ALKALINE WATER Co INC 10-Q

Item 1. Financial Statements THE ALKALINE WATER COMPANY INC. CONSOLIDATED BALANCE SHEETS (unaudited) June 30, 2023 March 31, 2023 ASSETS Current assets Cash $ 414,648 $ 1,038,754 Accounts receivable, net 5,059,617 6,520,232 Inventory 5,544,390 5,591,351 Prepaid expenses 2,285,188 2,679,274 Operating lease right-of-use asset - current portion 80,289 122,114 Total current assets 13,384,132 15,951,725 Fixed assets - net 1,804,617 2,058,132 Operating lease right-of-use asset 15,184 20,246 Total assets $ 15,203,933 $ 18,030,103 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 12,609,187 $ 11,616,247 Accrued expenses 2,406,839 1,996,387 Revolving financing 6,188,332 6,403,447 Notes payable, short-term 1,967,661 3,192,313 Operating lease liability - current portion 89,916 136,214 Total current liabilities 23,261,935 23,344,608 Operating lease liability 16,812 22,223 Total liabilities 23,278,747 23,366,831 Commitments and contingencies (Note 8) 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 100 2,827 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 10,395 10,005 Discount on Preferred Stock ( 8,010 ) ( 76,898 ) Additional paid in capital 131,912,605 131,805,916 Accumulated deficit ( 139,989,904 ) ( 137,078,578 ) Total stockholders' deficit ( 8,074,814 ) ( 5,336,728 ) Total liabilities and stockholders' deficit $ 15,203,933 $ 18,030,103 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) For the Three Months June 30, 2023 June 30, 2022 Net Revenue $ 14,933,785 $ 16,318,786 Cost of Goods Sold 11,162,216 13,399,774 Gross Profit 3,771,569 2,919,012 Operating expenses Sales and marketing expenses 4,614,499 6,346,229 General and administrative 1,574,240 2,863,993 Total operating expenses 6,188,739 9,210,222 Total operating loss ( 2,417,170 ) ( 6,291,210 ) Other (income) expense Interest expense ( 423,768 ) ( 1,202,198 ) Total other (income) expense ( 423,768 ) ( 1,202,198 ) Net loss $ ( 2,840,938 ) $ ( 7,493,408 ) LOSS PER SHARE (Basic and Diluted) $ ( 0.28 ) $ ( 0.96 ) WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and Diluted) 10,293,276 7,844,653 The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited) Preferred Stock Common Stock Additional Discount of Accumulated Number Par Value Number Par Value Paid-in Capital Preferred E Stock Payable Deficit Total Balance, March 31, 2022 4,453,970 $ 4,454 7,371,454 $ 7,371 $ 109,967,281 $ - $ ( 62,388 ) $ ( 109,515,580 ) $ 401,138 Common shares issued in connection with offerings 605,572 606 5,205,598 62,388 5,268,592 Stock option exercise 1,130 1 ( 1 ) - Preferred stock conversion to common stock and vesting of endorsement shares ( 2,226,940 ) ( 2,227 ) 148,469 148 2,229,109 2,227,030 Stock option and RSU-related stock compensation expense 14,778 15 222,002 222,017 Net (loss) ( 7,493,408 ) ( 7,493,408 ) Balance, June 30, 2022 2,227,030 $ 2,227 8,141,403 $ 8,141 $ 117,623,989 $ - $ - $ ( 117,008,988 ) $ 625,369 Balance, March 31, 2023 2,827,030 $ 2,827 10,005,379 $ 10,005 $ 131,805,916 $ ( 76,898 ) $ - $ ( 137,078,578 ) $ ( 5,336,728 ) Preferred stock conversion to common stock and vesting of endorsement shares ( 2,227,030 ) ( 2,227 ) 148,469 148 558,837 556,758 Preferred stock series e conversion to common stock ( 500,000 ) ( 500 ) 133,333 133 367 - Preferred stock series e issuance of dividend in shares 4,598 5 11,078 11,083 Preferred stock series e amortization of discount 68,888 ( 68,888 ) - Preferred stock series e dividend accrual ( 1,500 ) ( 1,500 ) Stock option and RSU-related compensation expense and common shares issued upon conversion of RSUs, net of forfeited stock options 61,438 61 ( 463,550 ) ( 463,489 ) Common shares issues in connection with reverse stock split 42,588 43 ( 43 ) - Net (loss) ( 2,840,938 ) ( 2,840,938 ) Balance, June 30, 2023 100,000 $ 100 10,395,805 $ 10,395 $ 131,912,605 $ ( 8,010 ) $ - $ ( 139,989,904 ) $ ( 8,074,814 ) The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Three Months June 30, 2023 June 30, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 2,840,938 ) $ ( 7,493,408 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation expense 253,515 187,432 Shares issued and vested, options and RSU expensed for employee and non-employee services 93,269 2,449,047 Amortization of debt discount - 935,102 Non-cash interest expense - 49,710 Non-cash lease expense ( 4,822 ) ( 275 ) Changes in operating assets and liabilities: Accounts receivable 1,460,615 ( 495,350 ) Inventory 46,961 ( 2,094,675 ) Prepaid expenses and other current assets 394,086 ( 1,434,887 ) Accounts payable 992,940 1,492,615 Accrued expenses 420,035 3,910,039 Note payable, short-term ( 1,224,652 ) - NET CASH USED IN OPERATING ACTIVITIES ( 408,991 ) ( 2,494,650 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets - ( 