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.
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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 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.
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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
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