What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-08-17 compared with 2022-07-14 · 39 added, 44 removed, 81 unchanged (51% of the section changed)

4 unchanged sentences

Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.

Founded in 2012, The Alkaline Water Company (NASDAQ and CSE:

Founded in 2012, The Alkaline Water Company (NASDAQ:

WTER) is headquartered in Scottsdale, Arizona.

Its flagship product, Alkaline88®, is a leading premier alkaline water brand available in bulk and single-serve sizes along with eco-friendly aluminum packaging options.

With its innovative, state-of-the-art proprietary electrolysis process, Alkaline88® delivers perfect 8.8 pH balanced alkaline drinking water with trace minerals and electrolytes and boasts our trademarked label 'Clean Beverage.' Quickly being recognized as a growing lifestyle brand, we launched A88 Infused Beverage Division Inc., which includes our CBD water and Alkaline88® Sports Drinks.

Our hemp-derived CBD water products are produced and sold in compliance with the Agriculture Improvement Act of 2018 (also known as the 2018 Farm Bill, Public Law 115-334).

Our bottled alkaline water product is presently available in over 75,000 stores in all 50 states, the District of Columbia, the Caribbean and in Mexico and Canada.

4 unchanged sentences

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, Sam's Club, Schnucks, Smart & Final, Jewel-Osco, Sprouts, Bashas', Stater Bros.

Some examples of retail clients are Walmart, CVS, Rite-Aid, Family Dollar, Food Lion, Albertson's/Safeway, Kroger companies, Sam's Club, 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.

1 unchanged sentence

Our full line of Alkaline88® bottled water products and sports drinks are presently available for purchase at www.alkaline88.com and www.thealkalinewaterco.com.

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

Our operating subsidiary, Alkaline 88, LLC, operates primarily as a marketing, distribution, and manufacturing company for our alkaline bottled water products.

It has entered into co-packing agreements with nine different bottling companies located in Virginia, Georgia, California, Texas, Wisconsin, Nevada and Arizona to act as co-packers for our product.

It has entered into co-packing agreements with nine different bottling, companies located in Virginia, Georgia, California, Texas, Florida Wisconsin, Nevada and Arizona to act as co-packers for our product.

Our current capacity at all plants exceeds approximately $14.0 million per month wholesale.

Our component materials are readily available through multiple vendors.

Our principal suppliers are Vav Plastics Inc., Amcor Inc., Smurfit, and Goodpac.

A88 Infused Products, Inc.

In September 2019, we formed A88 Infused Products, Inc., or "A88 Products," a Nevada corporation and a wholly-owned subsidiary of our company.

A88 Product's focus is brand extension and product innovations in the CBD infused products category.

We formed A88 Products to meet what we believe is increasing consumer demand for a variety of CBD infused beverage products.

During our fiscal year 2022, A88 Products began selling its line of Alkaline88®CBD infused bottled water through ecommerce at www.a88cbd.com.

Currently, A88 Products' Alkaline88®CBD infused bottled water products are available for purchase on its E-commerce website, www.a88cbd.com, various third party ecommerce sites, and a growing number of brick and mortar retail locations throughout the United States.

As of the date of this annual report, the FDA has not made a determination that the use of hemp extract in food is safe.

The FDA has evaluated Generally Recognized as Safe (GRAS) notices for four hemp seed-derived food ingredients and determined that the agency has no questions that those ingredients are GRAS under their intended conditions of use.

We currently produce Alkaline88® CBD infused bottled water as a low calorie hemp extract-infused water in five flavors and 5 functional formulas (Resistance, Rest, Relax, Refresh, and Reenergize).

We may change the composition of our planned hemp-extract-infused product as necessary to comply with federal, state or local laws, regulations or guidance.

Our principal suppliers are Vav Plastics Inc., Smurfit, and CKS Packaging.

Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

We have not yet established an ongoing source of revenues sufficient to cover our operating costs, however, the Company has initiated a cost-reduction strategy along with its cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the Sales Agreement is planned to fund our current planned operations and capital needs.

We have not yet established an ongoing source of revenues sufficient to cover our operating costs, however, we have initiated a cost-reduction strategy along with our cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the Sales Agreement is planned to fund our current planned operations and capital needs for the next 12 months.

