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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-03 · 73 added, 70 removed, 5 unchanged (97% of the section changed)

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 September 30, 2025 to September 30, 2024.

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.

This Management’s Discussion and Analysis (MD&A) provides a narrative explanation of the Company’s financial statements and is intended to enhance understanding of its operating performance, financial condition, liquidity, and capital resources.

The Company’s operating performance improved significantly during the quarter ended March 31, 2026.

Revenue increased 18% year-over-year, gross margin expanded to 52%, and the Company generated positive operating income and net income.

These results were driven by improved operating leverage, enhanced distribution execution, and continued demand for the Company’s beverage portfolio.

Management believes these trends may support the continued scalability of the Company’s business model.

Management is closely monitoring potential risks, including volatility in freight costs, input pricing, and evolving consumer demand patterns, which could impact margins and operating results in future periods.

Forward-Looking Statements

This Management’s Discussion and Analysis contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company’s future operating performance, scalability, margin trends, demand for its products, and anticipated business and market conditions.

Forward-looking statements are based on management’s current expectations, estimates, projections, and assumptions and are subject to significant risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such statements.

These factors include, among others, changes in consumer preferences, competitive conditions, freight and commodity cost volatility, supply chain disruptions, inflationary pressures, regulatory developments, and general economic conditions.

The Company undertakes no obligation to update any forward-looking statements, except as required by applicable law.

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 nonalcoholic ready-to-drink 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.

EQUATOR Beverage Company is a Delaware corporation headquartered in Jersey City,

The Company is engaged in the development, production, distribution, and marketing of a portfolio of beverage products.

EQUATOR’s operations focus on identifying and responding to evolving consumer preferences through innovation, brand development, and disciplined execution.

The Company’s beverage portfolio includes ready-to-drink beverages and sparkling energy beverages.

EQUATOR’s products are Non-GMO Project Verified and USDA Organic certified and are formulated to meet consumer demand for functional, clean-label, and premium beverage options.

A core offering within the Company’s portfolio is MOJO Coconut Water, a naturally functional hydration beverage.

Each 11-ounce serving contains five essential electrolytes, supporting hydration and recovery.

The product contains naturally occurring vitamins B and C, has no preservatives, and offers a fresh, crisp coconut taste.

The Company’s coconut water is plant-based, renewable, and suitable for vegan, kosher, paleo, keto, and

low-carbohydrate diets .

In addition to Coconut Water, the Company produces Coconut Water + Pineapple Juice, Coconut Water + Mango Juice, Organic Coconut Water, Sparkling Coconut Water Citrus, Energy Sparkling Blood Orange, and Energy Sparkling Pink Grapefruit.

Sustainability and Packaging

Sustainability is a core component of EQUATOR’s business strategy.

The Company uses 100% recyclable, eco-friendly packaging designed to reduce environmental impact.

EQUATOR’s products are plant-based and made from renewable resources, demonstrating its commitment to responsible practices and long-term environmental stewardship.

CURRENT OPERATIONS

Markets and Distribution

EQUATOR Beverage Company distributes its products in North America, the Caribbean, and Bermuda through a combination of third-party distributors and retail channels.

EQUATOR continues to evaluate opportunities to expand its geographic presence and strengthen its distribution network in existing and new markets.

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 broker networks, as well as through new products and packaging.

The Company utilizes multiple production sources.

The quality of fruit is a key contributor to the overall taste and quality of our products.

Currently, the Company has multiple production facilities from which it can source products.

Each facility is capable of meeting forecasted demand levels.

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 use 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.

As of March 31, 2026, the Company had two employees and utilizes third-party service providers for manufacturing, logistics, and professional services.

This operating model enables scalability without significant fixed overhead.

CORPORATE HISTORY AND DEVELOPMENT

EQUATOR Beverage Company commenced commercial production of coconut water on January 1, 2015, focusing on premium, natural hydration products.

The Company’s products are Non-GMO Project Verified and USDA Organic certified.

It initially distributed through independent retailers and regional partners while establishing sourcing relationships in Southeast Asia.

In June 2022, the board of directors approved a corporate name change from MOJO Organics, Inc.

to EQUATOR Beverage Company, effective July 5, 2022.

Around this time, the Company’s common stock began trading on the OTCQB Venture Market under the ticker symbol MOJO.

Following launch and uplisting, the Company expanded manufacturing partnerships, strengthened quality controls, and broadened distribution to grocery and e

commerce channels.

Today, EQUATOR Beverage Company sells over 8 million units per year and continues to grow its national retail footprint, focusing on disciplined growth, supply chain stability, and shareholder value.

Results of Operations

Three Months Ended September 30, 2025 and 2024

For the quarter ended September 30, 2025, the Company reported revenue of $1,184,589 an increase of $122,944 or 12% from revenue of $1,061,645 for the quarter ended September 30, 2024.

