Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

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.

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

Products

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.

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.

Production

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.

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 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.

Employees

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.

Results of Operations

Revenue

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 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

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 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

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.