What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-28 compared with 2022-11-14 · 62 added, 56 removed, 99 unchanged (54% of the section changed)

22 unchanged sentences

• the unavailability of funds for capital expenditures.

Unless otherwise indicated, all reference to "dollars", "$", "USD" or "US$" are to United States dollars and all reference to "CDN$" are to Canadian dollars.

Our financial statements are stated in United States Dollars ($ or US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.

15 unchanged sentences

Results of Operations

Three Months Ended September 30, 2022 and September 30, 2021

Our results of operations for the three months ended September 30, 2022 and September 30, 2021 are as follows:

Three Months Ended December 31, 2022 and December 31, 2021

Our results of operations for the three months ended December 31, 2022 and December 31, 2021 are as follows :

For the three For the three

months ended months ended

September 30, September 30,

December 31, December 31,

Revenue $ 15,874,967 $ 13,100,048

3 unchanged sentences

Revenue and Cost of Goods Sold

We had revenue from sales of our product for the three months ended September 30, 2022 of $19,874,953, as compared to $15,255,765 for the three months ended September 30, 2021, an increase of 28%.

We had revenue from sales of our product for the three months ended December 31, 2022 of $15,874,967 as compared to $ 13,100,048 for the three months ended December 31, 2021, an increase of 21% 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.

6 unchanged sentences

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

For the three months ended September 30, 2022, we had cost of goods sold of $14,948,461 or 76% of revenue, as compared to cost of goods sold of $10,091,415 or 66% of revenue, for the three months ended September 30, 2021.

The increase in cost of goods sold is due to increased raw material cost from our suppliers.

Our operating expenses for the three months ended September 30, 2022 and September 30, 2021 are as follows:

For the three months ended December 31, 2022, we had cost of goods sold of $11,947,892, or 75% of revenue, as compared to cost of goods sold of $10,128,144 or 77% of revenue, for the three months ended December 31, 2021.

Our operating expenses for the three months ended December 31, 2022 and December 31, 2021 are as follows:

For the three For the three

months ended months ended

September 30, September 30,

December 31, December 31,

Sales and marketing expenses $ 4,949,002 $ 7,561,927

1 unchanged sentence

Total operating expenses $ 7,488,961 $ 13,895,590

For the three months ended September 30, 2022, our total operating expenses were $9,696,119 as compared to $15,372,626 for the three months ended September 30, 2021.

For the three months ended September 30, 2022, the total included $7,120,133 of sales and marketing expenses.

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

Sales and marketing expenses decreased as a result of decreased out-bound freight expenses (from approximately $4.8 million to $3.7 million) and decreased marketing expense of approximately $1.9 million, primarily relating to higher expense in the three months ended September 30, 2021 relating to our brand ambassador.

For the three months ended September 30, 2022, general and administrative expenses of $2,575,986, consisted primarily of approximately $0.2 million of professional fees, media fees and legal fees, non-cash stock award and option expense in the amount of approximately $0.4 million and approximately $1.7 million of wages and wage related expenses.

For the three months ended September 30, 2021, 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.

General and administrative expenses decreased as a result of lower professional fees, media fees and legal fees.

Six Months Ended September 30, 2022 and September 30, 2021

Our results of operations for the six months ended September 30, 2022 and September 30, 2021 are as follows:

For the six months For the six months

September 30, September 30,

For the three months ended December 31, 2022, our total operating expenses were $7,488,961 as compared to $ 13,895,590 for the three months ended December 31, 2021.

For the three months ended December 31, 2022, the total included $4,949,002 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 $2,539,959, consisted primarily of approximately $0.3 million of professional fees, media fees and legal fees, stock option and restricted stock expense in the amount of approximately $0.2 million and approximately $1.7 million of wages and wage related expenses.

For the three months ended December 31, 2021, the total included $ 7,561,927 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.

Nine Months Ended December 31, 2022 and December 31, 2021

Our results of operations for the nine months ended December 31, 2022 and December 31, 2021 are as follows:

For the nine For the nine

months ended months ended

December 31, December 31,

Revenue $ 51,277,376 $ 39,684,465

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Revenue and Cost of Goods Sold

We had revenue from sales of our product for the six months ended September 30, 2022 of $36,469,356 as compared to $29,369,343 for the six months ended September 30, 2021, an increase of 24%.

We had revenue from sales of our product for the nine months ended December 31, 2022 of $51,277,376 as compared to $ 39,684,465 for the nine months ended December 31, 2021, an increase of 29% 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.

5 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, 2022, we had cost of goods sold of $28,348,235, or 78% of revenue, as compared to cost of goods sold of $19,402,426 or 66% of revenue, for the six months ended September 30, 2021.

The increase in cost of goods sold is due to increased raw material cost from our suppliers.

Our operating expenses for the six months ended September 30, 2022 and September 30, 2021 are as follows:

For the six For the six

For the nine months ended December 31, 2022, we had cost of goods sold of $40,296,127, or 79% of revenue, as compared to cost of goods sold of $29,530,570 or 74% of revenue, for the nine months ended December 31, 2021.

Our operating expenses for the nine months ended December 31, 2022 and December 31, 2021 are as follows:

For the nine For the nine

months ended months ended

September 30, September 30,

December 31, December 31,

Sales and marketing expenses $ 17,924,034 $ 22,054,276

1 unchanged sentence

Total operating expenses $ 25,903,972 $ 38,604,064

For the six months ended September 30, 2022, our total operating expenses were $19,481,958, as compared to $27,493,400 for the six months ended September 30, 2021.

For the six months ended September 30, 2022, the total included $14,041,979 of sales and marketing expenses.

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

Sales and marketing expenses decreased as a result of decreased out-bound freight expense (from approximately $7.7 million to $7.5 million) and decreased marketing expenses of approximately $3.1, primarily relating to higher expense in the six months ended September 30, 2021 relating to our brand ambassador.

For the six months ended September 30, 2022, general and administrative expenses of $5,439,979, consisted primarily of approximately $0.6 million of professional fees, stock award and option expense in the amount of approximately $0.6 million and approximately $3.7 million of wage and wage related expenses.

For the six months ended September 30, 2021, 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.

General and administrative expenses decreased as a result of lower professional fees, media fees and legal fees.

For the nine months ended December 31, 2022, our total operating expenses were $25,903,972, as compared to $ 38,604,064 for the nine months ended December 31, 2021.

For the nine months ended December 31, 2022, the total included $17,924,034 of sales and marketing expenses.

Sales and marketing expenses decreased as a result of decreased out-bound freight expense (approximately $1.3 million) and decreased marketing expenses (approximately $3.4 million).

General and administrative expenses of $7,979,938, consisted primarily of approximately $0.9 million of professional fees, stock option and stock award expense in the amount of approximately $0.8 million and approximately $5.4 million of wage and wage related expenses.

For the nine months ended December 31, 2021, the total included $ 22,054,276 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.

Liquidity and Capital Resources

Working Capital

At September 30, 2022 At March 31, 2022

At December At March 31,

31, 2022 2022

Current assets $ 22,225,650 $ 21,157,421

2 unchanged sentences

Current Assets

Current assets as of September 30, 2022 and March 31, 2022 primarily relate to $2,257,502 and $1,531,062 in cash, $7,464,009 and $7,927,065 in accounts receivable and $9,873,998 and $8,853,664 in inventory, respectively.

Current assets as of December 31, 2022 and March 31, 2022 primarily relate to $2,192,867 and $1,531,062 in cash, $8,774,283 and $7,927,065 in accounts receivable and $8,737,717 and $8,583,664 in inventory, respectively.

Current Liabilities

Current liabilities as of September 30, 2022 and March 31, 2022 primarily relate to $10,902,488 and $10,441,879 in accounts payable, revolving financing of $7,531,935 and $7,043,870, and accrued expenses of $2,326,094 and $2,036,739, respectively.