The increase in revenue was due to strong demand for all products during the third quarter of 2025.

Cost of Revenue

Cost of revenue includes finished goods purchase costs and freight in costs.

For the quarter ended September 30, 2025, cost of revenue was $607,191 or 51% of revenue, a decrease of 15 percentage points from the same period in 2024.

For the quarter ended September 30, 2024, cost of revenue was $704,370 or 66% of revenue.

The decrease in in cost of revenue was primarily due to a decrease in ocean freight costs during the third quarter of 2025 compared to the same period in 2024.

Operating Expenses

Operating expenses for the quarter ended September 30, 2025 were $408,700 compared to $335,716 for the same period in 2024 excluding restricted, non-trading stock awards issued to officers, directors and unrelated parties.

During the quarter ended September 30, 2025, 201,000 shares of restricted, non-trading common stock were issued to officers, directors and employees compared to 269,250 shares issued to officers, directors and employees during the same period in 2024.

Nine Months Ended September 30, 2025 and 2024

For the nine months ended September 30, 2025, the Company reported revenue of $3,104,914 an increase of $557,294 or 22% from revenue of $2,547,620 for the nine months ended September 30, 2024.

The increase in revenue was due to strong demand for all products during the third quarter of 2025.

Cost of Revenue

Cost of revenue includes finished goods purchase costs and freight in costs.

For the nine months ended September 30, 2025, cost of revenue was $1,733,885 or 56% of revenue, compared to $1,577,278 or 62% or revenue from the same period in 2024.

Revenue for the quarter ended March 31, 2026 increased 18% to $961,484 from $817,748 in the same period in 2025.

This growth was driven primarily by higher sales volume reflecting stronger market demand, with the largest SKU contributing a 42% year-over-year increase in cases sold and accounting for a significant portion of the overall revenue gain.

Cost of Revenue and Gross Margin

Cost of revenue totaled $467,850, representing 49% of revenue, compared to 61% in the prior year.

As a result, gross margin improved to 52% from 39%, an expansion of approximately 1,300 basis points.

This margin improvement was driven primarily by better freight economics, enhanced supply chain efficiencies, and a more favorable product mix.

Operating Expenses

Operating expenses for the nine months ended September 30, 2025 were $948,923 compared to $863,544 for the same period in 2024 excluding restricted, non-trading stock awards issued to officers, directors and unrelated parties.

During the nine months ended September 30, 2025, 201,841 shares of restricted, non-trading common stock were issued to an unrelated party and to officers, directors and employees compared to 507,750 shares issued to officers, directors and employees during the same period in 2024.

Operating expenses increased to $419,331 for the quarter ended March 31, 2026, compared to $231,178 in the prior year.

Excluding non-cash restricted stock compensation, cash operating expenses rose approximately 50%, primarily driven by higher e-commerce selling fees in line with a 52% increase in e-commerce revenue, increased marketing spend, and higher warehouse costs associated with expanded storage needs.

Net income for the quarter ended March 31, 2026 was $176,115, compared to $84,034 for the quarter ended March 31, 2025.

The increase of $92,081 was primarily attributable to improved gross margins, and enhanced operating efficiencies.

Liquidity and Capital Resources

As of September 30, 2025, the Company had working capital of $490,308 compared to $360,121 for the same period in 2024.

Net cash used in operating activities was $55,551for the nine months ended September 30, 2025, an $80,310 decrease compared to net cash used in operating activities for the nine months ended September 30, 2024 of $135,861.

Net cash provided by financing activities was $44,000 for the nine months ended September 30, 2025 compared to $80,000 net cash provided by financing activities for the same period in 2024.

Net cash provided by financing activities was used for operations for the nine months ended September 30, 2025.

Working Capital Needs

Our working capital requirements increase as revenue grows for our products.

During the nine months ended September 30, 2025, the Company’s borrowings ranged from $99,000 to $460,000.

The balance of the loan on September 30, 2025 was $399,000.

During the nine months ended September 30, 2024, borrowings ranged from $230,000 to $408,000.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

As of March 31, 2026, the Company had working capital of $783,353 and cash and cash equivalents of $126,670.

Net cash provided by operating activities was $38,848 for the quarter ended March 31, 2026, compared to net cash used in operating activities of $70,867 for the quarter ended March 31, 2025.

Management believes that its existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet its working capital requirements and support planned growth initiatives for the foreseeable future.

Borrowings under the Company’s credit arrangements during the quarter ended March 31, 2026 ranged from $230,000 to $340,000, with an outstanding balance of $230,000 as of March 31, 2026.

Management believes that the Company’s expected growth and cash flow from operations will be sufficient to meet its future capital requirements, as evidenced in part by the reduction in outstanding borrowings from peak levels earlier in the year.

The Company intends to continue reducing outstanding borrowings during fiscal 2026.

Share Repurchases

The Company repurchased 20,605 shares during the quarter as part of its capital allocation strategy.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis