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, 2023 to March 31, 2022. ● 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. 10 COMPANY 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 sparkling 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. Results of Operations Three Months Ended March 31, 2023 and 2022 Revenue For the three months ended March 31, 2023, the Company reported revenue of $515,633 an increase from revenue of $379,657 for the three months ended March 31, 2022. The $135,976 increase in revenue was primarily due to Covid having a lesser impact on our business. 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, 2023, cost of revenue was $313,457 or 61% of revenue. For the three months ended March 31, 2022, cost of revenue was $232,584 or 61% of revenue. Operating Expenses For the three months ended March 31, 2023, selling, general and administrative expenses was $194,912 a decrease of $86,654 from the three months ended March 31, 2022 of $281,566. This decrease in operating expenses was due to lower stock award expense and also from a decrease in Amazon Selling fees. Stock award expense decreased by $95,776 while Amazon selling fees decreased by $11,370 for the three months ended March 31, 2023 compared to the same period last year. These decreases were offset by an increase in cash compensation expense by $14,031 for the three months ended March 31, 2023 compared to March 31, 2022. Net Income For the three months ended March 31, 2022, the net income was $4,485, a $139,864 improvement from a net loss of ($135,379) for the three months ended March 31, 2022. Liquidity and Capital Resources Liquidity As of March 31, 2023, the Company had working capital of $164,342. Net cash from operating activities was $19,908 for the three months ended March 31, 2023, compared to net cash used in operating activities for the three months ended March 31, 2022 of $47,545. Net cash provided by financing activities was $10,000 for the three months ended March 31, 2023 compared to $25,750 for the three months ended March 31, 2022. Net cash was provided by financing activities of a related party loan for the three months ended March 31, 2023. 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 three months ended March 31, 2022. 11 Working Capital Needs Our working capital requirements increase as demand grows for our products. During the three months ended March 31, 2023, the Company had net borrowings of $235,000. This was the direct result of supply chain delays in manufacturing and ocean transport times. In 2022, borrowings were $225,000. 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