Notes
to Condensed Financial Statements
March
31, 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 three months ended March 31, 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 March 31,
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 March 31, 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 market. When necessary, the
Company provides allowances to adjust the carrying value of its inventories to the lower of cost or net realizable value.
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 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
following potentially dilutive securities have been excluded from the computation of weighted average shares outstanding for the
three months ended March 31, 2017 and 2016, as they would have had an anti-dilutive impact on the Company’s net loss per
common share:
|
|
2017
|
|
2016
|
Shares
underlying options outstanding
|
|
|
620,000
|
|
|
|
620,000
|
|
Shares
underlying warrants outstanding
|
|
|
4,012,366
|
|
|
|
3,096,919
|
|
Total
|
|
|
4,632,366
|
|
|
|
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 March 31, 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
Management
does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material
effect on the accompanying financial statements.
Reclassifications
Certain
amounts in the March 31, 2016 Financial Statements have been reclassified to conform to the presentation used in the March 31,
2017 Financial Statements.
NOTE
3 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
On
June 15, 2015, the Company entered into an Amended and Restated Employment Agreement (the "Simpson Agreement")
with Glenn Simpson pursuant to which Mr. Simpson will continue to act as the Company's Chief Executive Officer (“CEO”) and
Chairman for a term of five (5) years as extended in consideration of (i) a base salary of $5,000 per month from June 2015
through September 2015 and then increasing to $18,500 per month, (ii) 1,544,737 shares of common stock of the Company to be
issued to Mr. Simpson upon the Company generating revenue of $3,000,000 during any consecutive twelve month period during the
term (the “Simpson Shares”) and (iii) 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 20% of the annual salary. The stock bonus is set at 200,000 shares of Common Stock per year
through December 31, 2021 based upon revenue performance goals. The revenue goals range from $900,000 to $19,200,000 per
year. The bonus awards may be accelerated should revenue exceed the annual target amounts. On December 15, 2015, the Company
and Mr. Simpson entered into an amendment to the Simpson Agreement increasing the Simpson Shares by 337,500.
On
June 15, 2015, the Company entered into an Amended and Restated Employment Agreement (the "Spinner Agreement") with
Peter Spinner pursuant to which Mr. Spinner will continue to act as the Company's Chief Operating Officer (“COO”) for a term of five (5) years as extended
in consideration of (i) a base salary of $8,000 per month from June 2015 through September 2015 and then increasing to $16,000
per month, (ii) 252,632 shares of common stock of the Company to be issued to Mr. Spinner upon the Company generating revenue
of $3,000,000 during any consecutive twelve month period during the term (the “Spinner Shares”) and (iii) 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 20% of the annual salary. The stock bonus is set at 375,000
shares of Common Stock per year through December 31, 2018 and 200,000 shares of Common Stock per year from 2019 through December
31, 2021 based upon revenue performance goals. The revenue goals range from $900,000 to $19,200,000 per year. The bonus awards
may be accelerated should revenue exceed the annual target amounts. On December 15, 2015, the Company and Mr. Spinner entered
into an amendment to the Spinner Agreement increasing the number of Spinner Shares by 345,000.
On
March 3, 2017, the Company amended the Spinner Agreement, reducing the eligible bonus shares by 1,500,000.
Lease
Commitment
The
Company maintains office space in Jersey City, New Jersey. The Company leases the space from a third-party 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 $8,146 and $5,389 for the three months ended March 31, 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, 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
Company issued shares 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.
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
|
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Unvested
share balance, March 31, 2017
|
|
|
|
2,309,113
|
|
|
$
|
0.21
|
|
In
connection with the issuance of restricted stock, the Company recorded no share-based compensation expense for the three months
ended March 31, 2017 and $231,984 for the three months ended March 31, 2016. As of March 31, 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.
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 March 31, 2017
|
|
|
4,012,366
|
|
Exercisable
at March 31, 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
During
the three months ended March 31, 2017 and 2016, compensation expense related to stock options of $726 and $18,809, respectively,
was recorded. As of March 31, 2017, there was $604 of total unrecognized compensation cost related to non-vested stock options.
That remaining cost is expected to be recognized by June 30, 2017.
NOTE
6 – RELATED PARTY TRANSACTIONS
As
of March 31, 2017, accrued payroll of $588,100 was payable to the CEO and the COO of the Company. This amount included unpaid
salary as well as unpaid bonus. 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 March 31, 2017. In preparing these financial statements, the Company evaluated the events and transactions that occurred through
the date these financial statements were issued.
On
April 6, 2017, the Company amended the Simpson Agreement. Effective April 1, 2017, Mr. Simpson will no longer be paid at a rate
of $22,000 per month. He has agreed to a reduction in salary to $5,000 per month payable in cash and the right to receive 67,000
shares of restricted Common Stock per month. These 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. The Company also granted immediately exercisable stock options to purchase 995,546 shares of
Common Stock at the fair market value on the date of grant of $0.16 per share.
On
April 6, 2017, the Company amended the Spinner Agreement. Effective April 1, 2017, Mr. Spinner will no longer be paid at a rate
of $18,500 per month. He has agreed to a reduction in salary to $5,000 per month payable in cash and the right to receive 55,000
shares of restricted Common Stock per month. These 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. The Company also granted immediately exercisable stock options to purchase 861,013 shares of
Common Stock at the fair market value on the date of grant of $0.16 per share.
The
CEO and COO also agreed to receive shares of restricted Common Stock as payment for amounts owed to them as of March 31, 2017.
They also agreed to receive shares of restricted Common Stock as payment for their cash salary for April 2017. On May 1, 2017,
the Company issued 2,165,750 and 1, 822,500 shares of restricted Common Stock to the CEO and COO, respectively. Additionally,
the Company issued 400,000 shares of restricted Common Stock to Mr. Simpson as payment for his stock bonus earned in 2016. All
of the aforementioned shares issued have no voting rights, are not eligible for dividends and are non-transferable. The restrictions
shall be lifted only upon the generation of $3,000,000 in revenue by the Company during a consecutive twelve month period. These
issuances served, in part, as payment in full of the accrued payroll balance of $588,100 at March 31, 2017.