Notes
to Financial Statements
December
31 2020 and 2019
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 Non-GMO
Project Verified.
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, Coconut Water + Pineapple Juice and Pure Organic Coconut Water. 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 2021. 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
financial statements are prepared in conformity with accounting principles generally accepted in the United States of America
(“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 December
31, 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 December 31, 2020 and 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 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
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:
|
|
|
|
Expiration
|
|
Days to
|
|
|
Exercise
|
|
|
As of December 31,
|
|
|
|
Issued To
|
|
Date
|
|
Expiration
|
|
|
Price
|
|
|
2020
|
|
|
2019
|
|
Shares underlying options outstanding
|
|
Glenn Simpson
|
|
4/6/2022
|
|
|
461
|
|
|
$
|
0.16
|
|
|
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505,608
|
|
|
|
661,858
|
|
Income
Taxes
The
Net Operating Loss Carryforwards for federal taxes was $4,637,871 at December 31, 2020 and $5,008,013 for the State of New Jersey.
The Deferred Tax Assets for federal taxes was $973,953 at December 31, 2020 and $451,721 for the State of New Jersey. The total
Deferred Tax Assets was $1,424,674 at December 31, 2020. The Deferred Tax assets have been fully reserved by valuation allowances
beyond that portion which is expected to offset current taxes. As of December 31, 2020, the Company’s Federal income tax
payable would be $12,477 and State Income Tax payable would be $5,347 if this had not been offset by the deferred tax assets.
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 did not have a deferred tax liability at December 31, 2020 and December 31, 2019.
As
of December 31, 2020, and December 31, 2019, the Company had no accrued interest or penalties because there were none.
The Company had no Federal or State tax examinations in the past nor does it have any at the current time.
Fair
value of financial instruments
The
carrying amounts of financial instruments, which include cash, accounts receivable, accounts payable and accrued expenses approximate
their fair values due to their short-term nature.
New
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 Company
is obligated to grant 67,000 shares of non-trading, restricted Common Stock per month. Additionally, Mr. Simpson
is entitled to an annual bonus comprised of cash and non-trading, restricted 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 non-trading, restricted Common Stock per year through
March 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 twelve months ended December 31, 2020, the CEO was issued 804,000 Restricted and Non-Trading shares of Common Stock under
the terms of the Simpson Agreement for the stock portion of his annual compensation. Refer to Note 4 – Restricted Stock
Issuances.
During
the first quarter of 2020, Mr. Simpson exercised stock options to purchase 156,250 non-trading, restricted shares at $0.16 per
share and the total exercise price of $25,000 reduced the accrued salary owed to him. Refer to Note 4 for the explanation of the
conversions. He was paid in cash for the second and fourth quarters, and for the month of September. Mr. Simpson received 108,696
non-trading, restricted shares in lieu of cash payments.
The
“Simpson Agreement” is the only executive employment agreement in effect as of December 31, 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 $25,773 and $27,648 for the year ended December
31, 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.
Restricted
Stock Issuances
During
the year ended December 31, 2020, 1,383,946 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 804,000 shares of Restricted and Non-Trading Common Stock for the stock portion of his annual salary. A Director
was issued 90,000 shares of non-trading, restricted Common stock as an award for continuing to serve as a Director of the
Company. The Corporate Controller was also issued 225,000 shares of non-trading, restricted Common stock for her
annual stock bonus. The value of these shares was recorded as a component of compensation expense.
On
December 8, 2020 the Company’s Board of Directors signed a unanimous consent to convert Mr. Simpson’s accrued salary
payable for the months of July and August amounting $10,000 to 108,696 non-trading, restricted shares in lieu of cash payments.
This reduced the salary payable to the CEO by the same amount.
Advisory
Services
On
October 3, 2013, the Company entered into an agreement for strategic business advisory services, public relations services and
investor relations services with Ian Thompson from Carricklee House, Strabane, Northern Ireland.
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 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 to 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. Empire Stock Transfer, Inc, the Company’s transfer agent was directed
to process cancellation requests regarding the certificates listed below. The Board of Directors approved the Company’s
irrevocable agreement to indemnify the Transfer Agent for all loss, liability or expense in carrying out the authority and direction
contained on the terms of the Unanimous Written Consent to terminate the Thompson Agreement. The Transfer Agent shall maintain
the right to uphold the transfer in the event of forgery.
Certificate
No(s)
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Registered
To
|
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No.
of Shares
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CANCELLED
|
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No.
of Shares
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|
605
|
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Ian
Thompson
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50,000
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CANCELLED
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50,000
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606
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Ian
Thompson
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50,000
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CANCELLED
|
|
50,000
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|
607
|
|
Ian
Thompson
|
|
50,000
|
|
CANCELLED
|
|
50,000
|
|
608
|
|
Ian
Thompson
|
|
50,000
|
|
CANCELLED
|
|
50,000
|
|
610
|
|
Ian
Thompson
|
|
167,204
|
|
CANCELLED
|
|
167,204
|
|
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.
On
December 10, 2020 the Company purchased 100,000 shares of its restricted common stock from one shareholder for cancellation. The
Company paid $9,800 or $0.098 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
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 non-trading,
restricted 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. There are no options outstanding from this plan as of December 31, 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. There are 505,608 options outstanding from this plan as of December 31, 2020, and 661,858 options were
outstanding as of December 31, 2019.
Stock
Option Activity
On
February 25, 2019, Mr. Simpson exercised options to purchase 222,000 shares of Non-Trading, Restricted, Common Stock at $0.255
per share and the accrued payroll owed to him was reduced by $56,610. On the same date, two directors who had 35,000 options each
were issued a total of 70,000 shares of non-trading, restricted Common Stock following the resolution to terminate the
2012 Incentive Plan.
On
August 13, 2019, Mr. Simpson exercised options to purchase 93,750 shares of Non-Trading, Restricted, Common Stock at $0.16 per
share. The total exercise value is $15,000 and this reduced a non interest loan payable balance to the CEO to $0.
On
November 1, 2019, Mr. Simpson exercised options to purchase 239,938 shares of Non-Trading, Restricted, Common Stock at $0.16 per
share. The total exercise value is $38,390 and the accrued payroll owed to him was reduced by the same amount.
On
January 14, 2020, Mr. Simpson exercised options to purchase 93,750 Restricted and Non-trading shares at $0.16 per share. The total
exercise value was $15,000 and this reduced the accrued salary payable to the CEO by the same amount.
On
March 6, 2020, Mr. Simpson exercised 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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Days to Expiration
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Exercise Price
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|
Options
|
|
Outstanding, December 31, 2019
|
|
Glenn Simpson
|
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4/6/2022
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|
|
827
|
|
|
$
|
0.16
|
|
|
|
661,858
|
|
Exercised
|
|
Glenn Simpson
|
|
4/6/2022
|
|
|
736
|
|
|
$
|
0.16
|
|
|
|
(156,250
|
)
|
Outstanding, December 31, 2020
|
|
Glenn Simpson
|
|
4/6/2022
|
|
|
461
|
|
|
$
|
0.16
|
|
|
|
505,608
|
|
Exercisable, December 31, 2020
|
|
Glenn Simpson
|
|
4/6/2022
|
|
|
461
|
|
|
$
|
0.16
|
|
|
|
505,608
|
|
During
the years ended December 31, 2020 and 2019, compensation expense related to stock options was $0. As of December 31, 2020, there
was no unrecognized compensation cost related to non-vested stock options.
NOTE
6 – CONCENTRATIONS
Major
Customers
During the year ended December 31, 2020, the
Company had three customers that accounted for 80% of revenue. The increase in the concentration percentage is due
to the shut down of customers that were affected by the COVID-19 mandated closures. Accounts receivable at December 31,
2020 from these three customers amounted to $45,193. For the year ended December 31, 2019, there were two
major customers accounting for 48% of total revenue.
Major
Suppliers
During
the year ended December 31, 2020, the Company purchased its inventory from two suppliers. The Company has established relationships
with other suppliers which management believes could meet its needs on similar terms. Accounts payable at December 31, 2020 to
both suppliers was $20,672.
NOTE
8 – 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.
NOTE
9 – 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.
On
May 27, 2020, the Company received grant proceeds in the amount of $2,000 under the Economic Injury Disaster Loan (“EIDL”)
Program. This grant was recorded as other income during the second quarter of 2020. 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.
On
December 18, 2020, the Company applied for the loan forgiveness for the loan proceeds amounting $35,508 under the Paycheck Protection
Program. The Company believes it has met the criteria for forgiveness and should receive that determination from the US Treasury.
NOTE
10 – SUBSEQUENT EVENTS
The
Company received the loan forgiveness decision from the SBA in January 2021. The full amount of the loan proceeds amounting $35,508
was forgiven.