Notes
to Condensed Financial Statements
June
30, 2017
NOTE
1 – BUSINESS
Overview
MOJO
Organics, Inc. (“MOJO” or the “Company”) was incorporated in the State of Delaware on August 2, 2007.
Headquartered in Jersey City, NJ, the Company engages in new product development, production, marketing, distribution and sales
of beverage brands that are natural, USDA Organic and Non GMO Project Verified.
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 six months ended June 30, 2017 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, 2016 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 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 June 30,
2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016 was zero.
Inventories
Inventories,
consisting solely of finished goods, are stated at the lower of cost (first-in, first-out method) or net realizable value (“NRV”).
When necessary, the Company provides allowances to adjust the carrying value of its inventories to the lower of cost or NRV.
Supplier
Deposits
Supplier
deposits consist of payments to manufacturers for future production.
Revenue
Recognition
Revenue
from sales of products is recognized when persuasive evidence of an arrangement exists, delivery of products has occurred, the
sales price is fixed or determinable and collectability is reasonably assured. Costs incurred for sales incentives and discounts
are accounted for as a reduction in revenue.
Shipping
and Handling Costs
Shipping
and handling costs incurred to move finished goods from our sales distribution centers to customer locations are included in the
line Selling, General and Administrative Expenses in our Statements of Operations.
Net
Loss Per Common Share
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.
The
following potentially dilutive securities have been excluded from the computation of weighted average shares outstanding as they
would have had an anti-dilutive impact on the Company’s net loss per common share:
|
|
For
the Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
|
2016
|
|
Shares
underlying options outstanding
|
|
|
1,491,865
|
|
|
|
620,000
|
|
Shares
underlying warrants outstanding
|
|
|
3,683,614
|
|
|
|
3,096,919
|
|
Total
|
|
|
5,175,479
|
|
|
|
3,716,919
|
|
|
|
For the
Three
Months Ended
June 30,
|
|
|
2017
|
|
2016
|
Shares
underlying options outstanding
|
|
|
2,354,149
|
|
|
|
620,000
|
|
Shares
underlying warrants outstanding
|
|
|
4,012,366
|
|
|
|
3,096,919
|
|
Total
|
|
|
6,366,515
|
|
|
|
3,716,919
|
|
Income
Taxes
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 recognizes interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2017 and December
31, 2016, the Company had no accrued interest or penalties. The Company has had no Federal or state tax examinations in the past
nor does it have any at the current time.
Stock-Based
Compensation
ASC
Topic 718, “
Accounting for Stock-Based Compensation
” prescribes accounting and reporting standards for 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.
The
Company accounts for equity based transactions with non-employees under the provisions of ASC Subtopic 505-50, “
Equity-Based
Payments to Non-Employees
.” ASC Subtopic 505-50 establishes that equity-based payment transactions with non-employees
shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever
is more reliably measurable. When the equity instrument is utilized for measurement the fair value of (i) common stock issued
for payments to non-employees is measured at the market price on the date of grant; (ii) equity instruments, other than common
stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner
as if it is to pay cash or services instead of paying with or using the equity instrument.
Fair
value of financial instruments
The
carrying amounts of financial instruments, which include cash, accounts receivable, accounts payable, accrued expenses and debt
obligations, approximate their fair values due to their short-term nature.
New
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09.
Revenue from
Contracts with Customers
(Topic 606), which will supersede the current revenue recognition requirements in Topic 605,
Revenue
Recognition
. The ASC is based on the principle that revenue is recognized to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. The
new guidance will be effective for public companies for annual periods beginning after December 15, 2017. The ASU permits
application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The
Company has not yet determined which application method it will use or the potential effects of the new standard on the
financial statements, if any. The Company is currently assessing the impacts this new standard will have on its financial
statements.
Reclassifications
Certain
amounts in the June 30, 2016 Financial Statements have been reclassified to conform to the presentation used in the June 30, 2017
Financial Statements.
NOTE
3 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
On
April 6, 2017, the Company entered into Amended and Restated Employment Agreements with Mr. Glenn Simpson (the “Simpson
Agreement”), the Company’s Chairman and Chief Executive Officer (the “CEO”) and Mr. Peter Spinner (the
“Spinner Agreement”), the Company’s Chief Operating Officer (the “COO”). The Simpson Agreement and
the Spinner Agreement were effective April 1, 2017 and have eight year terms.
Pursuant
to the Simpson Agreement, Mr. Simpson will be paid a salary of $5,000 per month in cash and the right to receive 67,000 shares
of restricted Common Stock per month. These shares have no voting rights, are not eligible for dividends and are non-transferable
unless the restriction is lifted. The restriction shall be lifted only upon the generation of $3,000,000 in revenue by the Company
during a consecutive twelve month period. Additionally, Mr. Simpson is entitled to an annual bonus comprised of cash and Common
Stock based on performance goals established by the Board of Directors of the Company as set forth in the Simpson Agreement.
The cash bonus is established at $44,400 per year. The stock bonus is set at 200,000 shares of Common Stock per year through December
31, 2025 based upon revenue performance goals. The revenue goals range from $2,400,000 to $19,200,000 per year. The bonus awards
may be accelerated should revenue exceed the annual target amounts.
Pursuant
to the Spinner Agreement, Mr. Spinner will be paid a salary of $5,000 per month in cash and the right to receive 55,000 shares
of restricted Common Stock per month. These shares have no voting rights, are not eligible for dividends and are non-transferable
unless the restriction is lifted. The restriction shall be lifted only upon the generation of $3,000,000 in revenue by the Company
during a consecutive twelve month period. Additionally, Mr. Spinner is entitled to an annual bonus comprised of cash and Common
Stock based on performance goals established by the Board of Directors of the Company as set forth in the Spinner Agreement.
The cash bonus is established at $38,400 per year. The stock bonus is set at 200,000 shares of Common Stock per year beginning
in the year 2020 through December 31, 2025 based upon revenue performance goals. The revenue goals range from $5,200,000 to $19,200,000
per year. The bonus awards may be accelerated should revenue exceed the annual target amounts.
Mr.
Simpson was issued a one-time stock bonus equal to 1,882,237 shares of restricted Common Stock and stock options to purchase 995,546
shares of Common Stock at $0.16 per shares as part of the Simpson Agreement. The restricted shares have no voting rights, are
not eligible for dividends and are non-transferable. The restriction shall be lifted only upon the generation of $3,000,000 in
revenue by the Company during a consecutive twelve month period. See Notes 4 and 5.
Mr. Spinner was issued a one-time stock bonus equal to 597,632 shares of restricted Common Stock and stock options to purchase
861,013 shares of Common Stock at $0.16 per shares as part of the Spinner Agreement. The restricted shares have no voting rights,
are not eligible for dividends and are non-transferable. The restriction shall be lifted only upon the generation of $3,000,000
in revenue by the Company during a consecutive twelve month period. See Notes 4 and 5.
Lease
Commitment
The
Company maintains office space in Jersey City, New Jersey. The Company leased the space pursuant to a lease agreement dated September
15, 2016 at a rate of $2,230 per month. The lease agreement was terminated on February 28, 2017. The Company signed
a new lease agreement for the period March 1, 2017 to February 28, 2018. The new rent under this agreement is $2,259 per month.
Lease expense amounted to $14,415 and $11,309 for the six months ended June 30, 2017 and 2016, respectively.
NOTE
4 – STOCKHOLDERS’ EQUITY
The
Company has authorized 190,000,000 shares of common stock (“Common Stock”) and 10,000,000 shares of preferred stock
(“Preferred Stock”), each having a par value of $0.001.
In
October 2015, the Company approved the 2015 Incentive Stock Plan (the “2015 Plan”), which provides the Company with
the ability to issue stock options, stock awards and/or restricted stock purchase offers for up to an aggregate of 1,500,000
shares of Common Stock.
In
March 2013, the Company approved the 2012 Long-Term Incentive Equity Plan (the “2012 Plan”), which provides the Company
with the ability to issue stock options, stock appreciation rights, restricted stock and/or stock based awards for up to an aggregate
of 2,050,000 shares of Common Stock.
Private
Placement Offerings
On
January 20, 2016, the Company approved a subscription agreement (the “2016 Subscription”) whereby 1,428,572 shares
of Common Stock were offered to accredited investors for $0.35 per share. For every two shares purchased, the investor received
a warrant to acquire one share of Common Stock at an exercise price of $0.70 per share exercisable for a period of two years from
the date of issuance representing a potential aggregate of 714,286 shares of Common Stock. The Company issued a total of 964,286
shares of Common Stock and two year purchase warrants to acquire a total 482,143 shares of Common Stock to four accredited investors
in consideration of $337,500.