Our cash flows for the six months ended September 30, 2022 and September 30, 2021 are as follows:

For the six For the six

months ended months ended

September 30, September 30,

Current liabilities as of December 31, 2022 and March 31, 2022 primarily relate to $14,109,479 and $10,441,879 in accounts payable which increased due to lower balance on the revolver credit line and continued operating loss, revolving financing of $6,391,316 and $7,043,870, and accrued expenses of $2,225,366 and $2,036,739 respectively.

Our cash flows for the nine months ended December 31, 2022 and December 31, 2021 are as follows:

For the nine For the nine

months Months

December December

Net cash used in operating activities $ (9,919,960 ) $ (25,940,267 )

1 unchanged sentence

Net cash provided by financing activities 11,369,582 20,595,932

Net (decrease) in cash and cash equivalents $ 726,440 $ 1,288,109

Net increase (decrease) in cash and cash equivalents $ 661,805 $ (5,837,664 )

Operating Activities

Net cash used in operating activities was $9,450,507 for the six months ended September 30, 2022, as compared to $18,730,426 used in operating activities for the six months ended September 30, 2021.

The decrease in net cash used in operating activities was primarily due to the decreased net loss after adjusting for non-cash activity of approximately $5.0 million.

Net cash used in operating activities was $9,919,960 for the nine months ended December 31, 2022, as compared to $25,940,267 used in operating activities for the nine months ended December 31, 2021.

The decrease of approximately $16 million in net cash used in operating activities is primarily due to approximately $8.7 million decrease of net loss in the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021 and an increase in accounts payable of approximately $2.9 million.

Investing Activities

Net cash used in investing activities was $1,233,254 for the six months ended September 30, 2022, as compared to $315,408 used in investing activities for the six months ended September 30, 2021.

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 $787,817 for the nine months ended December 31, 2022, as compared to $493,329 used in investing activities for the nine months ended December 31, 2021.

Financing Activities

Net cash provided by financing activities for the six months ended September 30, 2022 was $11,410,201, as compared to $20,333,943 for the six months ended September 30, 2021.

The decrease in net cash provided by financing activities is primarily due to a decrease in the proceeds from the exercise of warrants of approximately $6.9 million.

Net cash provided by financing activities for the nine months ended December 31, 2022 was $11,369,582, as compared to $20,595,932 for the nine months ended December 31, 2021.

The decrease of approximately $9.2 million in net cash provided by financing activities is primarily due to decrease of approximately $7.7 million of proceeds provided by the exercise of warrants.

Cash Requirements

Our ability to continue operating as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable.

We announced on July 9, 2022 that we have begun implementing a combination of cost-reduction measures and margin enhancements.

The cost reduction measures include a) organizational restructuring;

b) reductions in professional services;

and c) reductions in marketing and promotional expenses and the margin enhancements will include a) packaging changes;

b) improved manufacturing efficiencies;

c) pricing and promotional optimization;

and d) decreases in freight costs due to an enhanced distribution network.

Our cash on hand, plus the implementation of our cost-reduction and margin enhancement strategy, anticipated warrant exercises, our line of credit and the ATM sales agreement with Roth Capital Partners, LLC is planned to fund our current planned operations and capital needs.

We have initiated a cost-reduction strategy, which along with our cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the sales agreement with Roth Capital Partners, LLC is planned to fund our current planned operations and capital needs.

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.

3 unchanged sentences

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.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with US GAAP, which requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements.

Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations.

Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.

We have identified the accounting estimates below as critical to understanding and evaluating the financial results reported in our consolidated financial statements.

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

discounts granted off list prices to support price promotions to end-consumers by retailers;

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;

the Company’s agreed share of fees given to distributors and/or directly to retailers for advertising, in-store marketing and promotional activities

Promotional allowance - The Company’s promotional allowance programs with its distributors and/or retailers 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, ranging from one week to one year.

The Company’s promotional and other allowances are calculated based on various programs with distributors and retail customers, and accruals are established during the year for its anticipated liabilities.

These accruals are based on agreed upon terms as well as the Company’s historical experience with similar programs and require management’s judgment with respect to estimating consumer participation and/or distributor and retail customer performance levels.

Differences between such estimated expenses and actual expenses for promotional and other allowance costs have historically been insignificant and are recognized in earnings in the period such differences are determined.

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