Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (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 results improved during the six months ended June 30, 2026. Revenue increased 16% year-over-year, gross margin expanded to 54%, and the Company generated positive operating income and net income. These results were driven by operating efficiencies, improved distribution execution, and continued customer demand for the Company's beverage portfolio.

Management continues to monitor potential risks, including volatility in freight costs, oil and fuel prices, input costs, and consumer demand, as well as uncertainty surrounding U.S. trade and tariff policies and geopolitical developments, including the conflict involving Iran and the broader Middle East. These factors could disrupt global shipping routes, increase transportation and logistics costs, affect product availability, and adversely affect the Company's supply chain, margins, operating results, and cash flows 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 is a Delaware corporation headquartered in Jersey City, NJ. The Company is engaged in the development, production, distribution, and marketing of a portfolio of beverage products.

Products

The Company's beverage portfolio includes ready-to-drink beverage products. 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 products.

A core offering within the Company's portfolio is MOJO Coconut Water. Each 11-ounce serving contains five electrolytes and naturally occurring vitamins B and C and contains no preservatives.

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, energy sparkling pink grapefruit, and chocolate coconut water.

Sustainability and Packaging

Sustainability is a core component of EQUATOR's business strategy. The Company uses recyclable packaging for its beverage products. EQUATOR's products are plant-based and made from renewable resources.

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. The Company seeks to grow the market share of its products by expanding its hybrid distribution network through the relationships and efforts of its management, third-party partners, and broker networks, as well as through new products and packaging.

Production

Competition

The beverage industry is competitive. Competitors in the Company's market compete for brand recognition, ingredient sourcing, product shelf space, and e-commerce page rankings. Competition is based on price, quality, innovation, distribution, and brand recognition.

Government Regulation

Within the United States, beverages are regulated 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 June 30, 2026, the Company had two employees and utilized third-party service providers for manufacturing, logistics, and professional services.

Results of Operations

Three Months Ended June 30, 2026 and 2025

Revenue

Revenue for the quarter ended June 30, 2026 increased 14% to $1,259,453 from $1,102,577 for the quarter ended June 30, 2025. The increase was driven primarily by higher sales volume. Cases sold of the Company's largest SKU increased 9% year over year and contributed to the increase in revenue.

Cost of Sales and Gross Margin

Operating Expenses

Other Income

For the three months ended June 30, 2026, the Company recognized other income of $4,972 due to tariff-related recoveries associated with previously paid import duties during the period. In accordance with U.S. GAAP, these amounts are presented within other income in the accompanying condensed financial statements. Management believes these recoveries are non-recurring in nature.

Net Income

Six Months Ended June 30, 2026 and 2025

Revenue

Cost of Sales and Gross Margin

Operating Expenses

Other Income

For the six months ended June 30, 2026, the Company recognized other income of $117,264 due to tariff-related recoveries associated with previously paid import duties during the period. In accordance with U.S. GAAP, these amounts are presented within other income in the accompanying condensed financial statements. Management believes these recoveries are non-recurring in nature.

Net Income

Net income for the six months ended June 30, 2026, was $1,175,814, compared to $237,090 for the same period in 2025. The increase of $938,724 primarily reflected the recognition of an income tax benefit associated with the release of the deferred tax asset valuation allowance, higher gross profit, and higher other income, partially offset by higher operating expenses.

Net income for the period included a non-recurring, non-cash income tax benefit of $756,868 resulting from the release of the Company's valuation allowance against deferred tax assets.

Liquidity and Capital Resources

As of June 30, 2026, the Company had working capital of $1,056,655 and cash and cash equivalents of $73,757. Net cash provided by operating activities was $55,935 for the six months ended June 30, 2026, compared to net cash used in operating activities of $263,091 for the six months ended June 30, 2025. Based on its current operating plans, management believes that existing cash and cash equivalents, together with cash expected to be generated from operations, will be sufficient to meet the Company's anticipated working capital requirements.

Borrowings

Borrowings under the Company's credit arrangements decreased from $340,000 at December 31, 2025 to $160,000 as of June 30, 2026. Management believes expected cash flows from operations will be sufficient to meet its anticipated capital requirements. The Company intends to continue reducing outstanding borrowings during fiscal 2026.