ALKALINE WATER Co INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This report contains "forward-looking statements." All statements other than statements of historical fact are "forward-looking statements" for purposes of applicable securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward- looking statements, which speak only as of the dates on which they are made. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend, and undertake no obligation, to update any forward-looking statement. Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to: • lack of working capital; • inability to raise additional financing; • the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain; • deterioration in general or regional economic conditions; • adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; • inability to efficiently manage our operations; • inability to achieve future sales levels or other operating results; and • the unavailability of funds for capital expenditures. 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. In this quarterly report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock. 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 subsidiary Alkaline 88, LLC (an Arizona Limited Liability Company), unless otherwise specified. Inflationary Pressure We have seen significant margin contraction as a result of inflationary pressures over the last 12 months. 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 2024); (2) a potential leveling off or small reduction in freight costs due to the geographic distribution of our new co-packers and suppliers; and (3) our buying power allowing us to lock in price breaks on raw materials over the next 12 months. Results of Operations Our results of operations for the three months ended June 30, 2023 and June 30, 2022 are as follows: For the three months ended June 30, 2023 For the three months ended June 30, 2022 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 Net Loss $ (2,840,938 ) $ (7,493,408 ) Revenue and Cost of Goods Sold We had revenue from sales of our product for the three months ended June 30, 2023 of $14,933,785 as compared to $16,318,786 for the three months ended June 30, 2022, a decrease of 8%. The decrease in sales is due to the expanded promotional allowances of our products to retailers throughout the country. 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 product directly to retail clients, including convenience stores, natural food products stores, large ethnic markets and national retailers. Some examples of retail clients are: Walmart, CVS, Sam's Club, Family Dollar, Albertson/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 three months ended June 30, 2023, we had cost of goods sold of $11,162,216, or 75% of revenue, as compared to cost of goods sold of $13,399,774 or 82% of revenue, for the three months ended June 30, 2022. The decrease in cost of goods sold is due to decreased raw material costs. Expenses Our operating expenses for the three months ended June 30, 2023 and June 30, 2022 are as follows: For the three months ended June 30, 2023 For the three months ended June 30, 2022 Sales and marketing expenses $ 4,614,499 $ 6,346,229 General and administrative expenses 1,574,240 2,863,993 Total operating expenses $ 6,188,739 $ 9,210,222 For the three months ended June 30, 2023, our total operating expenses were $6,188,739 as compared to $9,210,222 for the three months ended June 30, 2022. For the three months ended June 30, 2023, the total included $4,614,499 of sales and marketing expenses. Compared to the three months ended June 30, 2022, sales and marketing expenses for the three months ended June 30, 2023 decreased due to lower freight costs to our customers of approximately $0.7 million, lower advertising and promotion of approximately $0.3 million, and lower professional fees of approximately 0.5 million. For the three months ended June 30, 2023, general and administrative expenses of $1,574,240 consisted primarily of approximately $0.4 million of professional fees, media fees and legal fees, and approximately $1.1 million of wages and wage related expenses. For the three months ended June 30, 2022, general and administrative expenses of $2,863,993, consisted primarily of approximately $0.4 million of professional fees, media fees and legal fees and approximately $1.8 million of wages and wage related expenses. Liquidity and Capital Resources Working Capital June 30, 2023 March 31, 2023 Current assets $ 13,384,132 $ 15,951,725 Current liabilities 23,261,935 23,344,608 Working capital $ (9,877,803 ) $ (7,392,883 ) Current Assets Current assets as of June 30, 2023 and March 31, 2023 primarily include $414,648 and $1,038,754 in cash, $5,059,617 and $6,520,232 in accounts receivable and $5,544,390 and $5,591,351 in inventory, respectively. Current Liabilities Current liabilities as of June 30, 2023 and March 31, 2023 primarily include $12,609,187 and $11,616,247 in accounts payable, revolving financing of $6,188,332 and $6,403,447, and accrued expenses of $2,406,839 and $1,996,387, respectively. Cash Flow Our cash flows for the three months ended June 30, 2023 and June 30, 2022 are as follows: For the three months ended June 30, 2023 For the three months ended June 30, 2022 Net Cash used in operating activities $ (408,991 ) $ (2,494,650 ) Net Cash used in investing activities (-0- ) (854,997 ) Net Cash provided/(used) by financing activities (215,115 ) 4,764,509 Net increase (decrease) in cash $ (624,106 ) $ 1,414,862 Operating Activities Net cash used in operating activities was $408,991 for the three months ended June 30, 2023, as compared to $2,494,650 used in operating activities for the three months ended June 30, 2022. The decrease in net cash used in operating activities was primarily due to the reduction in net loss after adjustments to reconcile net income to net cash in the amount of $1.3 million. Investing Activities Net cash used in investing activities was $-0- for the three months ended June 30, 2023, as compared to $854,997 used in investing activities for the three months ended June 30, 2022. The cash used in investing activities for the three months ended June 30, 2022 was primarily due to the purchase of equipment for 2 new co-packing plants and the purchase of a new model for our 1-gallon bottle. Financing Activities Net cash used by financing activities for the three months ended June 30, 2023 was $215,115, as compared to net cash provided by financing activities in the amount of $4,764,509 for the three months ended June 30, 2022. The decrease in net cash provided was a result of no proceeds from the sale of common stock, net in the three months ended June 30, 2023 compared to approximately $5.3 million of proceeds from the sale of common stock, net in the three months ended June 30, 2022. Cash Requirements Our ability to 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 financing or equity offerings is planned to fund our current planned operations and capital needs. However, if our current plans change or are accelerated, 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. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. 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. 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 Not applicable.