EQUATOR Beverage Co 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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: ● 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 March 31, 2024 to March 31, 2023. ● 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. 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. 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. 3 Table of Contents 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. 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 March 31, 2024 and 2023 Revenue For the quarter ended March 31, 2024, the Company reported revenue of $640,653 an increase of $125,020 or 24% from revenue of $515,633 for the quarter ended March 31, 2023. The increase in revenue was due to strong demand for all products. Cost of Revenue Cost of revenue includes finished goods purchase costs and freight in costs. For the quarter ended March 31, 2024, cost of revenue was $370,070 or 58% of revenue, an improvement of 3 percentage points from the same period in 2023. For the quarter ended March 31, 2023, cost of revenue was $313,457 or 61% of revenue. The improvement in the operating margin was the result of improved sales of higher margin products. Operating Expenses Operating expenses for the first quarter of 2024 were $230,758 compared to $178,720 for the same period in 2023 excluding restricted, non-trading stock awards issued to officers and directors. This $52,038 or 29% increase was primarily due to increased revenue of 24%. During the first quarter of 2023, 201,000 shares of restricted, non-trading common stock were issued to officers and directors compared to 276,000 shares issued during the same period in 2023 which is a reduction of 75,000 shares. For the first quarter of 2024, the implied cost of the restricted, non-trading common shares was $0.61 per share compared to $0.06 per share for the first quarter of 2023. The increase was due to a higher stock price of the publicly traded shares in 2024. 4 Table of Contents Liquidity and Capital Resources Liquidity As of March 31, 2024, the Company had working capital of $290,462 compared to $164,342 for the first quarter of 2023. Net cash used in operating activities was $162,241 for the quarter ended March 31, 2024, a $182,149 decline compared to net cash from operating activities for the quarter ended March 31, 2023 of $19,908. Net cash provided by financing activities was $130,000 for the quarter ended March 31, 2024 compared to $10,000 net cash provided by financing activities for the quarter ended March 31, 2023. Net cash provided by financing activities was used for operations for the quarter ended March 31, 2024. Working Capital Needs Our working capital requirements increase as revenue grows for our products. During the quarter ended March 31, 2024, the Company had net borrowings of $130,000. In the first quarter of 2023, net borrowings were $235,000. Should the Company require additional working capital during the next twelve months, it may seek to raise additional funds. Financing transactions may include debt securities and obtaining credit facilities. OFF BALANCE SHEET ARRANGEMENTS None ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS None