What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-16 · 72 added, 44 removed, 85 unchanged (58% of the section changed)

40 unchanged sentences

Results of Operations

Our results of operations for the three months ended June 30, 2021 and June 30, 2020 are as follows:

Three Months Ended September 30, 2021 and September 30, 2020

Our results of operations for the three months ended September 30, 2021 and September 30, 2020 are as follows:

For the three For the three

months ended months ended

September 30, September 30,

Revenue $ 15,255,765 $ 10,160,552

Cost of goods sold 10,091,415 6,509,264

Gross profit $ 5,164,350 $ 3,651,288

Net Loss $ (10,378,473 ) $ (4,361,628 )

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the three months ended June 30, 2021 of $14,113,578 as compared to $13,432,310 for the three months ended June 30, 2020, an increase of 5%.

We had revenue from sales of our product for the three months ended September 30, 2021 of $15,255,765, as compared to $10,160,552 for the three months ended September 30, 2020, an increase of 50% generated by sales of our alkaline water and flavor infused water.

The increase in sales is due to the expanded distribution of our products to additional retailers throughout the country and increased demand due to Covid-19.

10 unchanged sentences

Cost of goods sold is comprised of production costs, shipping and handling costs.

For the three months ended June 30, 2021, we had cost of goods sold of $9,311,011, or 66% of revenue, as compared to cost of goods sold of $8,594,841 or 64% of revenue, for the three months ended June 30, 2020.

Our operating expenses for the three months ended June 30, 2021 and June 30, 2020 are as follows:

For the three

For the three months ended September 30, 2021, we had cost of goods sold of $10,091,415 or 66% of revenue, as compared to cost of goods sold of $6,509,264 or 64% of revenue, for the three months ended September 30, 2020.

Our operating expenses for the three months ended September 30, 2021 and September 30, 2020 are as follows:

For the three For the three

months ended months ended

September 30, September 30,

Sales and marketing expenses $ 10,120,875 $ 4,389,335

1 unchanged sentence

Total operating expenses $ 15,372,626 $ 7,881,983

For the three months ended June 30, 2021, our total operating expenses were $12,120,774 as compared to $7,668,148 for the three months ended June 30, 2020.

For the three months ended June 30, 2021, the total included $7,156,400 of sales and marketing expenses.

Compared to the three months ended June 30, 2020, sales and marketing expenses increased due to higher sales and marketing cost, initial expenses relating to brand ambassador and higher freight cost to customers.

General and administrative expenses of $4,964,374, consisted primarily of approximately $2.6 million of professional fees, media fees and legal fees, stock compensation expense of approximately $1.1 million and approximately $1.0 million of wages and wage related expenses.

For the three months ended June 30, 2020, the total included $3,718,231 after reclassification of depreciation expense of sales and marketing expenses.

General and administrative expenses of $3,949,917 after reclassification of depreciation expense, consisted primarily of approximately $1.6 million of professional fees, media fees and legal fees, stock compensation expense of approximately $1.1 million and approximately $0.7 million of wages and wage related expenses.

For the three months ended September 30, 2021, our total operating expenses were $ 15,372,626 as compared to $7,881,983 for the three months ended September 30, 2020.

For the three months ended September 30, 2021, the total included $10,120,875 of sales and marketing expenses.

Sales and marketing expenses increased as a result of increased out-bound freight expenses (from approximately $1.7 million to $4.8 million) and sales promotional expenses (from approximately $0.3 million to approximately $2.5 million), increase which is primarily due to signing Alkaine88 brand ambassador.

General and administrative expenses of $5,251,751, consisted primarily of approximately $2.8 million of professional fees, media fees and legal fees, non-cash stock award and option expense in the amount of approximately $0.7 million and approximately $1.1 million of wages and wage related expenses.

For the three months ended September 30, 2020, the total included $4,389,335 of sales and marketing expenses.

Sales and marketing expenses increased as a result of increased freight and sales promotional expenses due to our increase in sales.

General and administrative expenses of $3,492,648, consisted primarily of approximately $1.6 million of professional fees, media fees and legal fees, stock option expense in the amount of approximately $0.8 million and approximately $0.7 million of wages and wage related expenses.

Six Months Ended September 30, 2021 and September 30, 2020

Our results of operations for the six months ended September 30, 2021 and September 30, 2020 are as follows:

For the six months For the six months

September 30, September 30,

Revenue $ 29,369,343 $ 23,592,862

Cost of goods sold 19,402,426 15,104,105

Gross profit 9,966,917 8,488,757

Net Loss $ (17,804,099 ) $ (7,382,631 )

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the six months ended September 30, 2021 of $29,369,343 as compared to $23,592,862 for the six months ended September 30, 2020, an increase of 24% generated by sales of our alkaline water and flavor infused water.

We distribute our product through several channels.

We sell through large national distributors (UNFI, KeHE, C&S, and Core-Mark), which together represent over 150,000 retail outlets.

We also sell our products directly to retail clients, including convenience stores, natural food products stores, large ethnic markets and national retailers and through Direct Store Distributors in selected markets, including Mahaska, Nevada Beverage, and Hensley, covering Nevada, Arizona, and Midwest region.

Combined, they service over 16,000 customers in five states.

Each one carries our full line of non-CBD waters.

Some examples of retail clients are:

Walmart, CVS, Rite-Aid Family Dollar, Food Lion, Albertson's/Safeway, Kroger companies, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros.

Markets, Unified Grocers, Bristol Farms, Publix, Vallarta, Superior Foods, Ingles, Shaw's, Raley's, Harris Teeter, Festival Foods, HEB and Brookshire's.

Cost of goods sold is comprised of production costs, shipping and handling costs.

For the six months ended September 30, 2021, we had cost of goods sold of $19,402,426, or 66% of revenue, as compared to cost of goods sold of $15,104,105 or 64% of revenue, for the six months ended September 30, 2020.

The decrease in gross profit rate is a result of increased raw material cost from our suppliers.

Our operating expenses for the six months ended September 30, 2021 and September 30, 2020 are as follows:

For the six For the six

months ended months ended

September 30, September 30,

Sales and marketing expenses $ 17,277,275 $ 8,107,566

General and administrative expenses 10,216,125 7,442,565

Total operating expenses $ 27,493,400 $ 15,550,131

For the six months ended September 30, 2021, our total operating expenses were $27,493,400, as compared to $15,550,131 for the six months ended September 30, 2020.

For the six months ended September 30, 2021, the total included $17,277,275 of sales and marketing expenses.

Sales and marketing expenses increased as a result of increased out-bound freight expense (from approximately $3.5 million to $7.7 million) and sales promotional expenses (from approximately $0.4 million to approximately $4.0 million), increase which is primarily due to signing Alkaine88 brand ambassador.

General and administrative expenses of $10,216,125, consisted primarily of approximately $5.5 million of professional fees, stock award and option expense in the amount of approximately $1.4 million and approximately $2.1 million of wage and wage related expenses.

For the six months ended September 30, 2020, the total included $8,107,566 of sales and marketing expenses and $7,442,565 of general and administrative expenses, consisting primarily of approximately $3.3 million of professional fees, stock option expense in the amount of approximately $1.9 million and approximately $1.4 million of wage and wage related expenses.

Liquidity and Capital Resources

Working Capital

June 30, 2021

March 31, 2021

At September 30, 2021 At March 31, 2021

Current assets $ 30,626,644 $ 23,271,259

2 unchanged sentences

Current Assets

Current assets as of June 30, 2021 and March 31, 2021 primarily include $4,497,905 and $9,130,956 in cash, $8,221,373 and $8,458,176 in accounts receivable and $5,037,575 and $4,407,720 in inventory, respectively.

Current assets as of September 30, 2021 and March 31, 2021 primarily relate to $10,419,065 and $ 9,130,956 in cash, $10,983,231 and $ 8,458,176 in accounts receivable and $6,277,844 and $ 4,407,720 in inventory.

Current Liabilities

Current liabilities as of June 30, 2021 and March 31, 2021 primarily include $7,708,548 and $7,055,348 in accounts payable, revolving financing of $5,107,111 and $4,324,412, and accrued expenses of $1,361,920 and $1,306,106, respectively.

Our cash flows for the three months ended June 30, 2021 and June 30, 2020 are as follows:

For the three

Current liabilities as of September 30, 2021 and March 31, 2021 primarily relate to $7,984,651 and $ 7,055,348 in accounts payable, revolving financing of $6,997,928 and $ 4,324,412, and accrued expenses of $1,388,349 and $1,306,106 respectively.

Our cash flows for the six months ended September 30, 2021 and September 30, 2020 are as follows:

For the six For the six

months ended months ended

September 30, September 30,

Net Cash used in operating activities $ (18,730,426 ) $ (8,111,51)6

1 unchanged sentence

Net Cash provided by financing activities 20,333,943 7,616,820

Net increase (decrease) in cash

Net (decrease) in cash and cash equivalents $ 1,288,109 $ (584,805 )

Operating Activities

Net cash used in operating activities was $6,055,313 for the three months ended June 30, 2021, as compared to $1,405,671 used in operating activities for the three months ended June 30, 2020.

The increase in net cash used in operating activities was primarily due to the increase in net loss of approximately $4.4 million.

The increase in net loss was attributable to higher corporate sales and marketing costs and higher cost of goods sold and freight costs.

Net cash used in operating activities was $18,730,426 for the six months ended September 30, 2021, as compared to $8,111,516 used in operating activities for the six months ended September 30, 2020.

The increase in net cash used in operating activities was primarily due the increased net loss after adjusting for non-cash activity of approximately $8.3 million and increases in accounts receivable and inventory.

Investing Activities

Net cash used in investing activities was $61,444 for the three months ended June 30, 2021, as compared to $68,519 used in investing activities for the three months ended June 30, 2020.

Net cash used in investing activities was $315,408 for the six months ended September 30, 2021, as compared to $90,109 used in investing activities for the six months ended September 30, 2020.

The increase in net cash used in investing activities was from an increase in purchases of fixed assets.

Financing Activities

Net cash provided by financing activities for the three months ended June 30, 2021 was $1,483,706, as compared to $2,530,270 for the three months ended June 30, 2020.

Financing Activities Subsequent to June 30, 2021

On July 6, 2021, we completed a private placement of 4,757,381 subscription receipts at a price of US$1.05 per subscription receipt for total gross proceeds of US$4,995,250.05.

In the event of the occurrence of the escrow release condition (as defined below), each subscription receipt will automatically convert into one unit consisting of one share of our common stock and one transferable share purchase warrant, for no additional consideration.

Each warrant will entitle the holder thereof to acquire one share of our common stock for a period of three years from the date of issuance thereof at a price of US$1.25 per share.

The subscription amounts will be held by an escrow agent until the escrow release condition occurs.

The escrow release condition is the receipt by our company of an ordinary resolution of our stockholders approving the private placement and the issuance of the securities thereunder.

In the event that the escrow release condition is satisfied prior to 5:00 p.m.

(Vancouver time) on September 30, 2021, we will deliver a notice to the escrow agent confirming the escrow release condition has been satisfied.

Upon receipt of the notice, the escrow agent will, as soon as practicable thereafter, release the subscription amounts to our company and each subscription receipt will automatically convert into one unit without payment of any additional consideration.

If the escrow release condition is not satisfied by 5:00 p.m.

(Vancouver time) on September 30, 2021 or if we deliver a written default notice to the escrow agent that the escrow release condition will not be satisfied by that time, the subscription receipts will expire and be of no further force and effect, effective as of the earlier of (i) 5:00 p.m.

(Vancouver time) on September 30, 2021 (ii) the date of the receipt of the default notice, and the subscribers will be entitled to receive from the escrow agent a refund of the subscription amounts held in escrow, without interest and less applicable expenses.

Effective as of July 28, 2021, we issued an aggregate of 1,071,428 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $1.25 per share for aggregate gross proceeds of $1,339,285.

Effective as of July 29, 2021, we issued an aggregate of 1,995,237 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $1.25 per share for aggregate gross proceeds of $2,494,046.25.

Effective as of August 10, 2021, we issued an aggregate of 174,810 shares of our common stock upon exercise of our common stock purchase warrants with an exercise price of $1.25 per share for aggregate gross proceeds of $218,512.50.

Net cash provided by financing activities for the six months ended September 30, 2021 was $20,333,943, as compared to $7,616,820 for the six months ended September 30, 2020.

The increase in net cash provided by financial activities is primarily due to an increase in the proceeds from the exercise of warrants of approximately $7.7 million and an increase in proceeds of $5.2 million in the Company's revolver financing.

Cash Requirements

6 unchanged sentences

We will also reimburse the Agent for certain expenses incurred in connection with the Sales Agreement.

We believe cash on hand, plus the anticipated release of the funds from escrow from the July 6, 2021 private placement awaiting stockholder approval, anticipated warrant exercises, our line of credit and the Sales Agreement will adequately fund our current planned operations and capital needs for the next 12 months.

However, if our current plans change or are accelerated or we choose increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors.

We believe cash on hand, plus the anticipated exercise of outstanding warrants will adequately fund the Company's planned operations and capital needs for the next 12 months.

However, if our current plans change or are accelerated or we choose to increase our production capacity, we may seek to sell additional equity or debt securities or obtain additional credit facilities, including seeking investments from strategic investors.

The sale of additional equity securities will result in dilution to our stockholders.

1 unchanged sentence

Financing may not be available in amounts or on terms acceptable to us, if at all.

Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to continue as a going concern.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

Quantitative and Qualitative Disclosures About Market Risk

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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 2. Management’s Discussion and Analysis