EQUATOR Beverage Co 10-Q

ITEM 1. FINANCIAL STATEMENTS (Unaudited) EQUATOR BEVERAGE COMPANY Condensed Balance Sheets (Unaudited) As of March 31, 2023 and December 31, 2022 March 31, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,646 $ 10,738 Accounts receivable, net 160,120 93,852 Inventory 229,410 268,289 Supplier deposits 30,420 44,772 Prepaid expenses 16,880 23,355 Security deposit 113 113 Total Current Assets $ 477,589 $ 441,119 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 78,245 $ 70,252 Related party loans 235,000 225,000 Total Current Liabilities 313,245 295,252 STOCKHOLDERS’ EQUITY Common stock, 20,000,000 shares authorized at $ 0.001 par value, 16,469,115 and 16,230,615 shares issued and outstanding, at March 31, 2023 and December 31, 2022, respectively 16,470 16,231 Additional paid-in capital 23,772,670 23,758,917 Accumulated deficit ( 23,624,796 ) ( 23,629,281 ) Total Stockholders’ Equity 164,344 145,867 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 477,589 $ 441,119 The accompanying notes are an integral part of these financial statements. 1 EQUATOR BEVERAGE COMPANY Condensed Statements of Operations (Unaudited) For the Three Months Ended March 31, 2023 and 2022 2023 2022 Revenue $ 515,633 $ 379,657 Cost of Revenue 313,457 232,584 Gross Profit 202,176 147,073 Operating Expenses Selling, general and administrative 194,912 281,566 Income/(Loss) from Operations 7,264 ( 134,493 ) Other Expense ( 2,780 ) ( 886 ) Income/(Loss) Before Provision for Income Taxes 4,485 ( 135,379 ) Net Income/(Loss) $ 4,485 $ ( 135,379 ) Net Income/(Loss) per common share, basic and diluted $ 0.00 $ ( 0.01 ) Weighted average number of common shares outstanding, basic and diluted 16,461,165 15,512,895 The accompanying notes are an integral part of these condensed financial statements. 2 EQUATOR BEVERAGE COMPANY Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2023 and 2022 2023 2022 Cash flows from operating activities: Net income/(loss) $ 4,485 $ ( 135,379 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock issued to directors and employees 13,992 112,005 Changes in assets and liabilities: Increase in accounts receivable ( 66,268 ) ( 4,871 ) Decrease/(Increase) in inventory 38,879 ( 129,499 ) Decrease/(Increase) in supplier deposits 14,352 ( 12,000 ) Decrease in prepaid expenses and security deposit 6,475 1,382 Increase in accounts payable and accrued expenses 7,993 120,817 Net cash provided by/ (used in) operating activities 19,908 ( 47,545 ) Net cash provided by/ (used in) financing activities: Proceeds from related party loan 70,000 192,000 Repayments of from related party loan ( 60,000 ) ( 65,000 ) Shares repurchased for cancellation - ( 101,250 ) Net cash provided by financing activities 10,000 25,750 Net increase/ (decrease) in cash and cash equivalents 29,908 ( 21,795 ) Cash and cash equivalents at beginning of period 10,738 46,481 Cash and cash equivalents at end of periods $ 40,646 $ 24,686 Summary of non-cash investing and financing activity: During the three-month period ended March 31, 2023 the Company issued a total of 238,500 Restricted and Non-Trading shares with an implied value of $ 13,992 to directors and officers to settle obligations payable. During the three-month period ended March 31, 2022 the Company issued a total of 681,750 Restricted and Non-Trading shares with an implied value of $ 112,005 to directors and officers to settle obligations payable. The accompanying notes are an integral part of these condensed financial statements. 3 EQUATOR BEVERAGE COMPANY Condensed Statements of Changes in Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, 2023 and 2022 Shares Amount Capital Deficit Equity 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 238,500 239 13,753 - 13,992 Net Income - - - 4,485 4,485 Balance, March 31, 2023 16,469,115 $ 16,470 $ 23,772,670 $ ( 23,624,796 ) $ 164,344 Common Stock Additional Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity 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 ) Net income (loss) - - - ( 135,379 ) ( 135,379 ) Balance, March 31, 2022 15,855,653 $ 15,856 $ 23,755,897 $ ( 23,525,824 ) $ 245,929 The accompanying notes are an integral part of these condensed financial statements. 4 EQUATOR BEVERAGE COMPANY Notes to Condensed Financial Statements (Unaudited) March 31, 2023 NOTE 1 – BUSINESS Overview EQUATOR 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. We produce both nonalcoholic and ready to drink alcoholic beverages. EQUATOR also has a line of sparking 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. 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, Sparkling Coconut Water + Citrus, Sparkling Coconut Water + Blood Orange, Sparkling Coconut Water + Pink Grapefruit, Sparkling Coconut Water Energy + Citrus, Sparkling Coconut Water Energy + Blood Orange, Sparkling Coconut Water Energy + Pink Grapefruit, Cubano Blue Agave Tequila Organic Sparkling Coconut Water + Citrus, Cubano Blue Agave Tequila Organic Sparkling Coconut Water + Blood Orange and 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 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. 5 Employees As of March 31, 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 three months ended March 31, 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 March 31, 2023, and March 31, 2022, the Company did no t have any cash equivalents. Accounts Receivable Accounts receivable are 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 March 31, 2023 and 2022 was zero . 6 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. Costs incurred for sales incentives and discounts are accounted for as reductions in revenue. Deductions from Revenue Costs incurred for sales incentives and discounts are accounted for as reductions in revenue. These costs include payments to customers for performing merchandising activities on our behalf, including in store displays, promotions for new items and obtaining optimum shelf space. 