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Item 1. Financial Statements

2023-09-22 compared with 2023-02-28 · 115 added, 234 removed, 218 unchanged (62% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

December 31, 2022

June 30, 2023

March 31, 2023

6 unchanged sentences

Operating lease right-of-use asset

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

2 unchanged sentences

Revolving financing

Convertible note payable, net of debt discount

Notes payable, short-term

Operating lease liability - current portion

3 unchanged sentences

Commitments and contingencies (Note 8)

Stockholders' equity

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

Stockholders' deficit

Preferred stock, $ 0.001 par value, 100,000,000 shares authorized, 100,000 Series E issued and outstanding on June 30, 2023 and 600,000 Series E issued and outstanding on March 31, 2023 and nil Series S issued and outstanding on June 30, 2023 and 2,227,030 Seires S issued and outstanding on March 31, 2023

Common stock, Class A - $ 0.001 par value, 13,333,333 shares authorized 10,395,805 and 10,005,379 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively

Discount on Preferred Stock

Subscription Receivable

Additional paid in capital

2 unchanged sentences

( 137,078,578

Total stockholders' equity

Total liabilities and stockholders' equity

Total stockholders' deficit

Total liabilities and stockholders' deficit

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

2 unchanged sentences

For the Three Months

For the Nine Months

December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

June 30, 2023

June 30, 2022

Cost of Goods Sold

6 unchanged sentences

Interest expense

Debt conversion expense

Gain on forgiveness of PPP loan payable

Total other (income) expense

6 unchanged sentences

Paid-in Capital

Preferred Stock

Stock Payable

Balance, March 31, 2022

Preferred stock issuance

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, June 30, 2021

( 109,515,580

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

Common shares issued upon exercise of warrants

Preferred stock conversion to common stock

Common shares issued to non-employees

Preferred stock conversion to common stock and vesting of endorsement shares

Stock option and RSU-related stock compensation expense

Balance, December 31, 2021

Balance, June 30, 2022

( 117,008,988

Balance, March 31, 2023

1 unchanged sentence

Preferred stock conversion to common stock and vesting of endorsement shares

Common Shares issued in connection with offerings

Stock option exercise

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

Preferred stock series e conversion to common stock

Preferred stock series e issuance of dividend in shares

Preferred stock series e amortization of discount

Preferred stock series e dividend accrual

Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs, net of forfeited stock options

Common shares issues in connection with reverse stock split

Balance, June 30, 2023

( 139,989,904

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

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 Nine Months

December 31, 2022

December 31, 2021

For the Three Months

June 30, 2023

June 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Amortization of debt discount

Debt conversion expense

Non-cash interest expense

5 unchanged sentences

Accrued expenses

Note payable, short-term

NET CASH USED IN OPERATING ACTIVITIES

5 unchanged sentences

Proceeds from sale of common stock, net

Proceeds from sale of preferred stock, net

Proceeds for the exercise of warrants, net

Proceeds for the exercise of stock options, net

CASH PROVIDED BY FINANCING ACTIVITIES

4 unchanged sentences

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

THE ALKALINE WATER COMPANY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules of the Securities and Exchange Commission.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations.

The March 31, 2023 balance sheet was derived from audited financial statements.

The financial statements include adjustments consisting of normal recurring items, which, in the opinion of management, are necessary for a fair presentation of the financial position of the Company and its results of operations for the interim dates and periods set forth herein.

The results for any of the interim periods are not necessarily indicative of the results to be expected for the full year or any other period.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2023.

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 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).

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.

The Company also sells a line of Alkaline88® Sports Drinks.

Principles of consolidation

8 unchanged sentences

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.

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 $ 2,192,867 and $ 1,531,062 in cash at December 31, 2022 and March 31, 2022, respectively.

Effective April 5, 2023, we effected a fifteen for one reverse stock split of our authorized and issued and outstanding shares of common stock.

As a result, our authorized common stock has decreased from 200,000,000 shares of common stock, with a par value of $ 0.001 per share, to 13,333,333 shares of common stock, with a par value of $ 0.001 per share, and the number of our issued and outstanding shares of common stock has decreased from approximately 152,149,661 to approximately 10,185,898 .

Any fractional shares resulting from the reverse stock split will be rounded up to the next nearest whole number.

Our authorized preferred stock was not affected by the reverse stock split and continues to be 100,000,000 shares of preferred stock, with a par value of $ 0.001 per share.

(See Note 5 - Common Stock.)

Accounts Receivable and Allowance for Doubtful Accounts

1 unchanged sentence

The carrying amount for accounts receivable approximates fair value.

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

Trade receivables

Accounts receivable consisted of the following as of June 30, 2023 and March 31, 2023:

June 30, 2023

March 31, 2023

Trade receivables, net

Allowance for doubtful accounts

5 unchanged sentences

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

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

December 31, 2022

As of June 30, 2023 and March 31, 2023, inventory consisted of the following:

June 30, 2023

March 31, 2023

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

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

The Company recognizes revenue per ASC 606.