Restricted
Stock Compensation
The
CEO and COO agreed to forego the receipt of $598,100 owed to them for salary and bonus in exchange for shares of restricted Common
Stock. In May 2017, the Company issued an aggregate 3,138,125 shares of restricted Common Stock as settlement of that liability.
The shares issued have no voting rights, are not eligible for dividends and are non-transferable unless the restrictions are lifted.
The restrictions shall be lifted only upon the generation of $3,000,000 in revenue by the Company during a consecutive twelve
month period.
Also
in May 2017, the Company issued an aggregate 2,479,869 restricted shares of Common Stock to the CEO and COO as part of the Simpson
Agreement and Spinner Agreement, respectively. These shares have no voting rights, are not eligible for dividends and are non-transferable
unless the restrictions are lifted. The restrictions shall be lifted only upon the generation of $3,000,000 in revenue by the
Company during a consecutive twelve month period. See Note 3 for further discussion.
Pursuant
to the Simpson Agreement and the Spinner Agreement, the Company issued 201,000 shares and 165,000 shares, respectively, to the
CEO and COO for the stock portion of their monthly compensation for the quarter ended June 30, 2017. These restricted shares have
no voting rights, are not eligible for dividends and are non-transferable unless the restrictions are lifted. The restriction
shall be lifted only upon the generation of $3,000,000 in revenue by the Company during a consecutive twelve month period.
During
the quarter ended June 30, 2017, the Company issued 1,128,125 shares of restricted Common Stock to certain of its executive officers.
The shares issued have no voting rights, are not eligible for dividends and are non-transferable unless the restrictions are lifted.
The restrictions shall be lifted only upon the generation of $3,000,000 in revenue by the Company during a consecutive twelve
month period.
In
connection with the issuance of restricted Common Stock to certain of its directors, executive officers and employees, unvested
restricted shares are subject to forfeiture. With the exception of 1,726,485 shares issued to employees and directors and 582,626
shares issued to a former director, which vest based upon achieving certain milestones, the Company records compensation expense
over the vesting period based upon the fair market value on the date of grant for each share, adjusted for forfeitures.
The
Company recorded $577,263 and $463,970 for restricted stock based compensation costs for the six months ended June 30, 2017 and
June 30, 2016, respectively. As of June 30, 2017, there was $490,426 of total unrecognized compensation cost, net of
estimated forfeitures, related to unvested share-based compensation which vests only upon the achievement of certain performance
criteria.
A
summary of the restricted stock issuances to directors, executive officers and employees is as follows:
|
|
Number
of Shares
|
|
Weighted
Average
Grant
Date Fair Value
|
Unvested
share balance, January 1, 2016
|
|
|
4,210,306
|
|
|
$
|
0.75
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(1,901,193
|
)
|
|
|
1.33
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested
share balance, December 31, 2016
|
|
|
2,309,113
|
|
|
$
|
0.21
|
|
Granted
|
|
|
7,112,119
|
|
|
|
0.19
|
|
Vested
|
|
|
(7,112,119
|
)
|
|
|
0.19
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested
share balance, June 30, 2017
|
|
|
2,309,113
|
|
|
$
|
0.21
|
|
Stock
Warrants
In
connection with two private placement offerings in March 2014 (the “2014 Offerings”), investors received one purchase
warrant at $0.91 per share for each share of Common Stock purchased. The warrants issued to Wyatts Torch Equity Partners, LP (“Wyatts”)
were incorrectly calculated. On March 6, 2017, the Company issued warrants to purchase 915,447 shares of Common Stock at $0.91
per share to Wyatts to correct for this error. There was no financial impact resulting from this warrant understatement other
than an understatement of potentially dilutive shares.
In
connection with the 2016 Subscription, warrants to purchase 482,143 shares of Common Stock were issued at a price of $0.70 per
share and are exercisable for a period of two years from the date of issuance.
