EQUATOR Beverage Co 10-Q

ITEM 1. FINANCIAL STATEMENTS (Unaudited) EQUATOR BEVERAGE COMPANY Condensed Balance Sheets (Unaudited) As of September 30, 2023 and December 31, 2022 September 30, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 330 $ 10,738 Accounts receivable, net 247,462 93,852 Inventory 233,343 268,289 Supplier deposits 23,600 44,772 Prepaid expenses 40,044 23,468 Total Current Assets $ 544,779 $ 441,119 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 68,943 $ 70,252 Related party loans 240,000 225,000 Total Current Liabilities 308,943 295,252 STOCKHOLDERS’ EQUITY Common stock, 20,000,000 shares authorized at $ 0.001 par value, 16,641,096 and 16,230,615 shares issued and outstanding, at September 30, 2023 and December 31, 2022, respectively 16,641 16,231 Additional paid-in capital 23,879,072 23,758,917 Accumulated deficit ( 23,659,877 ) ( 23,629,281 ) Total Stockholders’ Equity 235,836 145,867 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 544,779 $ 441,119 The accompanying notes are an integral part of these condensed financial statements. F-1 Table of Contents EQUATOR BEVERAGE COMPANY Condensed Statements of Operations (Unaudited) For the Three Months Ended September 30, 2023 and 2022 2023 2022 Revenue $ 675,947 $ 548,973 Cost of Revenue 367,262 380,864 Gross Profit 308,685 168,109 Operating Expenses Selling, general and administrative 358,639 198,122 Total Operating Expenses 358,639 198,122 Loss from Operations ( 49,954 ) ( 30,013 ) Interest Expense ( 3,957 ) ( 3,335 ) Net Loss $ ( 53,911 ) $ ( 33,348 ) Net Loss per common share, basic and diluted $ 0.00 $ 0.00 Weighted average number of common shares outstanding, basic and diluted 17,274,826 16,092,401 The accompanying notes are an integral part of these condensed financial statements. F-2 Table of Contents EQUATOR BEVERAGE COMPANY Condensed Statements of Operations (Unaudited) For the Nine Months Ended September 30, 2023 and 2022 2023 2022 Revenue $ 1,780,059 $ 1,469,732 Cost of Revenue 988,441 966,207 Gross Profit 791,618 503,525 Operating Expenses Selling, general and administrative 812,222 667,918 Total Operating Expenses 812,222 667,918 Loss from Operations ( 20,604 ) ( 164,393 ) Interest Expense ( 9,992 ) ( 7,161 ) Loss Before Provision for Income Taxes ( 30,596 ) ( 171,554 ) Provision for Income Taxes - - Net Loss $ ( 30,596 ) $ ( 171,554 ) Net Loss per common share, basic and diluted $ 0.00 $ ( 0.01 ) Weighted average number of common shares outstanding, basic and diluted 16,582,510 15,732,060 The accompanying notes are an integral part of these condensed financial statements. F-3 Table of Contents EQUATOR BEVERAGE COMPANY Condensed Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2023 and 2022 2023 2022 Cash flows from operating activities: Net loss $ ( 30,596 ) $ ( 171,554 ) Adjustments to reconcile net loss to net cash provided by/ (used in) operating activities: Stock issued to directors and employees 158,567 159,923 Changes in assets and liabilities: Increase in accounts receivable ( 153,610 ) ( 148,044 ) Decrease/(Increase) in inventory 34,946 ( 16,244 ) Decrease/(Increase) in supplier deposits 21,172 ( 1,850 ) Increase in prepaid expenses ( 16,576 ) ( 20,564 ) (Increase)/Decrease in accounts payable and accrued expenses ( 1,309 ) 54,214 Net cash provided by / (used in) operating activities 12,594 ( 144,119 ) Net cash provided by/ (used in) financing activities: Proceeds from related party loan 170,000 295,000 Repayments of related party loan ( 155,000 ) ( 20,000 ) Proceeds from options exercise - 25,448 Shares repurchased for cancellation ( 38,002 ) ( 193,188 ) Net cash (used in) / provided by financing activities ( 23,002 ) 107,260 Net increase/ (decrease) in cash and cash equivalents ( 10,408 ) ( 36,859 ) Cash and cash equivalents at beginning of period 10,738 46,481 Cash and cash equivalents at end of periods $ 330 $ 9,622 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid for Interest $ 9,992 $ 7,161 Summary of non-cash investing and financing activity: During the nine-month period ended September 30, 2023 the