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, 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.
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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 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
Results of Operations
Three Months Ended September 30, 2022 and 2021
Revenue
For the three months ended September 30, 2022, the Company reported revenue of
$548,973 an increase from revenue of $477,013 for the three months ended
September 30, 2021. The 15% increase in revenue was due to an increase in cases
sold for the quarter ended September 30, 2022 compared to the same period last
year.
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 September 30, 2022, cost of revenue was $380,64 or
69% of revenue. For the three months ended September 30, 2021, cost of revenue
was $255,266 or 54% of revenue. The 15% 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 three months ended September 30, 2022, selling, general and
administrative expenses was $198,122 a decrease of $25,449 from the three months
ended September 30, 2021 of $223,571.
This decrease in operating expenses was due to lower Amazon selling fees and
also from a decrease in stock compensation expense. Amazon selling fees
decreased by $20,505 while compensation expenses decreased by $10,567 for the
three months ended June 30, 2022 compared to the same period last year.
Nine Months Ended September 30, 2022 and 2021
Revenue
For the nine months ended September 30, 2022, the Company reported revenue of
$1,469,732 a decrease of $25,326 from revenue of $1,495,058 for the nine months
ended September 30, 2021. The decrease in revenue was due to fewer cases of MOJO
flavored products 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 nine 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 nine months ended September 30, 2022, cost of revenue was $966,207 or
66% of revenue. For the nine months ended September 30, 2021, cost of revenue
was $793,234 or 53% of revenue. The 13% 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 nine months ended September 30, 2022, selling, general and
administrative expenses was $667,918 an increase of $22,577 from the nine months
ended September 30, 2021 of $645,341.
This increase in operating expenses was primarily due to higher compensation
expenses offset by a decrease in selling expenses. Employee and director
compensation expenses increased by $52,355 for the nine months ended September
30, 2022 compared to the same period last year. Selling expenses which consists
of Amazon fees, freight delivery expenses and commissions decreased by $35,446
compared to the same period last year.
Liquidity and Capital Resources
Liquidity
As of September 30, 2022, the Company had working capital of $191,182. Net cash
used in operating activities was $144,119 for the nine months ended September
30, 2022, compared to net cash used in operating activities for the nine months
ended September 30, 2021 of $42,879. Net cash provided by financing activities
was $107,260 for the nine months ended September 30, 2022 compared to zero for
the nine months ended September 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 nine months ended September 30, 2022.
12
Working Capital Needs
Our working capital requirements increase as demand grows for our products.
During the nine months ended September 30, 2022, the Company had net borrowings
of $275,000. 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
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EQUATOR BEVERAGE COMPANY 