854,997 ) CASH USED IN INVESTING ACTIVITIES - ( 854,997 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayment of) revolving financing, net ( 215,115 ) ( 504,083 ) Proceeds from sale of common stock, net - 5,268,592 CASH PROVIDED BY FINANCING ACTIVITIES ( 215,115 ) 4,764,509 NET CHANGE IN CASH ( 624,106 ) 1,414,862 CASH AT BEGINNING OF PERIOD 1,038,754 1,531,062 CASH AT END OF PERIOD $ 414,648 $ 2,945,924 INTEREST PAID $ 423,768 $ 215,164 TAXES PAID $ - $ - The accompanying notes are an integral part of these condensed consolidated financial statements. THE ALKALINE WATER COMPANY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 -NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Principles of consolidation The consolidated financial statements include the accounts of The Alkaline Water Company Inc. (a Nevada Corporation) and its wholly owned subsidiary, Alkaline 88, LLC (an Arizona Limited Liability Company). All significant intercompany balances and transactions have been eliminated. The Alkaline Water Company Inc. and Alkaline 88, LLC will be collectively referred herein to as the "Company". Any reference herein to "The Alkaline Water Company Inc.", the "Company", "we", "our" or "us" is intended to mean The Alkaline Water Company Inc., including its Alkaline 88, LLC subsidiary indicated above, unless otherwise indicated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Stock Split 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 The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value. Accounts receivable consisted of the following as of June 30, 2023 and March 31, 2023: June 30, 2023 March 31, 2023 Trade receivables, net $ 6,314,617 $ 7,775,232 Less: Allowance for doubtful accounts ( 1,255,000 ) ( 1,255,000 ) Net accounts receivable $ 5,059,617 $ 6,520,232 Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions. The accounts receivable balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4. Inventory Inventory represents raw materials and finished goods valued at the lower of cost or market with cost determined using the weight average method which approximates first-in first-out method, and with market defined as the lower of replacement cost or realizable value. The inventory balance is pledged as collateral for the Company's revolving financing as disclosed in Note 4. As of June 30, 2023 and March 31, 2023, inventory consisted of the following: June 30, 2023 March 31, 2023 Raw materials $ 3,405,609 $ 3,661,144 Finished goods 2,138,781 1,930,207 Total inventory $ 5,544,390 $ 5,591,351 Revenue Recognition We recognize revenue when our performance obligations are satisfied. Our primary performance obligation (the distribution and sale of beverage products) is satisfied upon the delivery of products to our customers, which is also when control is transferred. The Company does not accept returns due to the nature of the product. However, the Company will provide credit to our customers for damaged goods. The Company provides credit to its customers which typically requires payment within 30 days. As an incentive to pay early the Company also typically provides a 2% discount if the customer pays within 10 days. The Company estimates the amount of the discount that the customer is likely to take and records it as reduction in revenue. The amounts are not considered material. The Company's bottled water product represents substantially all revenue for all periods presented. Revenue consists of the gross sales price, less variable consideration, including estimated allowances for which provisions are made at the time of sale, and less certain other discounts and allowances. Shipping and handling charges that are billed to customers are included as a component of revenue. Costs incurred by the Company for shipping and handling charges are included in selling expenses and amounted to $ 3,104,780 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) 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 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 years ended June 30, 2023 and June 30, 2022 are as follows: June 30, 2023 June 30, 2022 Retailers $ 9,255,018 $ 10,582,084 Distributors 5,595,816 5,442,469 Ecommerce/Other 82,951 294,233 Total Net Revenue $ 14,933,785 $ 16,318,786 Concentration Risks 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 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, 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 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 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in developing its business plan and building its initial customer and distribution base for its products. As a result, the Company incurred accumulated net losses from Inception (June 19, 2012) through the period ended June 30, 2023 of ($ 139,989,904 ). In addition, the Company's development activities since inception have been financially sustained through debt and equity financing. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year from the of the date that the financial statements are issued. The Company's cash position may not be sufficient to support the Company's daily operations. Management plans to raise additional funds by way of a private or ongoing public offering. While the Company believes in the viability of its strategy and its ability to generate sufficient revenue and to raise additional funds, there can be no assurances to that effect. Should the Company fail to raise additional capital, it may be compelled to reduce the scope of its planned future business activities. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan, to generate sufficient revenue and to raise additional funds by way of public and/or private offerings. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. NOTE 3 - PROPERTY AND EQUIPMENT Fixed assets consisted of the following at: Fixed assets consisted of the following at: June 30, 2023 March 31, 2023 Machinery and Equipment $ 6,523,778 $ 6,523,778 Office Equipment 55,439 55,439 Less: Accumulated Depreciation ( 4,774,600 ) ( 4,521,085 ) Fixed Assets, net $ 1,804,617 $ 2,058,132 Depreciation expense for the quarter ended June 30, 2023 and 2022 was $ 253,515 and $ 187,432 , respectively. NOTE 4 - REVOLVING FINANCING On February 1, 2017, we entered into a credit and security agreement (the "Credit Agreement") with SCM Specialty Finance Opportunities Fund, L.P. ("SCM" or "Lender"), which subsequently changed its name to CNH Finance Fund I, L.P. 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 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 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. The Company agreed to pay to SCM monthly an unused line fee in amount equal to 0.083 % per month of the difference derived by subtracting (i) the average daily outstanding balance under the Revolving Facility during the preceding month, from (ii) the Revolving Loan Commitment Amount. The unused line fee will be payable monthly in arrears. We also agreed to pay SCM as additional interest a monthly collateral management fee equal to 0.35 % per month calculated on the basis of the average daily balance under the Revolving Facility outstanding during the preceding month. The collateral management fee will be payable monthly in arrears. 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 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 - STOCKHOLDERS' EQUITY (DEFICIT) Preferred Shares On October 7, 2013, the Company amended its articles of incorporation to create 100,000,000 shares of preferred stock by filing a Certificate of Amendment to Articles of Incorporation with the Secretary of State of Nevada. The preferred stock may be divided into and issued in series, with such designations, rights, qualifications, preferences, limitations and terms as fixed and determined by our board of directors. Series S Convertible Preferred Stock On May 12, 2021, The Alkaline Water Company Inc. (the "Company") entered into an Endorsement Agreement (the "Endorsement Agreement"), with ABG-Shaq, LLC ("ABG-Shaq"), an entity affiliated with Shaquille O'Neal, for the personal services of Mr. O'Neal. Pursuant to the Endorsement Agreement, the Company received the right and license to use Mr. O'Neal's name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights, in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of the Company's branded products. Mr. O'Neal will also provide brand ambassador services related to appearances, social media and public relations matters. The Endorsement Agreement also includes customary exclusivity, termination, and indemnification clauses. As consideration for the rights and services granted under the Endorsement Agreement, the Company agreed to pay to ABG-Shaq aggregate cash payments of $ 3 million over the three years of the Endorsement Agreement. The Company will also pay expenses related to the marketing and personal services provided by Mr. O'Neal. As of June 30, 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. 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 $ 15.00 per share on May 12, 2021. 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 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 58,667 shares of our common stock (the "Commitment Shares") at a deemed price of $ 3.75 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. 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 $ 3.75 (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, 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. Common 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. 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. 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 As of October 1, 2020, the company entered into a lease for 9,166 square feet of corporate office and warehouse space from a third party through September 2023 at a rate of $ 10,083 per month for the first twelve months, then at a rate of $ 10,385 for the next 12 months, and $ 10,697 for the final 12 months of the lease. The Company determined this lease was an operating lease under ASC 842 and using an interest rate of 7 %, the Company determined that the ROU for this lease was $ 337,932 and the lease liability for this lease was $ 337,932 , at inception of this lease, respectively. Previously, the Company leased its corporate office space with a size of 3,352 square feet leased from a third party which leased through November 2020 at the current rate of $ 7,891 per month. As of November 1, 2020, the company entered into a lease for 2,390 square feet of corporate office space from a third party through January 2024 at a rate of $ 5,280 per month for the first twelve months starting January 2021, then at a rate of $ 5,377 for the next 12 months, and $ 5,497 for the final 13 months of the lease. The Company determined this lease was an operating lease under ASC 842 and using an interest rate of 7 %, the Company determined that the ROU for this lease was $ 177,629 and the lease liability for this lease was $ 177,629 , at inception of this lease, respectively. As of April 1, 2022, the Company entered into a lease for 1,520 square feet of warehouse space from a third party through March 2025 at a rate of $ 1,812 per month for the first twelve months, then at a rate of $ 1,867 per month for the last next twelve months and then at a rate of $ 1,923 for the last twelve months. The Company determined this lease was an operating lease under ASC 842 and using an interest rate of 7 %, the Company determined that the ROU for this lease was $ 60,737 and the lease liability for this lease was $ 60,737 , at inception of this lease, respectively. At inception the ROU and Lease Liability was calculated based on the net present value of the future lease payments over the term of the lease. When available, the Company uses the rate implicit in the lease discount payments as the incremental borrowing rate to calculate the net present value; however, the rate implicit in the lease is not readily determinable for our corporate office lease. In this case, the Company estimated its incremental borrowing rate as the interest rate it could borrow an amount equal to the lease payments over a similar term, with similar collateral as the lease, and in a similar economic environment. The Company estimated its rate using available evidence such as rates imposed by third-party lenders to the Company in recent financings or observable risk-free interest rate and credit spreads for commercial debt of a similar duration, with credit spreads correlating to the Company's estimated creditworthiness. For operating leases that include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term from the date it takes possession of the leased property. The Company records the straight-line lease expense and any contingent rent, if applicable, in general and administrative expenses on the condensed consolidated statements of operations. The corporate office, lease also requires the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in the general and administrative expenses on the condensed consolidated statements of operations. Operating Lease expense for the three months ended June 30, 2023 was $ 52,791 and for the three months ended June 30, 2022 was $ 65,169 . Operating Leases: June 30, 2023 Operating lease right-of-use asset - current portion $ 80,289 Operating lease right-of-use asset - non-current portion 15,184 Total Operating lease right-of-use asset $ 95,473 Operating lease liability - current portion $ 89,916 Operating lease liability - non-current portion 16,812 Total Operating lease liability $ 106,728 Weighted average remaining lease term (in years): Operating leases 0.9 Weighted average discount rate: Operating leases 7 % Maturities of undiscounted lease liabilities as of June 30, 2023 are as follows: Operating Leases Year ending March 31, 2024 87,371 Year ending March 31, 2025 23,075 Total lease payments 110,446 Less: Imputed interest ( 3,718 ) Total lease obligations 106,728 NOTE 8 - COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings, claims and litigation arising in the ordinary course of business. The Company does not believe that the disposition of matters that are pending or asserted will have a material effect on its consolidated financial statements. NOTE 9 - SUBSEQUENT EVENTS 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.