Company issued a total of 790,500 Restricted and Non-Trading shares with an implied value of $158,567 to directors and officers as a result of contractual stock awards. During the nine-month period ended September 30, 2022 the Company issued a total of 1,198,554 Restricted and Non-Trading shares with an implied value of $184,408 to directors and officers as a result of contractual stock awards and to settle obligations payable. The accompanying notes are an integral part of these condensed financial statements. F-4 Table of Contents EQUATOR BEVERAGE COMPANY Condensed Statements of Changes in Stockholders’ Equity (Unaudited) For the Nine Months Ended September 30, 2023 and 2022 Common Stock Additional Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance, December 31, 2022 16,230,615 $ 16,231 $ 23,758,917 $ ( 23,629,281 ) $ 145,867 Stock issued to Directors and employees 238,500 238 13,754 - 13,992 Stock repurchased and returned to Treasury - - - - - Net Income - - - 4,485 4,485 Balance, March 31, 2023 16,469,115 $ 16,469 $ 23,772,671 $ ( 23,624,796 ) $ 164,344 Stock issued to Directors and employees 238,500 239 25,996 - 26,235 Stock repurchased and returned to Treasury ( 380,019 ) ( 380 ) ( 37,622 ) - ( 38,002 ) Net Income - - - 18,830 18,830 Balance, June 30, 2023 16,327,596 $ 16,328 $ 23,761,045 $ ( 23,605,966 ) $ 171,407 Stock issued to Directors and employees 313,500 313 118,027 118,340 Net Loss ( 53,911 ) ( 53,911 ) Balance, September 30, 2023 16,641,096 $ 16,641 23,879,072 ( 23,659,877 ) 235,836 Common Stock Additional Paid-In Accumulated Total Shares Amount Capital Deficit Balance, December 31, 2021 15,548,903 $ 15,549 $ 23,745,449 $ ( 23,390,445 ) $ 370,553 Stock issued to Directors and employees 681,750 682 111,323 - 112,005 Stock repurchased and returned to Treasury ( 375,000 ) ( 375 ) ( 100,875 ) - ( 101,250 ) Net loss - - - ( 135,379 ) ( 135,379 ) Balance, March 31, 2022 15,855,653 $ 15,856 $ 23,755,897 $ ( 23,525,824 ) $ 245,929 Stock issued to Directors and employees 119,250 119 23,949 - 24,068 Exercise of Stock Options 159,054 159 25,289 - 25,448 Stock repurchased and returned to Treasury ( 455,342 ) ( 455 ) ( 91,483 ) - ( 91,938 ) Net Loss - - - ( 2,827 ) ( 2,827 ) Balance, June 30, 2022 15,678,615 $ 15,679 $ 23,713,652 $ 23,528,651 $ 200,680 Stock issued to Directors and employees 238,500 239 23,611 23,850 Net Loss ( 33,348 ) ( 33,348 ) Balance, September 30, 2022 15,917,115 15,918 23,737,263 ( 23,561,999 ) 191,182 The accompanying notes are an integral part of these condensed financial statements. F-5 Table of Contents EQUATOR BEVERAGE COMPANY Notes to Condensed Financial Statements (Unaudited) September 30, 2023 NOTE 1 – BUSINESS 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. CURRENT OPERATIONS Sales and Distribution The Company’s flagship product is MOJO Coconut Water. In addition to Coconut Water, the Company produces Coconut Water + Pineapple Juice, Organic Coconut Water, Sparkling Coconut Water Citrus, Sparkling Coconut Water Blood Orange, Sparkling Coconut Water Pink Grapefruit, Energy Sparkling Citrus, Energy Sparkling Blood Orange, Energy Sparkling Pink Grapefruit, Cubano Blue Agave Tequila Organic Sparkling Coconut Water Citrus and Cubano Blue Agave Tequila Organic Sparkling Coconut Water Blood Orange. We seek to grow the market share of our products by expanding our hybrid distribution network through the relationships and efforts of our management and third-party partners and broker network, and new products and packaging. The Company packages its beverages in 100% recyclable, Eco-Friendly packaging that can be recycled infinite times and is not made from carbon oil-based packaging. The packaging has a very low impact on the environment, and does not contribute to landfills and the pollution of our bodies of water. Also, our products are plant-based, Eco-friendly and renewable. Production The Company has multiple sources for its production. The Company’s fruit sources are of high quality. The fruit is part of the overall taste and quality of our products. Currently, the Company has multiple