EQUATOR Beverage Company – 10-Q/A Report – Q3 2024 (Restated)
Executive Summary
This report analyzes EQUATOR Beverage Company’s amended 10-Q filing for the quarter ended September 30, 2024. The filing is an amendment (10-Q/A) to restate previously issued financial statements due to identified errors during the preparation of the annual report. While revenue increased significantly, cost of revenue also rose, impacting profitability. The company continues to rely on related party loans and stock issuances to officers and directors. Internal controls are noted as ineffective. Overall, the restatement and continued reliance on related party funding raise concerns.
Company Overview
EQUATOR Beverage Company (formerly MOJO Organics, Inc.) is a Delaware-based beverage company specializing in developing, producing, distributing, and marketing beverages, including coconut water and sparkling energy drinks. Their products are marketed as Non-GMO Project Verified, USDA Organic, and packaged in recyclable materials. The company distributes its products in North America, the Caribbean, and Bermuda.
Detailed Analysis
Restatement Context
The company restated its Q3 2024 financials due to errors identified during the preparation of its 2024 annual report. This raises a red flag regarding the effectiveness of internal controls and the reliability of previously reported information.
Financial Statement Analysis
Condensed Balance Sheets
| Account |
September 30, 2024 (As Restated) |
December 31, 2023 |
Change |
| Cash and Cash Equivalents |
$31,478 |
$87,339 |
-$55,861 |
| Accounts Receivable, Net |
$298,436 |
$135,061 |
+$163,375 |
| Inventory |
$442,722 |
$270,788 |
+$171,934 |
| Total Current Assets |
$838,442 |
$581,493 |
+$256,949 |
| Accounts Payable and Accrued Expenses |
$168,321 |
$80,621 |
+$87,700 |
| Related Party Loans |
$310,000 |
$230,000 |
+$80,000 |
| Total Current Liabilities |
$478,321 |
$310,621 |
+$167,700 |
| Total Stockholders’ Equity |
$360,121 |
$270,872 |
+$89,249 |
* **Liquidity:** Cash decreased significantly. Increased accounts receivable and inventory suggest growing sales but also potential challenges in collecting payments and managing inventory levels.
* **Leverage:** Increased related party loans indicate a reliance on debt financing, particularly from related parties.
Condensed Statements of Operations
| Account |
Q3 2024 (As Restated) |
Q3 2023 |
Change (%) |
YTD 2024 (As Restated) |
YTD 2023 |
Change (%) |
| Revenue |
$1,061,645 |
$675,947 |
+57% |
$2,547,620 |
$1,780,059 |
+43% |
| Cost of Revenue |
$704,370 |
$367,262 |
+92% |
$1,577,278 |
$988,441 |
+60% |
| Gross Profit |
$357,275 |
$308,685 |
+16% |
$970,342 |
$791,618 |
+23% |
| Selling, General & Admin. Expenses |
$778,786 |
$358,639 |
+117% |
$1,544,394 |
$812,222 |
+90% |
| Net Income / (Loss) |
($428,443) |
($53,911) |
– |
($591,601) |
($30,596) |
– |
| Net Income / (Loss) Per Share |
($0.02) |
$0.00 |
– |
($0.03) |
$0.00 |
– |
* **Revenue Growth:** Significant revenue growth in both the quarter and year-to-date periods.
* **Cost of Revenue Increase:** The substantial increase in cost of revenue, outpacing revenue growth, is a major concern. Management attributes this to higher ocean freight costs.
* **Operating Expenses:** Selling, general, and administrative expenses have increased significantly, impacting profitability.
* **Net Loss:** The company continues to operate at a net loss, and the loss has widened compared to the previous year.
Condensed Statements of Cash Flows
| Account |
YTD September 30, 2024 (As Restated) |
YTD September 30, 2023 |
| Net Cash from Operating Activities |
($135,861) |
$12,594 |
| Net Cash from Financing Activities |
$80,000 |
($23,002) |
| Net Increase / (Decrease) in Cash |
($55,861) |
($10,408) |
* **Operating Activities:** Shift from positive to negative cash flow from operations is concerning, indicating potential issues with working capital management or profitability.
* **Financing Activities:** The company relies on financing activities to maintain cash flow, primarily through related party loans.
Condensed Statements of Changes in Stockholders’ Equity
The company continues to issue restricted, non-trading stock to directors and employees, which dilutes existing shareholders’ equity.
Management’s Discussion and Analysis (MD&A) Insights
* Management attributes revenue growth to strong demand and increased shelf space.
* The increase in cost of revenue is attributed to higher ocean freight costs.
* Management acknowledges the need for additional working capital and may seek to raise additional funds through debt or equity.
* The MD&A mentions the competitive nature of the beverage industry and the need for continuous innovation.
Risk Assessment
* **Restatement:** The restatement of financial statements indicates potential weaknesses in internal controls and raises concerns about the reliability of past financial reporting.
* **Liquidity:** Decreasing cash balance and reliance on related party loans pose a liquidity risk.
* **Profitability:** Increasing cost of revenue and operating expenses are negatively impacting profitability.
* **Competition:** The beverage industry is highly competitive, requiring continuous innovation and marketing efforts.
* **Concentration of Control:** Glenn Simpson holds a significant portion of the company’s shares (50%), giving him substantial control.
* **Ineffective Internal Controls:** Management admits that internal controls over financial reporting were not operating effectively.
Opportunities
* **Revenue Growth:** The company is experiencing significant revenue growth, indicating strong demand for its products.
* **Market Expansion:** The company has the opportunity to expand its distribution network and enter new markets.
* **Product Innovation:** The company can continue to develop and introduce new beverage products to meet evolving consumer preferences.
* **Sustainability:** The company’s commitment to sustainability and eco-friendly packaging can attract environmentally conscious consumers.
Conclusion and Actionable Insights
EQUATOR Beverage Company is experiencing revenue growth, but profitability is being negatively impacted by rising costs and operating expenses. The restatement of financial statements and reliance on related party loans raise concerns about the company’s financial health and internal controls.
**Overall Assessment:** The restatement and continued losses make this a risky investment.
**Recommendations:**
* **Improve Internal Controls:** Address the weaknesses in internal controls to ensure the accuracy and reliability of financial reporting.
* **Manage Costs:** Implement strategies to reduce cost of revenue and operating expenses to improve profitability.
* **Diversify Funding Sources:** Explore alternative funding sources to reduce reliance on related party loans.
* **Monitor Cash Flow:** Closely monitor cash flow and working capital management to ensure sufficient liquidity.
* **Address Risk Factors:** Develop and implement strategies to mitigate the identified risk factors, particularly those related to competition, supply chain disruptions, and regulatory compliance.