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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-04-24 · 78 added, 91 removed, 9 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition

to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition

and cash flows.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows.

MD&A is organized as follows:

Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated

in our reported financial results and forecasts.

of Operations — Analysis of our financial results comparing the quarter ended March 31, 2023 to March 31, 2022.

and Capital Resources — Analysis of changes in our cash flows, and discussion of our financial condition and potential sources

of liquidity.

report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance.

Significant Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Results of Operations — Analysis of our financial results comparing the quarter ended June 30, 2023 to June 30, 2022.

Liquidity and Capital Resources — Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity.

This report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance.

Forward looking statements are often identified by words like:

believe, expect, estimate, anticipate, intend, project and similar expressions,

or words which, by their nature, refer to future events.

You should not place undue certainty on these forward-looking statements, which

apply only as of the date of this annual report.

These forward-looking statements are subject to certain risks and uncertainties that

could cause actual results to differ materially from historical results or our predictions.

Accounting Policies

have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires

management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based

upon information presently available.

These estimates may change as new events occur, as additional information is obtained and as our

operating environment changes.

These changes have historically been minor and have been included in the financial statements as soon

as they became known.

believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events.

You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Significant Accounting Policies

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available.

These estimates may change as new events occur, as additional information is obtained and as our operating environment changes.

These changes have historically been minor and have been included in the financial statements as soon as they became known.

Actual results could materially differ from our estimates under different assumptions, judgments or conditions.

of our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements,

included elsewhere in this Annual Report.

We have identified the following as our critical accounting policies and estimates, which are

defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation

of our financial condition and results of operations and could potentially result in materially different results under different assumptions,

judgments or conditions.

believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of

our financial statements:

of Estimates — The financial statements are prepared in conformity with accounting principles generally accepted in the United

States (“GAAP”).

Management is required to make estimates and assumptions that affect the reported amounts of assets and

liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

results could differ from those estimates.

Value of Financial Instruments — Our short-term financial instruments, including cash, accounts receivable, accounts payable

and other liabilities, consist primarily of instruments without extended maturities.

We believe that the fair values of our current assets

and current liabilities approximate their reported carrying amounts.

Beverage Company, a Delaware corporation is headquartered in Jersey City, NJ.

EQUATOR’s business is new product development, beverage

production, distribution, and sales & marketing of its beverages.

Our beverages are Non-GMO Project Verified, and USDA Organic.

produce both nonalcoholic and ready to drink alcoholic beverages.

EQUATOR also has a line of sparkling energy beverages that are focused

on the female consumer.

EQUATOR beverages are available in North America, the Caribbean and Bermuda.

We package our beverages in 100%

recyclable, eco-friendly packaging.

The packaging has a low impact on the environment.

Also, our products are plant-based, Eco-friendly

and renewable.

of Operations

Months Ended March 31, 2023 and 2022

the three months ended March 31, 2023, the Company reported revenue of $515,633 an increase from revenue of $379,657 for the three months

ended March 31, 2022.

All of our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Annual Report.

We have identified the following as our critical accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Use of Estimates — The financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

Fair Value of Financial Instruments — Our short-term financial instruments, including cash, accounts receivable, accounts payable and other liabilities, consist primarily of instruments without extended maturities.

We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

COMPANY OVERVIEW

EQUATOR Beverage Company, headquartered in Jersey City, NJ, is a Delaware corporation that specializes in developing, producing, distributing, and marketing new beverage products.

Our beverages have been certified Non-GMO Project Verified and USDA Organic, and we offer both nonalcoholic and ready-to-drink alcoholic options.

In addition, we have a line of sparkling energy beverages targeted towards female consumers.

Our beverages can be found in North America, the Caribbean, and Bermuda.

We are committed to sustainability and use 100% recyclable, eco-friendly packaging that has a minimal impact on the environment.

Furthermore, our products are plant-based, renewable, and eco-friendly.

Coconut water is nature's super hydration drink for skin and body.

In each 11 oz serving, there are five essential electrolytes totaling 1043 mg more than other sports drinks.

It is a fast rehydration recovery drink which performs faster than water.

Coconut water has natural nutrients for skin and hair and vitamins B & C natural - not added.

Coconut water is plant based and renewable;

great for vegan, kosher, paleo keto and low carb diets.

All this comes with a fresh crisp coconut taste.

There are no preservatives in this coconut water and it is packaged in an eco-friendly container.

Results of Operations

Three Months Ended June 30, 2023 and 2022

For the three months ended June 30, 2023, the Company reported revenue of $588,479 an increase from revenue of $541,102 for the three months ended June 30, 2022.

The $47,377 increase in revenue was due in part to a strong demand for a new product that launched in 2022.

Cost of Revenue

Cost of revenue includes finished goods purchase costs, production costs, raw material costs and freight in costs.

Also included in cost of revenue are adjustments made to inventory carrying amounts, including markdowns to market.

For the three months ended June 30, 2023, cost of revenue was $307,721 or 52% of revenue.

For the three months ended June 30, 2022, cost of revenue was $352,760 or 65% of revenue.

The 13% decrease in cost of revenue was primarily due to lower ocean transportation costs for the quarter ended June 30, 2023 compared to the same period last year.