production facilities that it could source products from, each of the facilities could supply our forecasted demand. Competition The beverage industry is competitive. Competitors in our market compete for brand recognition, ingredient sourcing, product shelf space, and e-commerce page rankings. Our competitors have similar distribution channels and retailers to deliver and sell their products. Government Regulation Within the United States, beverages are governed by the U.S. Food and Drug Administration (the “FDA”). As such, it is necessary for the Company to establish, maintain and make available for inspection records as well as to develop labels (including nutrition information) that meet FDA requirements. The Company’s production facilities are subject to FDA regulation. F-6 Table of Contents Employees As of September 30, 2023, the Company had two employees. The Company also uses the services of contractors, consultants and other third-parties. We contract with food brokers to represent our products to specific specialized sales channels. We utilize the services of direct sales and distribution companies that deliver and sell our products to their customers. We contract with manufacturing facilities to produce our products and outsource the storage and transportation of our products. CORPORATE HISTORY AND DEVELOPMENT The Company began producing MOJO branded products in 2016. EQUATOR Beverage Company is headquartered in Jersey City, New Jersey and our internet site is www.EquatorBeverage.com. EQUATOR’s stock is traded on the OTCQB under the symbol MOJO. On June 8, 2022, the Board of Directors and majority stockholder of the Company approved a change of name from MOJO Organics, Inc. to EQUATOR Beverage Company. This change of name was filed with the State of Delaware and became effective July 5, 2022. Interim Financial Statements The accompanying unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q and article 10 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited interim condensed financial statements included in this document have been prepared on the same basis as the annual audited financial statements, and in the Company’s opinion, reflect all adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the nine months ended September 30, 2023 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Cash and Cash Equivalents Cash equivalents include investment instruments and time deposits purchased with a maturity of three months or less. As of September 30, 2023, and September 30, 2022, the Company did not have any cash equivalents. Accounts Receivable Accounts receivable is stated at the amount management expects to collect from outstanding balances. The Company provides for probable uncollectible amounts based upon its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of September 30, 2023 and 2022 was zero. F-7 Table of Contents Inventory Inventory, consisting solely of finished goods, are stated at the lower of cost (first-in, first-out method) or net realizable value (“NRV”). If necessary, the Company provides allowances to adjust the carrying value of its inventories to NRV when NRV is below cost. There were no such adjustments in 2023 or 2022. Revenue Recognition Revenue from sales of products is recognized when the related performance obligation is satisfied. The Company’s performance obligation is satisfied upon the shipment or delivery of products to customers. The Company’s products are sold on cash and credit terms which are established in accordance with standardized industry practices and typically require payment within 30 days of delivery. Shipping and Handling Costs Shipping and Handling Costs incurred to move finished goods from our distribution center to customer locations are included in the line Selling, General and Administrative Expenses in our Statements of Operations. Net Income/(Loss) Per Common Share The Company computes per share amounts in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “ Earnings per Share”. ASC Topic 260 requires presentation of basic and diluted EPS. Basic EPS