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

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

We recognize revenue when our performance obligations are satisfied.

Our primary performance obligation (the distribution and sale of beverage products) is satisfied upon the delivery of products to our customers, which is also when control is transferred.

The Company does not accept returns due to the nature of the product.

However, the Company will provide credit to our customers for damaged goods.

The Company provides credit to its customers which typically require payment within 30 days.

The Company provides credit to its customers which typically requires payment within 30 days.

As an incentive to pay early the Company also typically provides a 2% discount if the customer pays within 10 days.

The Company estimates the amount of the discount that the customer is likely to take and recognizes it as variable consideration.

The Company estimates the amount of the discount that the customer is likely to take and records it as reduction in revenue.

The amounts are not considered material.

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

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

The Company's bottled water product represents substantially all revenue for all periods presented.

Revenue consists of the gross sales price, less variable consideration, including estimated allowances for which provisions are made at the time of sale, and less certain other discounts and allowances.

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

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 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.

Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 3,104,780 and $ 3,813,376 (which are not included in revenue) for the quarter ended June 30, 2023 and 2022, 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;

(b) discounts to the Company's distributors for agreed portions of their promotional discounts to retailers;

and (c) the Company's agreed share of in-store activities and other promotional allowances and various fees charged to the Company directly by its 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.

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 month.

The accrual for promotional incentives is based on expected chargebacks from customers or distributors and typically deducted from invoices within 30 days of being earned.

Historically, adjustments to our estimated accrual for customers' allowances have not been significant.

Disaggregated Net Revenues

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 nine months ended December 31, 2022 and December 31, 2021 are as follows:

December 31, 2022

December 31, 2021

The following table reflects disaggregated net revenue by sales channel for the years ended June 30, 2023 and June 30, 2022 are as follows:

June 30, 2023

June 30, 2022

Ecommerce/Other

1 unchanged sentence

Concentration Risks

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.

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 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.

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 8,679,234 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 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

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

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market, or foreign-currency risks.

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the company's assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is broken down into three levels based on reliability of the inputs as follows:

Observable inputs such as quoted prices in active markets;

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

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

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

The Company has 1 major customer that account for 14 % of accounts receivable at June 30, 2023, and 3 customers that together account for 37 % ( 15 %, 12 % and 10 %, respectively) of the total revenues earned for the quarter ended June 30, 2023.

The Company has 1 vendors that account for 24 % of purchases for the quarter ended June 30, 2023.

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

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

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 accompanying condensed consolidated statement of operations for the three months ended March 31, 2022 has been corrected for an adjustment to reclassify Sales and marketing expenses of $ 575,617 as a reduction of Net revenue as such amounts were related to consideration payable to a customer which the Company determined was not for distinct goods or services received.

The Company assessed the materiality of the misstatement 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.

As a result of the correction, Net Revenue decreased from $ 16,894,403 to $ 16,318,786 and Sales and marketing expenses decreased from $ 6,921,846 to $ 6,346,229 .

The correction had no impact on Total operating loss and Net loss.

Business Segments

The Company operates as a single operating segment for the 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.

Recent Accounting Pronouncements

Standards Required to be Adopted in Future Years.

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.

The Company has evaluated recent accounting pronouncements through June 30, 2023 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 December 31, 2022 of ($ 129,410,274 ).

As a result, the Company incurred accumulated net losses from Inception (June 19, 2012) through the period ended June 30, 2023 of ($ 139,989,904 ).

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

7 unchanged sentences

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

December 31, 2022

Fixed assets consisted of the following at:

June 30, 2023

March 31, 2023

2 unchanged sentences

Accumulated Depreciation

Property and equipment, net

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.

Fixed Assets, net

Depreciation expense for the quarter ended June 30, 2023 and 2022 was $ 253,515 and $ 187,432 , respectively.

NOTE 4 - REVOLVING FINANCING

1 unchanged sentence

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

and then to eCapital Healthcare Corp.

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 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 advanced under the credit agreement as of June 30, 2023 was $ 6,064,975 .

The Credit Agreement expired on September 14, 2023.

The principal amount of the Revolving Facility outstanding bears interest at a rate per annum equal to (i) a fluctuating interest rate per annum equal at all times to the rate of interest announced, from time to time, within Wells Fargo Bank at its principal office in San Francisco as its "prime rate," plus (ii) 3.25%, payable monthly in arrears.

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

The interest rate as of June 30, 2023 was 16.5%

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.

3 unchanged sentences

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.

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 Credit Agreement expired on September 14, 2023 and while the Company is in discussions with SCM, there is an event of default due to the expiration of the agreement), 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 - STOCKHOLDER EQUITY

NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)

Preferred Shares

10 unchanged sentences

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

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.

