Notes
to Condensed Financial Statements (Unaudited)
September
30, 2022
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.
CURRENT
OPERATIONS
Sales
and Distribution
The
Company’s flagship product is MOJO Coconut Water. In addition to Coconut Water, the Company produces Sparkling Coconut Water, Coconut
Water + Pineapple Juice, 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.
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.
Employees
As
of September 30, 2022, 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 was incorporated in 2007 and 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 and nine months ended September 30, 2022 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,
2021 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 September 30, 2022,
and September 30, 2021, the Company did not 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 September 30, 2022 and 2021 was zero.
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 2022 or 2021.
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 $3,754,634, at September 30, 2022 and $3,754,634 for the State of New Jersey.
The Deferred Tax Assets for federal taxes was $788,473 at September 30, 2022 and $337,917 for the State of New Jersey. The total Deferred
Tax Assets was $1,126,390 at September 30, 2022. The Deferred Tax assets have been fully reserved by valuation allowances beyond that
portion which is expected to offset current taxes. As of September 30, 2022, the Company’s Federal income tax payable and State
Income Tax payable is 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 did not have a deferred
tax liability at September 30, 2022 and September 30, 2021.
As
of September 30, 2022, and September 30, 2021, 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 | | |
2022 | | |
2021 | |
| |
| | |
Deferred Tax Asset as of September 30, | |
| |
Tax Rate | | |
2022 | | |
2021 | |
Federal | |
| 21 | % | |
$ | 788,473 | | |
$ | 776,124 | |
State of New Jersey | |
| 9 | % | |
$ | 337,917 | | |
$ | 332,625 | |
Total | |
| | | |
$ | 1,126,390 | | |
$ | 1,108,749 | |
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 the 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 September 30, 2022, the potential liability to EQUATOR Beverage
Company was $432,000 and 3,618,000 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.
In
June 2021, the Company decreased its Authorized Shares from 190,000,000 to 40,000,000 shares. This was a reduction of 150,000,000 in
Authorized Shares. As of September 30, 2022 there are 15,917,115 shares outstanding and no other classes of stock.
Restricted
Stock Issuances
During
the nine months ended September 30, 2022, 1,211,054 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 nine months ended September 30, 2022 the Company purchased 830,342 shares of its Restricted Common Stock from shareholders at a cost
of $194,018.
During
the year ended December 31, 2021 the Company purchased 382,913 shares of its Restricted Common Stock from shareholders at a cost of $765,826.
The shares were cancelled.
NOTE
5 – 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.
On
September 24, 2021, the Company extended the expiration date of the options granted to Mr. Simpson from April 6, 2022 to April 6, 2024.
During
the year ended December 31, 2021, Mr. Simpson exercised options to purchase 93,750 shares of Restricted and Non-Trading shares at $0.32
per share. The total exercise value was $30,000 and this reduced the accrued salary payable to Mr. Simpson to $0.
The
following table summarizes stock option activity:
SCHEDULE
OF STOCK OPTIONS ACTIVITY
| |
Issued To | |
Expiration Date | |
Days to Expiration | | |
Exercise Price | | |
Options | |
Outstanding, December 31, 2021 | |
Glenn Simpson | |
4/6/2024 | |
| 827 | | |
$ | 0.16 | | |
| 159,054 | |
Exercised, September 30, 2022 | |
Glenn Simpson | |
4/6/2024 | |
| | | |
$ | 0.16 | | |
| (159,054 | ) |
Outstanding, September 30, 2022 | |
Glenn Simpson | |
4/6/2024 | |
| | | |
$ | 0.16 | | |
| - | |
During
the nine months ended September 30, 2022 and 2021, compensation expense related to stock options was $0. As of September 30, 2022, there
was no unrecognized compensation cost related to non-vested stock options.
NOTE
6 – RELATED PARTY TRANSACTIONS
During
the nine months ended September 30, 2022, Mr. Simpson lent funds to the Company. As of September 30, 2022, the loan payable to Mr. Simpson
was $275,000.
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.
During
the year ended December 31, 2021, Mr. Simpson exercised 93,750 stock options at an exercise price of $0.32. The Company issued 93,750
Restricted and Non-Trading shares of Common Stock, and the accrued payroll owed to him was reduced by $30,000.
NOTE
7 – SBA LOANS “CARES ACT”
In
January 2021, the Company received the loan forgiveness decision from the SBA for the loan proceeds under the Paycheck Protection Program.
The full amount of the loan amounting $35,508 was forgiven in January 2021.