The Alkaline Water Company Inc.

What they do

The company produces and sells Alkaline88 alkaline water in sizes from 500mL to 1 gallon, made via electrolysis to reach 8.8 pH. It also sells Alkaline88 Sports Drinks. Products are distributed through national distributors like UNFI and KeHE, direct retail clients such as Walmart and Kroger, and direct store distributors.

Revenue drivers

• Alkaline88 bottled water — Flagship product sold in bulk and single-serve sizes; available in over 75,000 stores, generates essentially all reported revenue.
• Alkaline88 Sports Drinks — A line extension; no separate revenue figures are disclosed.
• Distribution channels — Sales through national distributors representing over 150,000 retail outlets, direct retail clients, and direct store distributors in eight states.

Recent performance

For fiscal year ended March 31, 2023, revenue rose 16% to $63.8 million, with gross profit of $11.6 million. Net loss narrowed to $27.4 million from $39.6 million the prior year. In the June 30, 2023 quarter, revenue fell 8% to $14.9 million year-over-year, but gross profit improved to $3.8 million and net loss shrank to $2.8 million. As of June 30, 2023, total assets were $15.2 million, total liabilities $23.3 million, and shareholders' equity was negative $8.1 million, with only $0.4 million in cash.

Strategy

Management is implementing a cost-reduction strategy and has raised prices by approximately 9% across all banners for fiscal 2024 to offset inflation. It plans to expand its broker network, add direct store distributors in the Northeast, Northwest, and Mid-Atlantic, and increase manufacturing capacity through co-packers. The company also mentions potential warrant exercises, debt settlements, a line of credit, and a sales agreement to fund operations.

Risks

• Going concern — The company has not established an ongoing source of revenues sufficient to cover operating costs and may be forced to curtail or cease operations if it cannot obtain additional capital.
• Continued losses — Alkaline Water reported net losses of $27.4 million in fiscal 2023 and $39.6 million in fiscal 2022, with an accumulated deficit of $137.1 million as of March 31, 2023.
• Liquidity risk — As of June 30, 2023, cash and equivalents were only $414,648 and shareholders' equity was negative $8.1 million.
• Market acceptance — The company’s products must receive broad market acceptance to generate sufficient revenue, and failure to do so could cause the business to fail.

Outlook

Management expects its cost-reduction actions and price increase to improve margins in fiscal 2024. It anticipates adding new distributors and expanding into new channels. However, the company states that its ability to continue as a going concern depends on obtaining additional capital to fund operating losses until it becomes profitable.