What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-14 compared with 2021-11-09 · 43 added, 66 removed, 91 unchanged (55% of the section changed)

26 unchanged sentences

As used in this quarterly report on Form 10-Q, the terms "we", "us" "our", the "Company" and "Alkaline" refer to The Alkaline Water Company Inc., a Nevada corporation, and its wholly-owned subsidiaries A88 Infused Beverage Division, Inc.

(a Nevada Corporation hereinafter referred to as "A88 Infused"), A88 Infused Products, Inc.

(a Nevada Corporation), A88 International, Inc.

(a Nevada Corporation hereinafter referred to as "A88 Infused"), A88 International, Inc.

(a Nevada Corporation), A88 Infused Products, Inc.

(a Nevada Corporation), The Clean Beverage Company Inc.

(a Nevada corporation), and Alkaline 88, LLC (an Arizona Limited Liability Company), unless otherwise specified.

10 unchanged sentences

Results of Operations

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

Three Months Ended December 31, 2021 and December 31, 2020

Our results of operations for the three months ended December 31, 2021 and December 31, 2020 are as follows :

For the three

Cost of goods sold

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 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.

We had revenue from sales of our product for the three months ended December 31, 2021 of $15,110,400 as compared to $9,616,200 for the three months ended December 31, 2020, an increase of 57% generated by sales of our alkaline water and flavored 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 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,

For the three months ended December 31, 2021, we had cost of goods sold of $10,128,144, or 67% of revenue, as compared to cost of goods sold of $6,263,961 or 65% of revenue, for the three months ended December 31, 2020.

Our operating expenses for the three months ended December 31, 2021 and December 31, 2020 are as follows:

For the three

Sales and marketing expenses

1 unchanged sentence

Total operating 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.

For the three months ended December 31, 2021, our total operating expenses were $15,905,942 as compared to $7,575,656 for the three months ended December 31, 2020.

For the three months ended December 31, 2021, the total included $9,572,279 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 $6,333,663, consisted primarily of approximately $1.3 million of professional fees, media fees and legal fees, stock option and restricted stock expense in the amount of approximately $2.3 million and approximately $1.5 million of wages and wage related expenses.

For the three months ended December 31, 2020, the total included $4,091,435 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 $3,484,221, consisted primarily of approximately $2,0 million of professional fees, media fees and legal fees, stock option expense in the amount of approximately $0.4 million and approximately $0.8 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

Nine Months Ended December 31, 2021 and December 31, 2020

Our results of operations for the nine months ended December 31, 2021 and December 31, 2020 are as follows:

Cost of goods sold

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 had revenue from sales of our product for the nine months ended December 31, 2021 of $44,479,743 as compared to $33,209,062 for the nine months ended December 31, 2020, an increase of 34% generated by sales of our alkaline water and flavored 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.

We distribute our product through several channels.

6 unchanged sentences

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,

The majority of our sales to retail clients are through brokers and distributors, however, sales to our larger retail clients are often direct to the client's own warehouse distribution network.

Our CBD products are presently available for purchase on our E-commerce websites, www.a88cbd.com and www.a88hemp.com, in addition to a growing number of brick and mortar retail locations.

For the nine months ended December 31, 2021, we had cost of goods sold of $29,530,570, or 66% of revenue, as compared to cost of goods sold of $21,368,066 or 64% of revenue, for the nine months ended December 31, 2020.

Our operating expenses for the nine months ended December 31, 2021 and December 31, 2020 are as follows:

Sales and marketing expenses

1 unchanged sentence

Total operating expenses

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.

For the nine months ended December 31, 2021, our total operating expenses were $43,399,342, as compared to $23,125,788 for the nine months ended December 31, 2020.

For the nine months ended December 31, 2021, the total included $26,849,554 of sales and marketing expenses.

Sales and marketing expenses increased compared to the nine months ended December 31, 2020 as a result of increased out bound freight to our customers of approximately $6.5 million, increased advertising and promotional expenses of approximately $2.9 million and increased non-cash stock expense of approximately $1.7 million.