is computed by dividing the income/(loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods. Income Taxes The Net Operating Loss Carryforward as of January 1, 2023 was $ 3,935,416 and $ 3,743,615 at January 1, 2022. The Taxable Income from January 1 to September 30, 2023 was $ 145,584 and the Net Operating Loss Carryforward as of September 30, 2023 was $ 3,789,832 . The Net Loss during the same period January 1 to September 30, 2022 was $ 7,882 , and the Net Operating Loss Carryforward as of September 30, 2022 was $ 3,751,497 . The Federal Deferred Tax Asset on January 1, 2023 was $ 826,437 and the Federal Tax Expense as of September 30, 2023 was $ 30,573 . The Federal Deferred Tax Asset on January 1, 2022 was $ 786,159 and the Federal Tax Expense as of September 30, 2022 was $ 0 . The Federal Deferred Tax asset on September 30, 2023 was $ 795,865 and $ 786,159 on September 30, 2022. The Deferred Tax Asset for the State of New Jersey on January 1, 2023 was $ 354,187 and the State Income Tax Payable as of September 30, 2023 was $ 13,103 . The Deferred Tax Asset for the State of New Jersey on January 1, 2022 was $ 336,925 and the State Income Tax Payable was $ 0 . The Deferred Tax Asset for the State of New Jersey on September 30, 2023 was $ 341,085 and $ 336,925 on September 30, 2022. The Total Deferred Tax Assets as of September 30, 2023 is $ 1,136,950 and $ 1,123,084 as of September 30, 2022. The Deferred Tax assets have been fully reserved by valuation allowances beyond that portion which is expected to offset current taxes. The Company provides for income taxes using the asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company expects to utilize all Deferred Tax Assets. The Company did not have a deferred tax liability at September 30, 2023 and 2022. F-8 Table of Contents As of September 30, 2023, and September 30, 2022, the Company had no accrued interest or penalties. The Company had no Federal or State tax examinations in the past nor does it have any at the current time. 2023 2022 Net Operating Loss Carryforward, January 1 $ 3,395,416 $ 3,743,615 Taxable Income/ (Net Loss), January 1 to September 30 145,584 ( 7,882 ) Net Operating Loss Carryforward, September 30 $ 3,789,832 $ 3,751,497 Federal Deferred Tax Asset, January 1 826,437 786,159 Federal Tax Expense as of September 30 30,573 - Federal Deferred Tax Asset, September 30 $ 795,865 $ 786,159 State of New Jersey Deferred Tax Asset, January 1 354,187 336,925 State of New Jersey Tax Expense as of September 30 13,103 - State of New Jersey Deferred Tax Asset, September 30 341,085 336,925 Total Deferred Tax Asset, September 30 $ 1,136,950 $ 1,123,084 Fair value of financial instruments The carrying amounts of financial instruments, which include cash, accounts receivable, accounts payable and accrued expense, approximate their fair values due to their short-term nature. NOTE 3 – COMMITMENTS AND CONTINGENCIES Employment Agreement Pursuant to Mr. Simpson’s Amended and Restated Employment Agreement (“the Agreement”) dated April 6, 2017 and amended on September 1, 2022, Mr. Simpson is paid a salary of $ 8,000 per month and a stock award of 67,000 shares of non-trading, restricted Common Stock. The employment agreement expires on March 31, 2027. Pursuant to the Agreement, should Mr. Simpson’s employment be terminated without cause, the Company is obligated to pay Mr. Simpson all amounts from the contract immediately for the remaining term of 42 months. At September 30, 2023, the potential liability to EQUATOR Beverage Company was $ 336,000 and 2,814,000 shares of non-trading, restricted Common Stock. NOTE 4 – STOCKHOLDERS’ EQUITY On July 5, 2022, the State of Delaware approved the 1-for-2 reverse split and the decrease in Authorized shares from 40,000,000 to 20,000,000 shares. On June 8, 2022, the Board of Directors of the Company approved a prospective amendment to the Fourth Article of the Company’s Articles of Incorporation to decrease the authorized common stock from 40,000,000 shares, par value $ 0.001 , to 20,000,000 shares, par value $ 0.001 . On June 8, 2022, the