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 June 30, 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 EQUATOR Beverage Company (formerly 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 June 30, 2022 and 2021 Revenue For the three months ended June 30, 2022, the Company reported revenue of $541,102 a decrease from revenue of $614,729 for the three months ended June 30, 2021. The decrease in revenue was due to fewer cases sold for the quarter ended June 30, 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 June 30, 2022, cost of revenue was $352,760 or 65% of revenue. For the three months ended June 30, 2021, cost of revenue was $329,67 or 54% of revenue. The 11% increase in cost of revenue was due to higher costs of product costs, ocean freight and warehousing costs compared to the same period last year. Operating Expenses For the three months ended June 30, 2022, selling, general and administrative expenses was $188,229 a decrease of $15,311 from the three months ended June, 2021 of $203,540. This decrease in operating expenses was primarily due to lower stock compensation expenses as a result of lower EQUATOR stock price. Compensation expenses decreased by $15,209 for the three months ended June 30, 2022 compared to the same period last year. Six Months Ended June 30, 2022 and 2021 Revenue For the six months ended June 30, 2022, the Company reported revenue of $920,759 a decrease of $97,286 from revenue of $1,018,045 for the six months ended June 30, 2021. The decrease in revenue was due to fewer cases sold in 2022 compared to the same period last year. Some of the Company’s products were affected by production and shipping challenges during the first six months of 2022 because of closures due to COVID-19 and congestions at the ports. 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, 2022, cost of revenue was $585,343 or 63% of revenue. For the six months ended June 30, 2021, cost of revenue was $537,968 or 53% of revenue. The 11% increase in cost of revenue was due to higher costs of product, ocean freight and warehousing costs compared to the same period last year. Operating Expenses For the six months ended June 30, 2022, selling, general and administrative expenses was $469,796 an increase of $48,026 from the six months ended June 30, 2021 of $421,770. 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 $42,343 for the six months ended June 30, 2022 compared to the same period last year. Director’s compensation also increased by $19,742 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 June 30, 2022, the Company had working capital of $200,680. Net cash used in operating activities was $100,016 for the six months ended June 30, 2022, compared to net cash used in operating activities for the six months ended June 30, 2021 of $42,879. Net cash provided by financing activities was $57,260 for the six months ended June 30, 2022 compared to zero for the six months ended June 30, 2021. 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. 12 Working Capital Needs Our working capital requirements increase as demand grows for our products. During the six months ended June 30, 2022, the Company had net borrowings of $225,000. This was the direct result of supply chain delays in manufacturing and ocean transport times. In 2021, borrowings were zero. 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. OFF BALANCE SHEET ARRANGEMENTS None ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS Not applicable