Operating Expenses

For the three months ended June 30, 2023, selling, general and administrative expenses was $258,671 an increase of $70,441 from the three months ended June 30, 2022 of $188,229.

This increase in operating expenses was due to an increase in Amazon Selling fees coupled with increases in compensation and marketing expenses.

Amazon selling fees increased by $35,683.

Compensation expense increased by $12,950 and marketing expenses went up by $11,013 compared to the same period last year.

For the three months ended June 30, 2023, the net income was $18,830, a $21,657 improvement from a net loss of ($2,827) for the three months ended June 30, 2022.

Six Months Ended June 30, 2023 and 2022

For the six months ended June 30, 2023, the Company reported revenue of $1,104,113 an increase from revenue of $920,759 for the six months ended June 30, 2022.

The $183,354 increase in revenue was primarily due to Covid having a lesser impact on our business.

of revenue includes finished goods purchase costs, production costs, raw material costs and freight in costs.

Also included in cost of

revenue are adjustments made to inventory carrying amounts, including markdowns to market.

the three months ended March 31, 2023, cost of revenue was $313,457 or 61% of revenue.

For the three months ended March 31, 2022, cost

of revenue was $232,584 or 61% of revenue.

the three months ended March 31, 2023, selling, general and administrative expenses was $194,912 a decrease of $86,654 from the three

months ended March 31, 2022 of $281,566.

decrease in operating expenses was due to lower stock award expense and also from a decrease in Amazon Selling fees.

expense decreased by $95,776 while Amazon selling fees decreased by $11,370 for the

three months ended March 31, 2023 compared to the same period last year.

These decreases were offset by an increase in cash

compensation expense by $14,031 for the three months ended March 31, 2023 compared to March 31, 2022.

the three months ended March 31, 2022, the net income was $4,485, a $139,864 improvement from a net loss of ($135,379) for the three

months ended March 31, 2022.

and Capital Resources

of March 31, 2023, the Company had working capital of $164,342.

Net cash from operating activities was $19,908 for the three months ended

March 31, 2023, compared to net cash used in operating activities for the three months ended March 31, 2022 of $47,545.

Net cash provided

by financing activities was $10,000 for the three months ended March 31, 2023 compared to $25,750 for the three months ended March 31,

Net cash was provided by financing activities of a related party loan for the three months ended March 31, 2023.

Net cash was provided

by financing activities of a related party loan and proceeds from the exercise of stock options, offset by cash used in financing activities

to repurchase EQUATOR Restricted Common Stock for the three months ended March 31, 2022.

Capital Needs

working capital requirements increase as demand grows for our products.

During the three months ended March 31, 2023, the Company had

net borrowings of $235,000.

Cost of Revenue

Cost of revenue includes finished goods purchase costs, production costs, raw material costs and freight in costs.

Also included in cost of revenue are adjustments made to inventory carrying amounts, including markdowns to market.

For the six months ended June 30, 2023, cost of revenue was $621,179 or 56% of revenue.

For the six months ended June 30, 2022, cost of revenue was $585,343 or 63% of revenue.

The 7% decrease in cost of revenue was due to the lower ocean transportation costs for the first six months of 2023 compared to the same period last year.

Operating Expenses

For the six months ended June 30, 2023, selling, general and administrative expenses was $453,583 a decrease of $16,213 from the six months ended June 30, 2022 of $469,796.

This increase in operating expenses was due to lower stock award expenses offset by increases in Amazon selling expenses, compensation expenses and marketing expenses.

During the first six months of 2023, Stock award expenses decreased by $89,520 compared to the same period last year;

while Amazon selling expenses increased by $27,280, compensation expenses increased by $26,980 and marketing expenses increased by $11,671 compared to the first six months of 2022.

For the six months ended June 30, 2023, the net income was $23,315, a $161,521 improvement from a net loss of ($138,206) for the six months ended June 30, 2022.

Liquidity and Capital Resources

As of June 30, 2023, the Company had working capital of $171,408.

Net cash used in operating activities was $2,673 for the six months ended June 30, 2023, compared to net cash used in operating activities for the six months ended June 30, 2022 of $100,016.

Net cash provided by financing activities was $26,998 for the six months ended June 30, 2023 compared to $57,260 for the six months ended June 30, 2022.

Net cash was provided by financing activities of a related party loan, offset by cash used in financing activities to repurchase EQUATOR Restricted Common Stock for the six months ended June 30, 2023.

Net cash was provided by financing activities of a related party loan and proceeds from the exercise of stock options, offset by cash used in financing activities to repurchase EQUATOR Restricted Common Stock for the six months ended June 30, 2022.

Working Capital Needs

Our working capital requirements increase as demand grows for our products.

During the six months ended June 30, 2023, the Company had net borrowings of $290,000.

This was the direct result of supply chain delays in manufacturing and ocean transport times.

In 2022, borrowings

were $225,000.

In 2022, borrowings were $225,000.

Should the Company require additional working capital during the next twelve months, it may seek to raise additional funds.

Financing transactions may include the issuance of equity, debt securities and obtaining credit facilities.

BALANCE SHEET ARRANGEMENTS

OFF BALANCE SHEET ARRANGEMENTS

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Not applicable

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-Q

Item 2. Management’s Discussion and Analysis