EQUATOR Beverage Co - Quarter Report: 2013 March (Form 10-Q)

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Delaware		26-0884348
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

101 Hudson Street, 21st Floor, Jersey City, New Jersey 07302

(Address of principal executive offices)

 

 

 

 

 

 

 

o	Large accelerated filer Accelerated filer	o	Accelerated filer
o	Non-accelerated filer (Do not check if a smaller reporting company)	x	Smaller reporting company

 

 

 

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PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012	F-1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and March 31, 2012	F-2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and March 31, 2012	F-3
	Notes to the Condensed Consolidated Financial Statements	F-4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4
ITEM 4.	CONTROLS AND PROCEDURES	5
PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	6
ITEM 1A.	RISK FACTORS	6
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6
ITEM 4.	MINE SAFETY DISCLOSURE	6
ITEM 5.	OTHER INFORMATION	6
ITEM 6.	EXHIBITS	6
SIGNATURES		8

 

 

		March 31, 2013				December 31, 2012
ASSETS
CURRENT ASSETS:
Cash		$	138,900			$	1,379
Inventory			33,999				22,820
Supplier Deposits			134,470				-
Prepaid Expenses			4,280				5,807
Total Current Assets			311,649				30,006
PROPERTY AND EQUIPMENT, net of accumulated depreciation			3,497				2,243
OTHER ASSETS
Security deposits			5,798				5,798
TOTAL ASSETS		$	320,944			$	38,047
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	124,298			$	349,729
Notes payable to related parties			-				187,500
Derivative liabilities - Preferred Stock			159,949				-
Total Current Liabilities			284,247				537,229
Commitments and Contingencies			-				-
Series A Preferred Stock, $0.001 par value, 197,708.5 and 0 shares issued and outstanding, respectively			790,834				-
STOCKHOLDERS' DEFICIT
Preferred stock, 10,000,000 authorized at $0.001 par value			-				-
Common stock, 190,000,000 shares authorized at $0.001 par value, 8,551,265 shares issued and outstanding			8,551				8,551
Additional paid in capital			10,106,715				9,838,024
Accumulated deficit			(10,869,403	)			(10,345,757	)
Total Stockholders' Deficit			(754,137	)			(499,182	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	320,944			$	38,047

 

 

 

		Three Months Ended March 31,
		2013				2012
Revenues		$	-			$	-
Cost of Revenues			-				-
Gross Profit			-				-
Operating Expenses
General and administrative			520,502				224,005
Total Operating Expenses			520,502				224,005
Loss from operations			(520,502	)			(224,005	)
Other Expenses
Interest expense			1,658				-
Loss on change in fair value of derivative liabilities			1,486				-
Total Other Expenses			3,144				-
Loss Before Provision for Income Taxes			(523,646	)			(224,005	)
Provision for Income Taxes			-				-
Net Loss		$	(523,646	)		$	(224,005	)
Preferred stock dividend		$	158,463			$	-
Net Loss available to common stockholders		$	(682,109	)		$	(224,005	)
Net Loss available to common stockholders, basis and fully diluted		$	(0.08	)		$	(0.06	)
Basic and diluted weighted average number of common shares outstanding			8,551,265				3,909,278

 

 

 

 

(unaudited)

 

Interim Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated 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 consolidated 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 consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated 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 months ended March 31, 2013 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2012 included in the Company’s Annual  Report on Form 10-K.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management 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, certificate of deposits and time deposits purchased with a maturity of three months or less.

Inventories

Property and Equipment and Depreciation

Property and equipment are stated at cost.  Depreciation is computed using the straight line method over the estimated lives of the respective assets.  Computer equipment is depreciated over a period of 3 to 5 years.  Maintenance and repairs are charged to expense when incurred.  When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is credited or charged to income.

The Company computes per share amounts in accordance with ASC Topic 260, “Earnings per Share.”  ASC Topic 260 requires presentation of basic and diluted EPS.  Basic EPS is computed by dividing the income (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. The conversion of Series A Preferred Stock was excluded from the computation of diluted shares outstanding for the three months ended March 31, 2013.  The losses for the period would have had an anti-dilutive impact on the Company’s net loss per common share.

Income Taxes

The Company provides for income taxes under ASC topic 740, “Income Taxes,” which requires the use of an 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.

ASC 740 also requires the reduction of deferred tax assets 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.

Tax returns for the years from 2009 to 2012 are subject to examination by tax authorities.

Stock-Based Compensation

ASC Topic 718, “Accounting for Stock-Based Compensation,” prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights.

ASC Topic 718 requires employee compensation expense to be recorded using the fair value method. The Company accounts for employee stock based compensation in accordance with the provisions of ASC Topic 718. For non-employee options and warrants, the company uses the fair value method as prescribed in ASC Topic 718.

The Company’s derivative liabilities are related to embedded conversion features issued in connection with the Series A Preferred Stock. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in fair value recognized in earnings each reporting period. The Company uses the Black-Scholes model to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end of each reporting period, in accordance with ASC Topic 815, “Derivatives and Hedging.” Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based upon whether or not the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

	·	Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
	·	Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
	·	Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

 

Balance at beginning of period		$	-
Recognition of embedded derivative liabilities			158,463
Change in fair value of derivative liabilities			1,486
Balance at end of period		$	159,949

 

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

During 2012, various expenses of the Company, including advances for operating purposes, had been paid for or made by officers and shareholders of the Company. At December 31, 2012, amounts due to related parties totaled $187,500 in notes payable. The notes bore interest at rates varying between 8% and 10% and were due on September 15, 2013. The notes contain a conversion feature which allows the holders, at their sole discretion, to convert some or all of the principal amount of their note outstanding into equity or debt securities issued by the Company in connection with any offering made by the Company during the period that the principal amount of the note is outstanding. The conversion terms would be identical to the offering terms.

The Company entered into an office service agreement for office space for a term of 12 months effective April 16, 2012.  The base monthly office fee under the agreement is $2,899.  The lease was subsequently renewed for a period of one year.

On April 1, 2013, the Company effected a one-for-ten reverse stock split of the issued and outstanding shares of its Common Stock.   The number of authorized shares and the par value of the Common Stock were not changed.  The accompanying financial statements have been restated to reflect this reverse stock split.