General and administrative expenses of $16,549,788, consisted primarily of approximately $6.8 million of professional fees, stock option and stock award expense in the amount of approximately $3.7 million and approximately $3.6 million of wage and wage related expenses.

For the nine months ended December 31, 2020, the total included $12,199,001 of sales and marketing expenses and $10,926,786 of general and administrative expenses, consisting primarily of approximately $5.3 million of professional fees, stock option expense in the amount of approximately $2.3 million and approximately $2.2 million of wage and wage related expenses.

Liquidity and Capital Resources

Working Capital

At September 30, 2021 At March 31, 2021

Current assets

2 unchanged sentences

Current Assets

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 assets as of December 31, 2021 and March 31, 2021 primarily relate to $3,293,292 and $9,130,956 in cash, $7,773,196 and $8,458,176 in accounts receivable and $8,829,559 and $4,407,720 in inventory, respectively.

Current Liabilities

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,

Current liabilities as of December 31, 2021 and March 31, 2021 primarily relate to $7,389,169 and $7,055,348 in accounts payable, revolving financing of $6,426,601 and $4,324,412, and accrued expenses of $1,409,648 and $1,306,106 respectively.

Our cash flows for the nine months ended December 31, 2021 and December 31, 2020 are as follows:

Net cash used in operating activities

1 unchanged sentence

Net cash provided by financing activities

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

Net increase (decrease) in cash and cash equivalents

Operating Activities

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.

Net cash used in operating activities was $25,940,267 for the nine months ended December 31, 2021, as compared to $9,602,288 used in operating activities for the nine months ended December 31, 2020.

The increase of approximately $16 million in net cash used in operating activities is primarily due to approximately $16 million increase of net loss in the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020.

Investing Activities

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.

Net cash used in investing activities was $493,329 for the nine months ended December 31, 2021, as compared to $152,877 used in investing activities for the nine months ended December 31, 2020.

Financing Activities

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.

Net cash provided by financing activities for the nine months ended December 31, 2021 was $20,595,932, as compared to $6,910,427 for the nine months ended December 31, 2020.

The increase of approximately $13.7 million in net cash provided by financing activities is primarily due to increase of approximately $8.5 million increase of proceeds provided by sale of common stock and proceeds from the exercise of warrants, and by an increase of approximately $5.4 million of cash flows from revolving financing, net of repayments in the nine months ended December 31, 2021 compared to the nine months ended December 31, 2020.

Cash Requirements

On February 22, 2021, we entered into a sales agreement (the "Sales Agreement") with Roth Capital Partners, LLC, as sales agent (the "Agent"), pursuant to which we may offer and sell, from time to time, through or to the Agent, as sales agent and/or principal (the "Offering") up to $20,000,000 in shares of our common stock.

Subject to the terms and conditions of the Sales Agreement, the Agent agreed to use its commercially reasonable efforts to sell the shares from time to time, based upon our instructions.

Under the Sales Agreement, the Agent may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

We have no obligation to sell any of the shares and may at any time suspend offers under the Sales Agreement.

The Offering will terminate upon (a) the election of the Agent upon the occurrence of certain adverse events, (b) five days' advance notice from one party to the other, or (c) the sale of all of the shares specified in the Sales Agreement.

Under the terms of the Sales Agreement, the Agent will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of the shares under the Sales Agreement.

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

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.

We believe that between the cash on hand as of December 31, 2021, expected warrant exercises, and our credit line, we will have sufficient cash to sustain operations including our cash needs through at least December 31, 2022.

If our own financial resources and future cash-flows from operations beyond December 31, 2022 are insufficient to sustain operations, we may seek to sell additional equity or debt securities or obtain additional credit facilities.

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 continue as a going concern.

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.

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.

Item 3 Quantitative and Qualitative Disclosures About Market Risk

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