating a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another individual or entity or group of individuals or entities whereby such other individual or entity or group acquires more than 50% of the outstanding shares of our common stock (not including any shares of common stock held by the other individual or entity making or party to, or associated or affiliated with the other individual or entity making or party to, such stock or share purchase agreement or other business combination).

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.

The Notes were to mature on September 4, 2022 and 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.

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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 .

These warrants had an original exercise price of $ 1.25 per share.

The Company reduced the exercise price of these warrants from $ 1.25 to $ 0.46 per share for a period of 30 days, commencing on August 9, 2022, in order to entice the holders of these warrant to exercise their warrants.

Klutch Financial Corp., a company wholly owned by Aaron Keay, a director of the Company, exercised their 1,000,000 warrants during the aforementioned period allowed for the exercise price reduction.

The Company received net proceeds of $ 460,000 in connection with the exercise of these 1,000,000 warrants by Klutch Financial Corp.

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 .

On November 16, 2022, we granted an award of 2,550,000 shares of our common stock as a "restricted award" under our 2020 Equity Incentive Plan to certain directors, officers and employees of the Company.

Of these restricted awards:

(i) 2,450,000 vest as to 50% on the grant date and 50% on the six month anniversary of the grant date;

and (ii) 100,000 vest as to 50% on the six month anniversary of the grant date and 50% on the one year anniversary of the grant date.

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

Issuance of Options

On November 16, 2022, we granted an aggregate of 900,000 stock options to certain directors, officers and employees of the Company for the purchase of up to 900,000 shares of our common stock pursuant to our 2020 Equity Incentive Plan.

Each stock option is exercisable at a price of US$ 0.25 per share until November 16, 2032.

All of these stock options vest 50% on each of the first and second anniversary of their grant date.

The Company valued the stock options (using Black-Scholes option-pricing model for common stock options and warrants) at an implied price of $ 0.22 or an aggregate value of $ 194,400 which will be expensed over the 2-year vesting period.

The Company recorded an expense of $ 8,100 in the three months ended December 31, 2022.

Forfeiture of Options

During the quarter, there were 948,000 options from 11 holders that were forfeited due to the Company’s reduced headcount.

The forfeiture of these options resulted in a reversal of prior stock option expense in the amount of $ 394,044 .

In addition, on November 16, 2022, the Company cancelled a previously issued granted to Mr.

Aaron Keay, a director of the Company, of 750,000 stock options.

The Company reversed the prior expense of $ 14,187 during the three months ended December 31, 2022.

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 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 expense for the three and nine months ended December 31, 2022 was $ 66,563 and $ 188,094 , respectively.

Operating lease expense for the three and nine months ended December 31, 2021 was $ 92,481 and $ 285,007 , respectively.

Operating Leases:

December 31, 2022

Operating lease right-of-use asset - current portion

9 unchanged sentences

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

Maturities of undiscounted lease liabilities as of December 31, 2022 are as follows:

Year ending March 31, 2023

2 unchanged sentences

Total lease payments

Imputed interest

Adjusted for interest

Total lease obligations

2 unchanged sentences

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 – RELATED PARTY TRANSACTIONS

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

These warrants had an original exercise price of $ 1.25 per share.

Klutch Financial Corp., a company wholly owned by Aaron Keay, a director of the Company, exercised its 1,000,000 warrants during the aforementioned period allowed for the exercise price reduction.

The Company received net proceeds of $ 460,000 in connection with the exercise of these 1,000,000 warrants by Klutch Financial Corp.

On November 16, 2022, the Company cancelled a previously issued grant to Mr.

Aaron Keay, a director of the Company, of 750,000 stock options.

The Company reversed the prior expense of $ 14,187 during the three months ended December 31, 2022.

On November 16, 2022, the Company granted awards of and aggregate of 2,550,000 shares of its common stock as a "restricted award" under our 2020 Equity Incentive Plan to certain directors, officers and employees of the Company.

Of these restricted awards:

(i) 2,450,000 vest as to 50% on the grant date and 50% on the six-month anniversary of the grant date;

and (ii) 100,000 vest as to 50% on the six-month anniversary of the grant date and 50% on the one-year anniversary of the grant date.

The restricted stock awards granted to the officers and directors of the Company totaled 2,200,000 .

On November 16, 2022, the Company granted an aggregate of 900,000 stock options to certain directors, officers and employees of the Company for the purchase of up to 900,000 shares of its common stock pursuant to the 2020 Equity Incentive Plan.

Each stock option is exercisable at a price of US$ 0.25 per share until November 16, 2032.

All of these stock options vest 50% on each of the first and second anniversary of their grant date.

The stock options granted to the directors and officers of the Company totaled 750,000 .

On November 23, 2022, the Company entered into private placement subscription agreements, whereby it issued an aggregate of 1,100,000 shares of its Series E Preferred Stock ("Series E Preferred Stock") at a deemed price of $ 1.00 per share of Series E Preferred Stock for gross proceeds of $ 1,100,000 .

Pursuant to the subscription agreements, in consideration for the subscribers' execution and delivery of the subscription agreements, the Company also issued an aggregate of 880,000 shares of its common stock (the "Commitment Shares") at a deemed price of $ 0.25 per Commitment Share.

David Rauch, before he become a director of the Company, purchased $ 100,000 of the Series E Preferred Stock transaction and as part of the transaction received 80,000 Commitment shares.

In addition, the general counsel of the Company purchased $ 500,000 of the Series E Preferred Stock and as part of the transaction received 400,000 Commitment shares.

NOTE 10 - 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.

On January 11, 2023, the Company issued an aggregate of 78,821 shares of its common stock in consideration for $ 40,000 of services rendered to the Company at an average price of $ 0.51 per share.

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