As of June 30, 2023, the Company has paid $ 2 million under this agreement.

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-fifteenth share of the Company's common stock.

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

1 unchanged sentence

The Series S Preferred Stock was value at $ 6,681,090 based on the Company's closing stock price of $ 15.00 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.

The Company valued the vested Series S Preferred Stock at $ 2,227,030 per year.

The Company recognized an expense of $ 2,227,030 for the year ended March 31, 2022 and March 31, 2023.

In the three months ending June 30, 2023 and June 30, 2022, the Company recognized an expense in the amount of $ 556,757 .

Series E Convertible Preferred Stock

2 unchanged sentences

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 .

6 unchanged sentences

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 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 to the Company 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 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

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.

Accordingly, 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 a 1 year (the period from issuance to the earliest allowable conversion date).

As of June 30, 2023, the discount on preferred stock was $ 8,010 .

500,000 shares of Series E Preferred Stock was converted on March 24, 2023 into 133,333 shares of the Company's common stock along with an issuance of 4,761 shares of the Company's common stock for the $ 10,333 dividend payable on the 500,000 shares of Series E Preferred Stock.

Effective as of April 4, 2023, we issued 133,333 units of our company upon conversion of 500,000 shares of our Series E Preferred Stock without the payment of any additional consideration.

Each unit was comprised of one fifteenth share of our common stock and one thirtieth of one common stock purchase warrant.

Each whole common stock purchase warrant entitles the holder to purchase an additional share of our common stock at a price of $ 4.69 per share for a period of three years.

In addition, effective as of April 4, 2023, we paid dividends on these 500,000 shares of our Series E Preferred Stock in the amount of $ 11,083 by issuing 4,598 shares of our common stock at a price of $ 2.410 per share.

In addition, the Company has accrued $ 3,317 as of June 30, 2023 as a dividend payable on the 100,000 remaining shares of Series E Preferred Stock.

Effective April 5, 2023, we effected a fifteen for one reverse stock split of our authorized and issued and outstanding shares of common stock.

Any fractional shares resulting from the reverse stock split will be rounded up to the next nearest whole number.

Our authorized preferred stock was not affected by the reverse stock split and continues to be 100,000,000 shares of preferred stock, with a par value of $ 0.001 per share.

Effective as of May 8, 2023, we issued 148,469 shares of our common stock upon conversion of 2,227,030 shares of our Series S Preferred Stock without the payment of any additional consideration.

Effective April 30 and May 1, the Company issued 1,443 and 59,995 shares of common stock upon the vesting of restricted stock awards to employees.

NOTE 6 - OPTIONS AND WARRANTS

The Company in the three months ended June 30, 2023, recorded an expense in the amount of $ 342,760 in connection with the granting of stock options and $ 114,139 in connection with the granting of RSUs in prior years.

This expense was offset by $ 920,388 which was the amount previously expensed in connection with 1,621,000 stock options that were forfeited during the three months ended June 30, 2023.

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 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 Lease expense for the three months ended June 30, 2023 was $ 52,791 and for the three months ended June 30, 2022 was $ 65,169 .

Operating Leases:

December 31, 2022

June 30, 2023

Operating lease right-of-use asset - current portion

8 unchanged sentences

Operating leases

Supplemental cash flow information related to leases is as follows:

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

Year ending March 31, 2023

Maturities of undiscounted lease liabilities as of June 30, 2023 are as follows:

Operating Leases

Year ending March 31, 2024

1 unchanged sentence

Total lease payments

Adjusted for interest

Imputed 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 9 - SUBSEQUENT EVENTS

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.

On July 12, 2023, the Company entered into a settlement agreement and stipulation ("Settlement Agreement") with Silverback Capital Corporation ("Silverback") in connection with the settlement of $ 1,809,256.03 of bona fide obligations the Company owed to certain of its creditors.

The Settlement Agreement was subject to a fairness hearing, and on September 6, 2023, the Circuit Courts within the Twelfth Judicial Circuit of Palm Beach County, Florida held a fairness hearing and, on September 12, 2023 entered an order granting approval of the Settlement Agreement.

If the Settlement Agreement is satisfied in full, the Company shall reduce the Company's debt obligations equal to $ 1,809,256.03 in exchange for 30,000 common shares to cover Silverback's expenses and the issuance of settlement shares of the Company's common stock pursuant to the terms of section 3(a)(10) of the Securities Act of 1933, in multiple tranches, at a price that is seventy percent (70%) of the average of the three lowest bid prices during the ten (10) trading days immediately preceding the delivery of such tranche.

At no time may Silverback beneficially own more than 4.99 % of the Company's outstanding common stock.

As of September 20, 2023, the Company issued 500,000 shares of WTER common stock, to be valued at 70% of the three lowest bid prices during the ten (10) trading days immediately preceding the delivery of such shares.

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