majority stockholders approved the decrease in authorized shares amendment by written consent, in lieu of a special meeting of the stockholders. On June 8, 2022, the Board of Directors of the Company approved the prospective amendment to the Company’s Articles of Incorporation to effect a 1-for-2 reverse split of the Company’s Common Stock . On June 8, 2022, stockholders of the Company owning a majority of the Company’s outstanding voting stock approved the reverse stock split by written consent, in lieu of a special meeting of the stockholders. The decrease in authorized shares and reverse stock split was approved by FINRA on July 19, 2022 and effective July 20, 2022. All share and per share data has been retroactively adjusted to reflect the reverse stock split. F-9 Table of Contents Restricted Stock Issuances The table below summarizes the restricted stock awards during the first nine months of 2023 and 2022: Restricted Stock Awards Officers and Directors January 1 to September 30 2023 2022 VWAP Shares Amount VWAP Shares Amount Q1 Q1 Glenn Simpson 0.06 201,000 $ 11,792 Glenn Simpson 0.20 450,500 $ 76,368 Diane Cudia 0.06 37,500 2,200 Diane Cudia 0.20 106,250 17,800 Jeffrey Devlin 0.06 37,500 2,200 Jeffrey Devlin 0.20 106,250 17,800 Total 276,000 16,192 Total 663,000 111,968 Q2 Q2 Glenn Simpson 0.10 201,000 22,110 Glenn Simpson 0.16 100,500 17,554 Diane Cudia 0.10 37,500 4,125 Diane Cudia 0.16 18,750 3,275 Jeffrey Devlin 0.10 37,500 4,125 Jeffrey Devlin 0.16 18,750 3,275 Total 276,000 30,360 Total 138,000 24,104 Q3 Q3 Glenn Simpson 0.45 201,000 94,403 Glenn Simpson 0.12 201,000 20,100 Jeffrey Devlin 0.45 37,500 17,613 Jeffrey Devlin 0.12 37,500 3,750 Total 238,500 112,016 Total 238,500 23,850 Grand Total 790,500 $ 158,568 Grand Total 1,039,500 $ 159,922 On June 1, 2022, Mr. Simpson exercised his options to purchase 159,054 shares of Restricted and Non-Trading shares at $ 0.16 per share. The total purchase price was $ 24,449 . The stock closed at $ 0.16 on the exercise date. There were no options outstanding after this option exercise. Stock Purchased for Cancellation During the nine months ended September 30, 2023, the Company purchased 380,019 shares of its Restricted Common Stock from shareholders at a cost of $ 38,002 . During the year ended December 31, 2022 the Company purchased 830,342 shares of its Restricted Common Stock from shareholders at a cost of $ 193,188 . NOTE 5 – STOCK OPTIONS As of September 30, 2023, there are no outstanding stock options and there was no obligation to issue stock options. On June 1, 2022, Mr. Simpson exercised options to purchase 159,054 shares of Restricted and Non-Trading shares at $ 0.16 per share. The total purchase price was $ 25,449 . The stock closed at $ 0.16 on the exercise date. There were no options outstanding after this option exercise. On February 4, 2022, the Company adjusted the exercise price of the options granted to Mr. Simpson from $ 0.32 per share to $ 0.16 per share. The stock closed at $ 0.17 on that day. During the nine months ended September 30, 2023 and 2022, compensation expense related to stock options was $ 0 . As of September 30, 2023, there was no unrecognized compensation cost related to non-vested stock options. NOTE 6 – RELATED PARTY TRANSACTIONS Mr. Simpson lent funds to the Company for a revolving loan with a principal amount up to $ 300,000 . The loan bears a 6 % simple interest per year. The principal and any accrued interest are due and payable on demand, and the Company has the right to pay back the loan in full or make payments without penalty. As of September 30, 2023, the loan payable to Mr. Simpson was $ 240,000 . As of September 30, 2022, the loan payable to Mr. Simpson was $ 275,000 . On June 1, 2022, Mr. Simpson exercised 159,054 stock options at an exercise price of $ 0.16 . The Company issued 159,054 Restricted and Non-Trading shares of Common Stock in exchange for the total purchase price of $ 25,449 . The stock closed at $ 0.16 on the exercise date. There were no options outstanding after this option exercise. F-10 Table of Contents