Notes
to Condensed Financial Statements (Unaudited)
June
30, 2020
NOTE
1 – BUSINESS
Overview
MOJO Organics, Inc. (“MOJO”
or the “Company”) is a Delaware corporation headquartered in Jersey City, NJ. The Company engages in new product development,
production, marketing, distribution and sales of beverage brands that are natural, Non-GMO Project verified, and USDA Organic.
The Company’s flagship product is MOJO Pure Coconut Water. In addition to Pure Coconut Water, the Company produces Sparkling
Coconut Water, Coconut Water + Mango Juice and Coconut Water + Pineapple Juice. We seek to grow the market share of our products
by expanding our hybrid distribution network through the relationships and efforts of our management and third party partners
and improved broker network, and new products and packaging in 2020, including pH7 water (pH is a scale of acidity) and energy
beverages which are both major sectors of the beverage industry. The company predominantly
packages its beverages in 100% recyclable, Eco-Friendly packaging that can be recycled infinite times and is not made
from carbon oil based packaging. The packaging has a very low impact on the environment, and does not contribute to landfills
and the pollution of our bodies of water.
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, 2020 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, 2019 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. On June 30, 2020
and December 31, 2019, 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, 2020 and December 31, 2019 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”).
If necessary, the Company provides allowances to adjust the carrying value of its inventories to NRV when NRV is below cost. There
were no such adjustments in 2020 or 2019.
Revenue
Recognition
Revenue
from sales of products is recognized when the related performance obligation is satisfied. The Company’s performance obligation
is satisfied upon the shipment or delivery of products to customers. The Company’s products are sold on cash and credit
terms which are established in accordance with standardized industry practices and typically require payment within 30 days of
delivery. Costs incurred for sales incentives and discounts are accounted for as reductions in revenue.
Deductions
from Revenue
Costs
incurred for sales incentives and discounts are accounted for as reductions 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
Income/(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 income/(loss) per common share:
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
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Issued To
|
|
Expiration Date
|
|
No. of Days to Expiration
|
|
Exercise Price
|
|
2020
|
|
2019
|
Shares underlying options outstanding
|
|
GLENN SIMPSON
|
|
Apr 6, 2022
|
|
|
645
|
|
|
$
|
0.16
|
|
|
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505,608
|
|
|
|
901,796
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Shares underlying warrants outstanding
|
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WYATTS TORCH
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|
Aug 19, 2020
|
|
|
50
|
|
|
$
|
0.40
|
|
|
|
1,500,000
|
|
|
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1,500,000
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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2,005,608
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|
|
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2,401,796
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|
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 penalties related to income tax matters in income tax expense. As of June 30, 2020 and December
31, 2019, 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. As of June 30, 2020 and December 31, 2019, the Company had Net Operating Loss Carryforwards
of approximately $4,660,000 and $4,700,000, respectively, and Deferred Tax Assets amounting to approximately $1,330,000 and $1,320,000,
respectively, which have been fully reserved by valuation allowances. The Company does not expect any significant reversals in
the valuation allowance within the next twelve months.
Stock-Based
Compensation
The
Company accounts for equity based transactions under the provisions of ASC Topic 718, “Accounting for Stock-Based Compensation”.
The ASC 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.
Share
based payment awards are measured at the month-end volume weighted average price (VWAP) of the equity instrument that an entity
is obligated to issue when the service has been rendered and any other conditions necessary to earn the right to benefit from
the instruments have been satisfied.
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
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The ASC aims to identify, evaluate, and improve areas
of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving
the usefulness of the information provided to users of financial statements. The Company is still assessing the impact of this
pronouncement to the financial statements.
NOTE
3 – COMMITMENTS AND CONTINGENCIES
The
global coronavirus (COVID-19) pandemic has caused disruptions in supply chains, affecting production and sales across a range
of industries. While this disruption is currently expected to be temporary, there is considerable uncertainty around the duration.
The
extent of the impact of COVID-19 on our operational and financial performance will depend on the effect on our customers and vendors
– all of which are uncertain and cannot be predicted. The related financial impact cannot be reasonably estimated at this
time.
Employment
Agreements
On
April 6, 2017, the Company entered into an Amended and Restated Employment Agreement with Mr. Glenn Simpson (the “Simpson
Agreement”), the Company’s Chairman and Chief Executive Officer (the “CEO”). The Simpson Agreement was
effective April 1, 2017 and has an eight year term.
Pursuant
to the Simpson Agreement dated April 6, 2017, 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. Pursuant to his employment agreement, Mr. Simpson is entitled to a salary
of not less than $18,500 per month. Additionally, Mr. Simpson is entitled to an annual bonus comprised of cash and Common Stock
based on the achievement of performance goals established by the Board of Directors of the Company and 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 May 31, 2025 based upon achieving revenue performance goals. The revenue goals range from $900,000 to $19,200,000 per
year. The bonus awards are accelerated when revenues exceed the annual target amounts.
During
the six months ended June 30, 2020, the CEO was issued 402,000 Restricted and Non-Trading shares of Common Stock under the terms
of the Simpson Agreement for the stock portion of his first and second quarter compensation. During the first quarter of 2020
and for the first and second quarters of 2019, Mr. Simpson did not receive cash payments. Mr. Simpson received cash payments for
the second quarter of 2020. He was owed $5,000 and $10,000 as of June 30, 2020 and December 31, 2019, respectively, for the cash
portion of his salary.
The
“Simpson Agreement” is the only executive employment agreement in effect as of June 30, 2020.
The
Company has no other plans in place and has never maintained any plans that provide for the payment of retirement benefits or
benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans,
supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.
Lease
Commitment
The Company maintains office space in Jersey
City, NJ. The initial lease agreement was for the period March 1, 2019 to February 29, 2020 and was renewed for one year under
the same terms. In April 2020, the Company was given a 50% discount on the rent for April and May 2020 as well as an optional
lease extension for an additional three months under the same terms. The base rent under this agreement is $2,343 per month, and
expires May 31, 2021. Lease expense amounted to $4,686 and $6,912 for the six months ended June 30, 2020 and 2019 respectively.
The security deposit for the lease agreement is $4,518 and the lease expires on May 31, 2021.
NOTE
4 – STOCKHOLDERS’ EQUITY
The
Company has authorized 190,000,000 shares of Common Stock having a par value of $0.001. On February 4, 2019, the Company by a
vote of its majority shareholders cancelled the authorization for the issuance of up to 10,000,000 shares of preferred stock.
There were no shares of preferred stock issued or outstanding prior to this change.
Common
Stock outstanding at June 30, 2020 and December 31, 2019 includes a total of 367,204 restricted shares issued in certificate form
to a former consultant which were ordered cancelled during 2014. Such shares cannot be cancelled until the physical shares are
surrendered to the Company or the Company’s designee and are not otherwise transferable by the holder.
Restricted
Stock Issuances
During
the six months ended June 30, 2020, 598,250 shares of Restricted and Non-Trading Common Stock were issued to Directors and Officers
of the Company. These shares have full voting rights but are restricted for sale or transfer. The CEO exercised options to purchase
156,250 shares at $0.16 per share for a total exercise price of $25,000 which reduced the accrued salary payable to the CEO by
the same amount. The CEO was also issued 402,000 shares of Restricted and Non-Trading Common Stock for the stock portion of his
salary for the first and second quarter. A Director was issued 40,000 shares of Common stock as an award for continuing to serve
as a Director of the Company. The value of these shares was recorded as a component of compensation expense.
Stock
Warrants
In
connection with private placement offerings in March 2014 (the “2014 Offerings”), warrants to purchase 2,030,223 shares
of Common Stock were issued at a price of $0.91 per share. These warrants expired on March 12, 2019.
In
connection with a private placement offering in August 2015 (the “2015 Offerings), warrants to purchase 1,500,000 shares
of Common Stock were issued at a price of $0.40 per share. These warrants will expire on August 19, 2020.
The
following table summarizes warrant activity during the period:
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Issued To
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Expiration Date
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No. of Days to Expiration
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Exercise Price
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|
Options
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Issued August 19, 2015
|
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WYATTS TORCH
|
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Aug 19, 2020
|
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1,828
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|
|
$
|
0.40
|
|
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1,500,000
|
|
Outstanding, June 30, 2020
|
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WYATTS TORCH
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Aug 19, 2020
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50
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$
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0.40
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1,500,000
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Exercisable, June 30, 2020
|
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WYATTS TORCH
|
|
Aug 19, 2020
|
|
|
50
|
|
|
$
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0.40
|
|
|
|
1,500,000
|
|
Stock
Purchased for Cancellation
On
January 23, 2020 the Company purchased 25,000 shares of its restricted common stock from one shareholder for cancellation. The
Company paid $5,250 or $0.21 per share which was the average market price for its traded shares during the period. The shares
were cancelled and are available for reissuance.
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 Incentive Plan and the 2015 Incentive Plan, respectively. The options were priced at the fair market value of the Common
Stock and are immediately exercisable.
2012
Incentive Plan
On
February 18, 2019, the Company’s Board of Directors signed an unanimous consent to terminate the 2012 Incentive Plan, and
it was resolved further that 70,000 options to purchase shares of Common Stock be converted into 70,000 shares of Common Stock.
It also consented the CEO of the Company to exercise options to purchase 222,000 Restricted and Non-Trading shares of Common Stock
at $0.255 per share. The total exercise price was $56,610 and this reduced the loan payable to the CEO by the same amount.
The
2012 Incentive Plan was approved by our shareholders in March 2013. The 2012 Incentive Plan provided the Company with the
ability to issue stock options, stock appreciation rights, restricted stock and/or other stock-based awards for up to an aggregate
of 2,050,000 shares of common stock. In 2016, the Company issued 620,000 stock options to purchase shares of common
stock that expire in August 2019, and issued 1,073,441, restricted common stock to its Directors and employees. In 2017, the Company
granted stock options to purchase 356,559 shares that expire in April 2022. The options were priced at the fair market value of
the Common Stock and are exercisable. In 2018, there were no issuances under the 2012 plan. As of December 31, 2018, issued stock
options total 976,559. During 2018, 495,403 stock options had been cancelled due to termination of employment and were available
for reissuance at that time. There are no options outstanding from this plan as of June 30, 2020 and December 31, 2019.
2015
Incentive Plan
The
2015 Incentive Plan was terminated by the Board of Directors on January 24, 2019. The 2015 Incentive Plan provided 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.
The
Company approved the 2015 Incentive Plan in October 2015. The 2015 Incentive Plan provided 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 April, 2017, the Company granted stock options to purchase 1,500,000 shares of Common Stock pursuant to the 2015 Plan.
The options were priced at the fair market value of the Common Stock and were exercisable from the date of issuance. In 2018,
there were no issuances under the 2015 plan. As of December 31, 2018, issued stock options total 1,500,000. During 2018, 693,610
stock options had been cancelled due to termination of employment and were available for reissuance at that time. There are 505,609
options outstanding from this plan as of June 30, 2020, and 661,858 options outstanding as of December 31, 2019.
Stock
Option Activity
During
February 2019, two of the Company’s Directors surrendered 70,000 stock options and were issued 70,000 shares of Common Stock
in exchange. The CEO of the Company was also issued 222,000 Restricted and Non-Trading shares of Common Stock.
On
August 13, 2019, the Company’s Board of Directors consented the CEO to exercise options to purchase 93,750 Restricted and
Non-Trading shares at $0.16 per share. The total exercise value of $15,000 was reduced the loan payable to the CEO to $0.
On
November 1, 2019, the Company’s Board of Directors consented the CEO to exercise options to purchase 239,938 Restricted
and Non-Trading shares at $0.16 per share. The total exercise value of $38,390 was reduced the accrued salary payable to the CEO
by the same amount.
As
of December 31, 2019, there are 661,858 options outstanding that were issued to Glenn Simpson. The exercise price is $0.16.
On
January 14, 2020 the Company’s Board of Directors consented the CEO to exercise options to purchase 93,750 Restricted and
Non-trading shares at $0.16 per share. The total exercise value of $15,000 was reduced the accrued salary payable to the CEO by
the same amount.
On
March 6, 2020 the Company’s Board of Directors consented the CEO to exercise options to purchase 62,500 Restricted and Non-Trading
shares at $0.16 per share. The total exercise value was $10,000 and this reduced the accrued salary payable to the CEO to $0.
The
following table summarizes stock option activity under the Plans:
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Issued To
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Expiration Date
|
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No. of Days to Expiration
|
|
Exercise Price
|
|
Options
|
Outstanding, December 31, 2019
|
|
GLENN SIMPSON
|
|
4/6/2022
|
|
|
827
|
|
|
$
|
0.16
|
|
|
|
661,858
|
|
Exercised
|
|
GLENN SIMPSON
|
|
4/6/2022
|
|
|
736
|
|
|
$
|
0.16
|
|
|
|
(156,250
|
)
|
Outstanding, June 30, 2020
|
|
GLENN SIMPSON
|
|
4/6/2022
|
|
|
645
|
|
|
$
|
0.16
|
|
|
|
505,608
|
|
Exercisable, June 30, 2020
|
|
GLENN SIMPSON
|
|
4/6/2022
|
|
|
645
|
|
|
$
|
0.16
|
|
|
|
505,608
|
|
During
the six months ended June 30, 2020 and 2019, compensation expense related to stock options was $0. As of June 30, 2020, there
was no unrecognized compensation cost related to non-vested stock options.
NOTE
6 – RELATED PARTY TRANSACTIONS
On
January 14, 2020 the CEO of the Company exercised 93,750 stock options at an exercise price of $0.16. The Company issued 93,750
Restricted and Non-Trading shares of Common Stock, and the accrued payroll owed to him was reduced by $15,000.
On
March 12, 2020 the $10,000 accrued salary balance was used to pay for an option exercise made by the CEO of the Company. As a
result of the transaction, the Company issued 62,500 Restricted and Non-Trading shares of Common Stock to the CEO and the accrued
payroll then owed to the CEO was reduced to $0.
As
of June 30, 2020, accrued payroll of $14,135 was owed to the CEO and the Controller of the Company.
NOTE
7 – SBA LOANS “CARES ACT”
On
May 5, 2020, the Company received loan proceeds in the amount of $35,508 under the Paycheck Protection Program (“PPP”).
The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for
loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.
The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes,
including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced
if the borrower terminates employees or reduces salaries during the eight-week period.
If
there were an unforgiven portion of the PPP loan, it would be payable over a period of up to two years at an interest rate of
1%, with a deferral of payments for the first six months. The Company’s use of the proceeds is consistent with the
PPP. The Company believes that its use of the loan proceeds has met the criteria for forgiveness of the loan. The Company believes
that the loan will be forgiven on November 1, 2020 or sooner in accordance with the guidance from the PPP.
On
May 27, 2020, the Company received grant proceeds in the amount of $2,000 under the Economic Injury Disaster Loan (“EIDL”)
Program. The EIDL program was created to assist businesses, renters and homeowners located in regions affected by declared disasters.
The Company applied for the EIDL Emergency Advance which provides $1,000 per employee up to a maximum of $10,000.
The
EIDL Advances are 100% forgivable as long as it is used for providing sick leave benefits to employees, maintaining payroll to
retain employees, payments on mortgage, rent and utilities, increased costs to obtain materials from the applicants original source
due to interrupted supply chains, and repaying obligations that cannot be met due to revenue losses. The Company’s use of
the advance has met the criteria for forgiveness of the advance.