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 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. There are no potentially dilutive securities that have been excluded from the computation of weighted average shares outstanding. Income Taxes The Net Operating Loss Carryforwards for federal taxes was $ 3,785,462 , at March 31, 2023 and 3,770,126 at March 31, 2022. The Net Operating Loss Carryforwards at March 31, 2023 was $ 3,785,462 and $ 3,770,126 for the State of New Jersey. The Deferred Tax Assets for federal taxes was $ 794,947 at March 31, 2023 and $ 791,727 at March 31, 2022. The Deferred Tax Assets at March 31, 2023 was $ 340,692 and $ 339,312 at March 31, 2022 for the State of New Jersey. The total Deferred Tax Assets was $ 1,135,639 at March 31, 2023 and $ 1,131,038 at March 31, 2022. The Deferred Tax assets have been fully reserved by valuation allowances beyond that portion which is expected to offset current taxes. As of March 31, 2023, the Company’s Federal income tax payable is $ 3,830 and State Income Tax payable is $ 1,641 . At March 31, 2022, The Company’s Federal income tax payable and State Income tax payable was zero . 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 no t have a deferred tax liability at March 31, 2023 and 2022. 7 As of March 31, 2023, and March 31, 2022, the Company had no accrued interest or penalties because there were none. The Company had no Federal or State tax examinations in the past nor does it have any at the current time. As of March 31, 2023, and March 31, 2022, the Company had no accrued interest or penalties because there were none. The Company had no Federal or State tax examinations in the past nor does it have any at the current time. SCHEDULE OF DEFERRED TAX ASSETS Tax Rate 2023 2022 2023 2022 Deferred Tax Assets as of March 31, Net Operating Loss Carryforward as of March 31, Tax Rate 2023 2022 2023 2022 Federal 21 % $ 794,947 $ 791,727 $ 3,785,462 $ 3,770,126 State of New Jersey 9 % $ 340,692 $ 339,312 $ 3,785,462 $ 3,770,126 Total $ 1,135,639 $ 1,131,038 $ 7,570,924 $ 7,540,252 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 67,000 shares of non-trading, restricted Common Stock. Mr. Simpson is also paid an annual bonus comprised of cash and non-trading, restricted Common Stock based on the achievement of performance goals established by the Board of Directors of the Company and set forth in the Agreement. The cash bonus is established at $ 44,400 per year. The stock bonus is set at 200,000 shares of non-trading, restricted Common Stock per year through March 31, 2027. Pursuant to the Agreement, if Mr. Simpson’s employment is terminated without cause, the Company is obligated to pay him all amounts due under the contract for the remaining term of the contract immediately. At March 31, 2023, the potential liability to EQUATOR Beverage Company was $ 408,000 and 3,216,000 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. 8 Restricted Stock Issuances During the three months ended March 31, 2023, 238,500 shares of Restricted and Non-Trading Common Stock were issued to Directors and Officers of the Company. These shares have full voting rights but are restricted for sale and transfer. During the year ended December 31, 2022, 1,353,000 shares of Restricted and Non-Trading Common Stock were issued to Directors and Officers of the Company. These shares have full voting rights but are restricted for sale and transfer 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 exercise value was $ 25,449 . On February 4, 2022, the board of Directors approved the issuance of 525,000 shares of Restricted and Non-Trading Common Stock to Mr. Simpson, Mr. Devlin and Ms. Cudia for their continued service to the Company. Mr. Simpson was issued 350,000 shares of Restricted and Non-Trading Common Stock. Mr. Devlin and Ms. Cudia were each issued 87,500 shares of Restricted and Non-Trading Common Stock. The value of these shares was recorded as a component of compensation expense. Additionally, Mr. Simpson was issued 402,000 shares of Restricted and Non-Trading Common Stock for the stock portion of his annual salary. Mr. Devlin was issued 75,000 shares of Restricted and Non-Trading Common Stock as for continuing to serve as a Director of the Company. Ms. Cudia was issued 37,500 shares of Restricted and Non-Trading Common Stock for her annual stock bonus. The value of these shares was recorded as a component of compensation expense. Stock Purchased for Cancellation 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 March 31, 2023, there are no outstanding 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 exercise value was $ 25,449 . 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 following table summarizes stock option activity: SCHEDULE OF STOCK OPTIONS ACTIVITY Issued To Expiration Date Days to Expiration Exercise Price Options Outstanding January 1, 2022 Glenn Simpson 4/6/2024 827 $ 0.16 159,054 Exercised June 1, 2022 Glenn Simpson 4/6/2024 $ 0.16 ( 159,054 ) Outstanding March 31, 2023 Glenn Simpson - - - 0 During the three months ended March 31, 2023 and 2022, compensation expense related to stock options was $ 0 . As of March 31, 2023, there was no unrecognized compensation cost related to non-vested stock options. NOTE 6 – RELATED PARTY TRANSACTIONS During the three months ended March 31, 2023, Mr. Simpson lent funds to the Company. As of March 31, 2023, the loan payable to Mr. Simpson was $ 235,000 . During the year ended December 31, 2022, Mr. Simpson lent funds to the Company. As of December 31, 2022, the loan payable to Mr. Simpson was $ 225,000 . 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 exercise price of $ 25,449 . 9