Notes
to Condensed Financial Statements
March
31, 2018
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, 2018 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, 2017 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 31,2018
and December 31, 2017, 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, 2018 and December 31, 2017 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.
Revenue
Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09.
Revenue from Contracts
with Customers
(Topic 606). 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. The new guidance was made effective for public companies for annual periods beginning after December
15, 2017. The new pronouncement did not have any material impact on the financial statements The Company currently recognizes
revenue as soon as delivery of goods has occurred.
Deductions
from Revenue
Costs
incurred for sales incentives and discounts are accounted for as a reduction in revenue. These costs include payments to customers
for performing merchandising activities on our behalf, including in-store displays, promotions for new items, and obtaining optimum
shelf space.
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
The
Company computes per share amounts in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 260,
“Earnings per Share”.
ASC Topic 260 requires presentation of basic
and diluted EPS. 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 Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
Shares
underlying options outstanding
|
|
|
2,476,559
|
|
|
|
620,000
|
|
Shares
underlying warrants outstanding
|
|
|
3,530,223
|
|
|
|
4,012,366
|
|
Total
|
|
|
6,006,782
|
|
|
|
4,632,366
|
|
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, 2018 and December
31, 2017, 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 and accrued expense, approximate their fair values due to their short-term nature.
Recent
Accounting Pronouncements
Recent
accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC, did not, or are
not believed by management, to have a material impact on the Company’s present or future 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.
On
December 8, 2017, the Company entered into Amended and Restated Employment Agreement with Mr. Peter Spinner (the “Amended
Spinner Agreement”). This agreement is effective January 1, 2018 and supersedes the Spinner Agreement. The Amended Spinner
Agreement was terminated on March 31,2018.
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 Amended Spinner Agreement, Mr. Spinner was paid a salary of $5,000 per month payable in stock. 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.
Mr.
Simpson was issued 276,000 shares of restricted Common Stock 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 75,000 shares of Common Stock at $0.20 per shares as part of the Amended 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 March
1, 2017 at a rate of $2,259 per month. The lease agreement was renewed on March 1, 2018 and the new rate is $2,304 per month.
The new lease expires on February 28, 2019. Lease expense amounted to $6,818 and $8,146 for the three months ended March 31, 2018
and 2017, 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.
Restricted
Stock Compensation
Pursuant
to the Simpson Agreement and the Amended Spinner Agreement, the Company issued 276,000 shares and 75,000 shares, respectively,
to the CEO and COO for the stock portion of their monthly compensation for the quarter ended March 31, 2018. 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.
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 $70,200 and $0 for restricted stock based compensation costs for the three months ended March 31, 2018 and March
31, 2017, respectively.
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, March 31, 2018
|
|
|
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 February 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. These warrants expired in February 2018.
The
following table summarizes warrant activity during the period:
Outstanding
at January 1, 2017
|
|
|
3,096,919
|
|
Issued
in connection with the 2014 Offerings
|
|
|
915,447
|
|
Outstanding
at December 31, 2017
|
|
|
4,012,366
|
|
Issued
in connection with the 2016 Subscription – Expired in February 2018
|
|
|
(482,143
|
)
|
Outstanding
at March 31, 2018
|
|
|
3,530,223
|
|
Exercisable
at March 31, 2018
|
|
|
3,530,223
|
|
Advisory
Services
On
October 3, 2013, the Company entered into an agreement with Ian Thompson of Northern Ireland 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
Stock
Purchased for Cancellation
During
the period January 1, 2018 to March 31, 2018, the Company purchased 34,253 shares of its restricted common stock from four
related parties. The Company paid $0.20 per share which was the market price for its traded shares during the period.
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, 2017
|
|
2,476,559
|
|
$
|
0.184
|
|
|
3.37
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding,
March 31, 2018
|
|
2,476,559
|
|
$
|
0.184
|
|
|
3.37
|
|
Exercisable,
March 31, 2018
|
|
2,476,559
|
|
$
|
0.184
|
|
|
3.37
|
|
During
the three months ended March 31, 2018 and 2017, compensation expense related to stock options of $0 and $726, respectively, was
recorded. As of March 31, 2018, there was no unrecognized compensation cost related to non-vested stock options.
NOTE
6 – RELATED PARTY TRANSACTIONS
In
February 2018, the Company issued 276,000 and 75,000 number of shares of restricted Common Stock to the CEO and COO,
respectively, in accordance with their employment agreements. 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.