The Alkaline Water pany (WTER) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company reported a 5% revenue increase to $14.1 million but a doubled net loss of $7.4 million for the quarter ended June 30, 2021 - The company's financial statements have been prepared on a going concern basis, but its history of losses and negative cash flow from operations raise substantial doubt about its ability to continue as a going concern without raising additional capital[27] - The company's product line includes bottled alkaline water and hemp-derived CBD topical and ingestible products under the brand "A88CBD™"[18] - Subsequent to the quarter end, the company completed a private placement for gross proceeds of nearly $5.0 million and raised approximately $6.0 million from warrant exercises[72][75] Consolidated Balance Sheets Total assets decreased to $22.2 million while total liabilities increased to $15.0 million as of June 30, 2021, reducing stockholders' equity Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Cash | $4,497,905 | $9,130,956 | | Total Current Assets | $21,037,139 | $23,271,259 | | Total Assets | $22,177,093 | $24,550,609 | | Total Current Liabilities | $14,741,704 | $13,244,041 | | Total Liabilities | $14,969,046 | $13,536,623 | | Total Stockholders' Equity | $7,208,047 | $11,013,986 | Consolidated Statement of Operations Quarterly revenue grew 5% to $14.1 million, but higher operating expenses drove a net loss of $7.4 million, or $0.08 per share Quarterly Operating Results (unaudited) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Revenue | $14,113,578 | $13,432,310 | | Gross Profit | $4,802,567 | $4,837,469 | | Total Operating Expenses | $12,120,774 | $7,668,148 | | Operating Loss | $(7,318,207) | $(2,830,679) | | Net Loss | $(7,425,626) | $(3,021,003) | | Loss Per Share (Basic and Diluted) | $(0.08) | $(0.05) | Consolidated Statements of Cash Flows Net cash used in operations increased significantly to $6.1 million, resulting in a net cash decrease of $4.6 million for the quarter Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(6,055,313) | $(1,405,671) | | Net Cash Used in Investing Activities | $(61,444) | $(68,519) | | Net Cash Provided by Financing Activities | $1,483,706 | $2,530,270 | | Net Change in Cash | $(4,633,051) | $1,056,080 | | Cash at End of Period | $4,497,905 | $5,617,762 | Notes to Condensed Consolidated Financial Statements Notes reveal significant customer concentration, a key endorsement deal with Shaquille O'Neal, and major post-quarter financing activities - The company has significant customer concentration, with two customers accounting for 36% of total revenues for the quarter ended June 30, 2021[33] - On May 12, 2021, the company entered into an endorsement agreement with an entity affiliated with Shaquille O'Neal, which includes $3 million in cash payments over three years and a grant of 6,681,090 shares of Series S Preferred Stock[57][58] - On July 6, 2021, the company completed a private placement of subscription receipts for gross proceeds of approximately $5.0 million[72][73] - Between June 30, 2021, and August 16, 2021, the company issued 4,761,688 shares from warrant exercises, receiving total proceeds of approximately $6 million[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the drivers of revenue growth and increased net loss, operational impacts of COVID-19, and its liquidity position Results of Operations Quarterly revenue rose 5% to $14.1 million due to expanded distribution, while operating expenses surged from doubled sales and marketing costs Revenue and Gross Profit Comparison | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Revenue | $14,113,578 | $13,432,310 | | Cost of goods sold | $9,311,011 | $8,594,841 | | Gross profit | $4,802,567 | $4,837,469 | - The increase in sales is attributed to expanded distribution to additional retailers and increased demand[85] - Sales and marketing expenses increased significantly to $7,156,400 from $3,718,231 year-over-year, due to higher sales costs and brand ambassador expenses[87][88] Liquidity and Capital Resources Working capital decreased to $6.3 million, with the company relying on credit facilities, an ATM offering, and recent financing to meet cash needs Working Capital | | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Current assets | $21,037,139 | $23,271,259 | | Current liabilities | $14,741,704 | $13,244,041 | | Working capital | $6,295,435 | $10,027,218 | - The increase in net cash used in operating activities was primarily due to an increased net loss of approximately $4.4 million[94] - The company has a sales agreement for an "at the market offering" to sell up to $20,000,000 in shares of its common stock[100] - Management believes cash on hand and anticipated funds will adequately fund operations for the next 12 months[101] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to previously disclosed material weaknesses - Based on an evaluation by management, the company's disclosure controls and procedures were concluded to be not effective as of the end of the period[105] - The ineffectiveness was due to material weaknesses in internal control over financial reporting previously disclosed in the Form 10-K[105] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports it is not a party to any material pending legal proceedings - The company knows of no material pending legal proceedings to which it or its subsidiaries are a party[108] Item 1A. Risk Factors No material changes have occurred to the risk factors disclosed in the company's most recent Annual Report on Form 10-K - There have been no material changes since July 6, 2021, from the risk factors disclosed in the company's Form 10-K[110] Item 6. Exhibits This section lists filed exhibits, including material contracts like the Shaquille O'Neal endorsement agreement and required officer certifications - The exhibits include the Endorsement Agreement with ABG-Shaq, LLC (Shaquille O'Neal), various financing agreements, and officer certifications[116]