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

If we are unable to obtain additional capital, we could be forced to significantly curtail or cease operations.

Our business could be materially and adversely affected by the risks, or the public perception of the risks, related to the outbreak of COVID-19.

To date, we have managed to operate successfully throughout the pandemic without any material disruptions to our supply chain.

Although retailers which carry our products may be considered essential businesses and therefore be allowed to remain operational, they may experience significantly reduced demand.

The risk of a pandemic, or public perception of the risk, could cause customers to avoid public places, including retail properties, and could cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory to our customers.

Further, such risks could also adversely affect retail customers' financial condition, resulting in reduced spending on our products, which are marketed as premium products.

"Shelter-in-place" or other such orders by governmental entities could also disrupt our operations, if our employees or the employees of our sourcing partners who cannot perform their responsibilities from home, are not able to report to work.

Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our co-packing facilities or operations of our sourcing partners.

Inflationary Pressure

1 unchanged sentence

We've taken a number of steps that will allow us to increase our margins in the year ended March 31, 2024.

These steps include (1) an approximate 9% across the board price increase (effective across all banners for the entire fiscal 2023);

These steps include (1) an approximate 6% across the board price increase;

(2) a potential leveling off or small reduction in freight costs due to the geographic distribution of our new co-packers and suppliers;

3 unchanged sentences

The following summary of our results of operations should be read in conjunction with our audited consolidated financial statements for the years ended March 31, 2023 and March 31, 2022 which are included herein:

March 31, 2022

March 31, 2021

Year Ended Year Ended

March 31, 2023 March 31, 2022

Net Revenue $ 63,777,289

Cost of Goods Sold 52,131,162

Gross profit 11,646,127

Net Loss (after operating expenses and other expenses) (27,405,193

) (39,584,360 )

Revenue and Cost of Goods Sold

7 unchanged sentences

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

Net Revenue for the year ended March 31, 2022 has been corrected for an adjustment to reclassify Sales and marketing expenses of $5,824,305 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 $60,596,247 to $54,771,942 and Sales and marketing expenses decreased from $32,636,143 to $26,811,838.

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

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

For the year ended March 31, 2023, we had cost of goods sold of $52,131,162, or 82% of net sales, as compared to cost of goods sold of $45,377,275, or 83% of net sales, for the year ended March 31, 2022.

The increase in cost of goods sold as a percentage of net sales compared to the same period last year was due primarily due to the increased raw materials costs and freight costs.

The decrease in cost of goods sold as a percentage of net sales compared to the same period last year was due primarily due to the decreased raw materials costs and freight costs.

Our operating expenses for the years ended March 31, 2023 and March 31, 2022 are as follows:

March 31, 2022

March 31, 2021

Year Ended Year Ended

March 31, 2023 March 31, 2022

Sales and marketing expenses $ 22,659,968

2 unchanged sentences

During the year ended March 31, 2023, our total operating expenses were $33,675,141 as compared to $48,392,577 for the year ended March 31, 2022.

Sales and marketing expenses increased by approximately $16.2 million primarily resulting from a $6.4 million out-bound freight costs, $4.2 million in marketing professional and endorsement fees and $2.2 million in non-cash expense relating to our endorsement agreement.

General and administrative expenses increased by approximately $5.6 million primarily resulting from an approximately $2.9 million increase in non-cash stock compensation and approximately $2.3 million increase in wage and related expenses.

Sales and marketing expenses decreased by approximately $4.2 million primarily resulting from a reduction of approximately $4.3 million in marketing professional and endorsement fees.

General and administrative expenses decreased by approximately $10.6 million primarily resulting from an approximately $6.1 million decrease in professional fees and approximately $4.7 million decrease in non-cash stock compensation.

For the year ended March 31, 2023, the total of approximately $22.7 million of selling and marketing expenses consisted primarily of approximately $13.3 million of out-bound freight costs, $1.6 million in marketing professional fees and $2.3 in non-cash expenses relating to our endorsement agreement.

