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, 2022 to 2021. ● 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. 11 COMPANY OVERVIEW MOJO Organics, Inc. (“MOJO”) is a Delaware corporation headquartered in Jersey City, NJ. The Company’s business is new product development, beverage production, marketing, distribution and the sale of beverages that are, Non-GMO Project verified, and USDA Organic. The Company’s flagship product is MOJO Coconut Water. In addition to Coconut Water, the Company produces Sparkling Coconut Water, Coconut Water + Mango Juice and Coconut Water + Pineapple Juice and USDA Organic Coconut Water. We seek to grow the market share of our products by expanding our hybrid distribution network through the relationships and efforts of our management, third party partners and our broker network, and add new products and packaging including pH7 water (pH is a scale of acidity) and energy beverages which are the two largest sectors of the beverage industry. The Company packages its beverages in 100% recyclable, Eco-Friendly packaging. The packaging has a low impact on the environment when recycled. Results of Operations Three Months Ended March 31, 2022 and 2021 Revenue For the three months ended March 31, 2022, the Company reported revenue of $379,657 a decrease from revenue of $403,766 for the three months ended March 31, 2022. The decrease in revenue was due to fewer cases sold for the quarter ended March 31. 2022 compared to the same period last year. Some of the Company’s products were affected by production and shipping challenges during the first quarter of 2022 because of closures due to COVID-19. 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 March 31, 2022, cost of revenue was $232,584 or 61% of revenue. For the three months ended March 31, 2022, cost of revenue was $208,401 or 52% of revenue. The 9% increase in cost of revenue was due to higher costs of ocean freight compared to the same period last year. Operating Expenses For the three months ended March 31, 2022, selling, general and administrative expenses was $281,566 an increase of $63,336 from the three months ended March 31, 2021 of $218,230. This increase in operating expenses was primarily due to higher compensation expenses resulting from the one-time stock grant that was issued to the employees and directors of the Company. Compensation expenses increased by $75,352 for the three months ended March 31, 2022 compared to the same period last year. This increase is offset by lower office expenses and marketing expenses. Liquidity and Capital Resources Liquidity As of March 31, 2022, the Company had working capital of $245,929. Net cash used in operating activities was $47,947 for the three months ended March 31, 2022, compared to net cash used in operating activities for the three months ended March 31, 2021 of $18,586. Net cash provided by financing activities was $26,152 for the quarter ended March 31, 2022 compared to zero for the quarter ended March 31, 2021. Net cash was provided by financing activities of a related party loan offset by cash used in financing activities to repurchase MOJO Restricted Common Stock for the quarter ended March 31, 2022. 12 Working Capital Needs Our working capital requirements increase as demand grows for our products. During the three months ended March 31, 2022 and 2021, the Company did not require additional funding. If the Company requires 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. OFF BALANCE SHEET ARRANGEMENTS None ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Not applicable