The Alkaline Water pany (WTER) - 2023 Q1 - Quarterly Report

markdown [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section details the unaudited financial statements and management's analysis of the company's financial performance [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited financial statements show revenue growth, declining gross profit, a net loss, and a going concern warning [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities increased, resulting in a working capital deficit and a slight rise in stockholders' equity Balance Sheet Highlights | Balance Sheet Highlights | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $2,945,924 | $1,531,062 | | Inventory | $10,678,339 | $8,583,664 | | Total Current Assets | $26,597,195 | $21,157,421 | | Total Assets | $28,561,030 | $22,500,577 | | **Liabilities & Equity** | | | | Accounts Payable | $11,934,494 | $10,441,879 | | Accrued Expenses | $5,946,778 | $2,036,739 | | Total Current Liabilities | $27,828,934 | $21,920,686 | | Total Liabilities | $27,935,661 | $22,099,439 | | Total Stockholders' Equity | $625,369 | $401,138 | [Condensed Consolidated Statement of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Operations) Net revenue increased, but gross profit declined significantly due to rising costs, leading to a stable net loss Income Statement (Three Months Ended) | Income Statement (Three Months Ended) | June 30, 2022 | June 30, 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Revenue | $16,894,403 | $14,113,578 | +19.7% | | Cost of Goods Sold | $13,399,774 | $9,311,011 | +43.9% | | Gross Profit | $3,494,629 | $4,802,567 | -27.2% | | *Gross Margin* | *20.7%* | *34.0%* | *-13.3 pts* | | Total Operating Expenses | $9,785,839 | $12,120,774 | -19.3% | | Operating Loss | ($6,291,210) | ($7,318,207) | +14.0% | | Net Loss | ($7,493,408) | ($7,425,626) | -0.9% | | Loss Per Share (Basic and Diluted) | ($0.06) | ($0.08) | +25.0% | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations decreased, while financing activities provided substantial cash, leading to a net cash increase Cash Flow (Three Months Ended) | Cash Flow (Three Months Ended) | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($2,494,650) | ($6,055,313) | | Net Cash Used in Investing Activities | ($854,997) | ($61,444) | | Net Cash Provided by Financing Activities | $4,764,509 | $1,483,706 | | **Net Change in Cash** | **$1,414,862** | **($4,633,051)** | | Cash at End of Period | $2,945,924 | $4,497,905 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business, accounting policies, customer concentration, going concern, and subsequent debt settlement events - The company's products include **bottled alkaline water** and **hemp-derived CBD bottled water**[17](index=17&type=chunk) - There is significant customer concentration risk, with two customers representing **31% of total revenue** for the quarter ended June 30, 2022[30](index=30&type=chunk) - The company has accumulated net losses of **$117 million** since inception, raising **substantial doubt about its ability to continue as a going concern**. Management plans to raise additional funds through offerings to support operations[38](index=38&type=chunk)[39](index=39&type=chunk) - Subsequent to the quarter end, on July 25, 2022, the company settled debt of **$3.87 million** by issuing units (stock and warrants). The immediate exercise of these warrants was expected to bring in approximately **$4.24 million** in cash[69](index=69&type=chunk)[70](index=70&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses revenue growth, gross margin decline due to inflation, and strategies to address going concern risks [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Revenue grew due to expanded distribution, but cost of goods sold increased significantly, impacting gross margin - Revenue increased by **20% YoY** due to expanded distribution of products to additional retailers across the country, including major national distributors and direct retail clients like Walmart, CVS, and Kroger[82](index=82&type=chunk) - Cost of goods sold as a percentage of revenue increased from **66%** to **79% YoY**, driven by increased raw material and freight costs[83](index=83&type=chunk) - The company has implemented an approximate **9% price increase** and is taking other steps to improve margins, such as optimizing freight costs and locking in prices on raw materials[80](index=80&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) The company faces a working capital deficit and relies on financing, implementing cost-reduction and margin-enhancement plans Working Capital | Working Capital | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | | Current Assets | $26,597,195 | $21,157,421 | | Current Liabilities | $27,828,934 | $21,920,686 | | **Working Capital (Deficit)** | **($1,231,739)** | **($763,265)** | - The increase in accrued liabilities is primarily due to receiving approximately **$3 million** in proceeds for warrants exercised as part of a debt settlement that closed after the quarter-end (on July 25, 2022)[89](index=89&type=chunk)[95](index=95&type=chunk) - The company has begun implementing **cost-reduction measures** (restructuring, reduced professional/marketing spend) and **margin enhancements** (packaging changes, pricing optimization) to fund operations[97](index=97&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to previously disclosed material weaknesses - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **not effective** as of the end of the quarter[102](index=102&type=chunk) - The ineffectiveness was attributed to **material weaknesses in internal control over financial reporting** previously disclosed in the Form 10-K for the fiscal year ended March 31, 2022[102](index=102&type=chunk) [PART II - OTHER INFORMATION](index=24&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and a list of exhibits [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material pending legal proceedings, nor is it aware of any contemplated by authorities - The company is **not aware of any material pending legal proceedings** to which it or its subsidiaries are a party[105](index=105&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's most recent annual report - **No material changes have occurred** since July 14, 2022, from the risk factors disclosed in the company's most recent Form 10-K[107](index=107&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company granted its CEO restricted shares and stock options as unregistered securities after the quarter-end - On July 29, 2022, the company granted its CEO, Frank Lazaran, an award of **500,000 restricted shares** and options to purchase **1,000,000 shares** of common stock[109](index=109&type=chunk) - The stock options have an exercise price of **$0.428 per share**, a ten-year term, and vest in two equal 50% installments on the first and second anniversaries of the grant date[109](index=109&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed, including a new employment agreement and required officer certifications - A **new employment agreement** with Frank Lazaran, dated July 29, 2022, was filed as an exhibit[116](index=116&type=chunk) - The list includes **various historical articles of incorporation, material contracts, and underwriting agreements**, many of which are incorporated by reference from previous filings[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)