For the year ended March 31, 2022, the total of approximately $26.8 million of selling and marketing expenses consisted primarily of approximately $13.8 million of out-bound freight costs, $5.1 million in marketing advertising and promotional fees and $2.3 in non-cash expenses relating to our endorsement agreement.

For the year ended March 31, 2023, the total of approximately $11.0 million of general and administrative expenses consisted primarily of approximately $1.3 million of professional fees, media fees and legal fees, approximately $6.1 million in wage expense and approximately $1.3 million in stock compensation expense, relating to stock option expense and stock expense relating to endorsement.

For the year ended March 31, 2022, the total of approximately $21.6 million of general and administrative expenses consisted primarily of approximately $7.4 million of professional fees, media fees and legal fees, approximately $5.3 million in wage expense and approximately $6.0 million in stock compensation expense, relating to stock option expense and stock expense relating to endorsement.

Liquidity and Capital Resources

Working Capital

2023 At March 31,

Current assets $ 15,951,725

1 unchanged sentence

Working capital $ (7,392,883

) $ (763,265 )

Current Assets

1 unchanged sentence

$6,520,232 and $7,927,065 in accounts receivable;

and $8,853,664 and $4,407,720 in inventory, which increased due to additional inventory relating to supporting increased sales.

and $5,591,351 and $8,583,664 in inventory, which decreased due to the Company’s initiative in reducing costs and working capital..

Current Liabilities

1 unchanged sentence

Our cash flows for the years ended March 31, 2023, and March 31, 2022 are as follows:

March 31, March 31,

Net Cash used in operating activities $ (10,429,380

) $ (31,819,542 )

Net Cash used in investing activities (1,444,641 ) (992,009 )

3 unchanged sentences

Net cash used in operating activities was $10,429,380 for the year ended March 31, 2023, as compared to $31,819,542 used in operating activities for the year ended March 31, 2022.

The increase in net cash used was primarily due to the increased net operating loss after adjustments to reconcile net income to net cash used in operating activities of approximately $17.9 million.

The decrease in net cash used was primarily due to the decreased net operating loss after adjustment for non-cash expenses of approximately $11.3 million and an increase in changes in operating assets and liabilities in the amount of approximately $10.0 million.

Investing Activities

Net cash used in investing activities was $1,444,641 for the year ended March 31, 2023, as compared to $992,009 used in investing activities for the year ended March 31, 2022.

The increase in net cash used was due to increase of purchase of fixed assets.

The increase in net cash used from investing activities was due to increase of purchase of fixed assets.

Financing Activities

Net cash provided by financing activities for the year ended March 31, 2023 was $11,381,713, as compared to $25,211,657 for the year ended March 31, 2022.

The increase in net cash provided by financing activities was due to proceeds from the sale of common stock, exercise of warrants and proceeds from notes payable.

Financing Activities Subsequent to March 31, 2022

Subsequent to March 31, 2022, we sold a total of 750,240 shares of our common stock for aggregate gross proceeds of $631,203 through the Agent under the Sales Agreement.

On May 9, 2022, we completed an underwritten public offering of 8,333,334 shares of our common stock.

The shares were issued at a public offering price of $0.60 per share, for total gross proceeds to our company of $5,000,000.40, before deducting underwriting discounts, commissions and offering expenses payable by our company.

The decrease in net cash provided by financing activities was due to lower proceeds from the exercise of warrants (approximately $7.7 million) and proceeds from notes payable in the amount of $3.8 million in the year ended March 31, 2022.

Cash Requirements

The Company’s ability to operating as a going concern is dependent on obtaining adequate capital to fund operating losses until the Company becomes profitable.

The Company has initiated a cost-reduction strategy along with its cash on hand, plus anticipated warrant exercises and debt settlements, our line of credit and the Sales Agreement is planned to fund our current planned operations and capital needs.

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

We have initiated a cost-reduction strategy along with our cash on hand, plus anticipated warrant exercises, our line of credit and the Sales Agreement is planned to 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 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

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a fair and consistent manner.

See "Part II—Item 8.

Financial Statements and Supplementary Data—Note 1" for a discussion of our significant accounting policies.

Off-Balance Sheet Arrangements

3 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis