Notes to Condensed Financial Statements
September 30, 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 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 nine months ended September 30, 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 September 30, 2018 and December 31, 2017, the Company
did not have any cash equivalents. For purposes of reporting cash flows, cash and cash equivalents include all highly liquid investments
purchases with a maturity of three months or less.
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 September 30, 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. When necessary, the Company provides
allowances to adjust the carrying value of its inventories to the lower of cost or NRV.
As of September 30, 2018 inventory
consists solely of finished goods.
Revenue Recognition
Revenue is recognized when ownership and risk
of loss transfer to the customer, which is the date when the customer receives the product. Revenue transactions represent sales
of inventory net of sales discounts and trade promotions consisting of customer pricing allowances and merchandising funds offered
through various programs to consumers.
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:
At September 30, 2018
|
|
Issued
|
|
Number of Stock Options
|
|
Expiration Date
|
|
Exercise
Price
|
August 14, 2014
|
|
|
585,000
|
|
|
August 14, 2019
|
|
$
|
0.255
|
|
June 15, 2015
|
|
|
35,000
|
|
|
June 15, 2020
|
|
$
|
0.255
|
|
April 6, 2017
|
|
|
1,856,559
|
|
|
April 6, 2022
|
|
$
|
0.160
|
|
TOTAL
|
|
|
2,476,559
|
|
|
|
|
|
|
|
Issued
|
|
Number of Warrants
|
|
Expiration Date
|
|
Exercise
Price
|
March 13, 2014
|
|
|
2,030,223
|
|
|
March 12, 2019
|
|
$
|
0.91
|
|
August 5, 2015
|
|
|
1,500,000
|
|
|
August 17, 2020
|
|
$
|
0.40
|
|
TOTAL
|
|
|
3,530,223
|
|
|
|
|
|
|
|
GRAND TOTAL
|
|
|
6,006,782
|
|
|
|
|
|
|
|
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 September 30, 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
In June 2018 the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2018-07,
Compensation – Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting.
The ASC aims to simplify several aspects of the accounting for
nonemployee share-based payment transactions to include share-based payment transactions for acquiring goods and services from
nonemployees. The amendments in this Update are effective for public business entities for fiscal years beginning after December
15, 2018. The Company is assessing the impact of this pronouncement to the 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. Mr. Spinner’s employment with MOJO ended 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 Common Stock per month. 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 during a twelve month period. The bonus awards may be accelerated should revenue
exceed the annual target amounts.
Mr. Simpson and Mr. Spinner were issued 276,000
and 75,000 shares, respectively, of restricted Common Stock valued at $0.20 per share on February 27, 2018 as part of the Simpson
Agreement and Amended Spinner Agreement for their first quarter compensation.
Mr. Simpson was issued 201,000 shares of restricted
Common Stock valued at $0.17 per share on June 15, 2018 as part of the Simpson Agreement for his second quarter compensation. Mr.
Simpson was issued 201,000 shares of restricted Common Stock valued at $0.22 per share on September 5, 2018 as part of the Simpson
Agreement for his third quarter compensation.
Lease Commitment
The Company maintains office space in Jersey
City, New Jersey. The lease agreement commenced on March 1, 2018 for $2,304 per month. The lease expires on February 28, 2019.
Lease expense amounted to $20,682 and $23,488 for the nine months ended September 30, 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
On May 9, 2018, the Company approved to
the lifting of the prior restrictions to 8,756,542, shares issued to the CEO and 4,709,022, shares issued to the former COO
of the Company.
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 $178,590 and $577,281
for restricted stock based compensation costs for the nine months ended September 30, 2018 and September 30, 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, 2017
|
|
|
2,309,113
|
|
|
$
|
0.21
|
|
Granted
|
|
|
7,112,119
|
|
|
|
0.19
|
|
Vested
|
|
|
(7,112,119
|
)
|
|
|
0.19
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Unvested share balance, September 30, 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.
In connection with the February 2016 Private
Placement Offering, warrants to purchase 482,143 shares of Common Stock were issued at a price of $0.70 per share, these warrants
expired on February 12, 2018.
The following table summarizes warrant activity
during the period:
Outstanding at December 31, 2017
|
|
|
4,012,366
|
|
Expired
|
|
|
(482,143
|
)
|
Outstanding at September 30, 2018
|
|
|
3,530,223
|
|
Exercisable at September 30, 2018
|
|
|
3,530,223
|
|
|
|
Number of Warrants
|
|
Expiration Date
|
|
Exercise
Price
|
Issued March 13, 2014
|
|
|
2,030,223
|
|
|
March 12, 2019
|
|
$
|
0.91
|
|
Issued August 5, 2015
|
|
|
1,500,000
|
|
|
August 17, 2020
|
|
$
|
0.40
|
|
Exercisable at September 30, 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 September
30, 2018, the Company purchased 73,182 shares of its restricted common stock from seven shareholders for cancellation. The Company
paid $14,636 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
|
|
|
3.7
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding,September 30, 2018
|
|
2,476,559
|
|
$
|
0.184
|
|
|
3.12
|
|
Exercisable, September 30, 2018
|
|
2,476,559
|
|
$
|
0.184
|
|
|
3.12
|
|
During the nine months ended
September 30, 2018 and 2017, compensation expense related to stock options of $0 and $214,690, respectively, was recorded. As
of September 30, 2018, there was no unrecognized compensation cost related to non-vested stock options.
NOTE 6 – RELATED PARTY
TRANSACTIONS
As of September 30, 2018, accrued payroll
of approximately $30,000 was payable to the CEO of the Company.