The
following table summarizes warrant activity during the period:
Outstanding
at January 1, 2016
|
|
|
2,614,776
|
|
Issued
in connection with the 2016 Subscription
|
|
|
482,143
|
|
Outstanding at December
31, 2016
|
|
|
3,096,919
|
|
Issued
in connection with the 2014 Offerings
|
|
|
915,447
|
|
Outstanding
at June 30, 2017
|
|
|
4,012,366
|
|
Exercisable
at June 30, 2017
|
|
|
4,012,366
|
|
Advisory
Services
On
October 3, 2013, the Company entered into an agreement with Ian Thompson for strategic business advisory services, public relations
services and investor relations services with Ian Thompson. In connection with this agreement, the Company issued 167,204
shares of restricted Common Stock and recorded consulting fees of $501,612 during 2013, which was the fair market value of the
stock on the date of issue. The stock is vested; however it is restricted from trading. Ian Thompson was also issued
200,000 shares of restricted Common Stock, which was to vest quarterly based upon the Company reaching certain market capitalization
and revenue goals, in addition to providing the above services, with the last tranche vesting scheduled to vest on June 30, 2014.
Consulting fees amounting to $105,000 and $280,000 were recorded in 2014 and 2013, respectively, related to the 200,000 shares
of Common Stock. Throughout the term of the agreement, the Company requested that Ian Thompson render performance under
the agreement and to provide evidence of same. Ian Thompson failed to perform in all material respects under the terms of the
agreement and refused to provide evidence.
On
June 27, 2014, the Company terminated the agreement. The Company is taking all necessary steps for the cancellation
of the 367,204 shares, due to lack of delivery of consideration and material breach of the agreement
NOTE 5
– STOCK
OPTIONS
On
April 6, 2017, the Company granted stock options to purchase 356,559 shares and 1,500,000 shares of Common Stock pursuant to the
2012 Plan and the 2015 Plan, respectively. See note 3. The options were priced at the fair market value of the Common Stock and
are immediately exercisable.
The
following table summarizes stock option activity under the Plans:
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average Remaining Contractual Term (in years)
|
Outstanding,
December 31, 2016
|
|
|
620,000
|
|
|
$
|
0.255
|
|
|
|
2.2
|
|
Granted
|
|
|
1,856,559
|
|
|
$
|
0.160
|
|
|
|
4.8
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding,
June 30, 2017
|
|
|
2,476,559
|
|
|
$
|
0.184
|
|
|
|
4.1
|
|
Exercisable,
June 30, 2017
|
|
|
2,476,559
|
|
|
$
|
0.184
|
|
|
|
4.1
|
|
During
the six months ended June 30, 2017 and 2016, compensation expense related to stock options of $214,690 and $37,618, respectively,
was recorded. As of June 30, 2017, there was no unrecognized compensation cost related to non-vested stock options.
NOTE
6 – RELATED PARTY TRANSACTIONS
As
of June 30, 2017, accrued payroll of $36,514 was payable to the CEO, COO and Controller of the Company. See Note 7. As of December
31, 2016, accrued payroll of $484,600 was payable to the CEO and COO, and such amount included unpaid salary as well as unpaid
bonus.
During
2016, the CEO and the COO forgave unpaid salary due to them of $96,000 and $81,000, respectively.
In
January 2016, the Company sold 285,715 shares of Common Stock and warrants to purchase 142,857 shares of Common Stock at $0.70
per share to Wyatts for $100,000 pursuant to the 2016 Subscription. The managing member of Wyatts is the COO of the Company, as
well as a Director of the Company.
NOTE
7 – SUBSEQUENT EVENTS
In
accordance with ASC Topic 855,
“Subsequent Events,”
the Company evaluates events and transactions that occur
after the balance sheet date for potential recognition in the financial statements. The effects of all subsequent events that
provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as
of June 30, 2017. In preparing these financial statements, the Company evaluated the events and transactions that occurred through
the date these financial statements were issued.
In
August 2017, the Company settled all of its accrued payroll balance at June 30, 2017. The CEO and the COO agreed to forego the
receipt of cash owed to them as of June 30, 2017 of $10,000 each in exchange for shares of restricted Common Stock, which have
no voting rights, are not eligible for dividends and are non-transferable unless the restrictions are lifted and the restrictions
shall be lifted only upon the generation of $3,000,000 in revenue by the Company during a consecutive twelve month period. In
addition, the Company paid its remaining accrued payroll balance of $16,514 in cash.