EQUATOR Beverage Co - Quarter Report: 2013 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2013
o Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to__________
Commission File Number: 333-148190
MOJO Organics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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26-0884348
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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101 Hudson Street, 21st Floor, Jersey City, New Jersey 07302
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(Address of principal executive offices)
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(201) 633-6519
(Registrant’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes x No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
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o
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Large accelerated filer Accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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x
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,148,589 shares of common stock as of October 7, 2013.
TABLE OF CONTENTS
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Page
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PART I – FINANCIAL INFORMATION
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ITEM 1.
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F-1
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F-2
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F-3
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F-4
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ITEM 2.
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3
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ITEM 3.
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5
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ITEM 4.
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5
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PART II – OTHER INFORMATION
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ITEM 1.
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6
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ITEM 1A.
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6
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ITEM 2.
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6
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ITEM 3.
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6
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ITEM 4.
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6
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ITEM 5.
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6
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ITEM 6.
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7
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8
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MOJO ORGANICS, INC.
Condensed Consolidated Balance Sheets
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ASSETS
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September 30,
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December 31,
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2013
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2012
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(unaudited)
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 46,256 | $ | 1,379 | ||||
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Accounts Receivable
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30,332 | - | ||||||
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Inventory
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247,163 | 22,820 | ||||||
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Supplier deposits
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99,992 | - | ||||||
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Prepaid expenses
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26,835 | 5,807 | ||||||
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Total Current Assets
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450,578 | 30,006 | ||||||
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PROPERTY AND EQUIPMENT, net of accumulated depreciation
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4,882 | 2,243 | ||||||
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OTHER ASSETS
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Security deposit
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5,798 | 5,798 | ||||||
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TOTAL ASSETS
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$ | 461,258 | $ | 38,047 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
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Accounts payable and accrued expenses
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$ | 105,363 | $ | 349,729 | ||||
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Notes payable to related parties
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- | 187,500 | ||||||
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Total Current Liabilities
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105,363 | 537,229 | ||||||
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Commitments and Contingencies
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STOCKHOLDERS' EQUITY (DEFICIT)
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Preferred stock, 10,000,000 shares authorized at $0.001 par value
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- | - | ||||||
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Common stock, 190,000,000 shares authorized at $0.001 par value, 11,731,385 and 8,551,265 shares issued and outstanding, respectively
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11,731 | 8,551 | ||||||
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Additional paid in capital
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12,487,029 | 9,838,024 | ||||||
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Accumulated deficit
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(12,142,865 | ) | (10,345,757 | ) | ||||
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Total Stockholders' equity (deficit)
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355,895 | (499,182 | ) | |||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$ | 461,258 | $ | 38,047 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
MOJO ORGANICS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months ended September 30,
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Nine Months ended September 30,
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2013
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2012
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2013
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2012
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Revenues
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$ | 186,391 | $ | - | $ | 186,391 | $ | - | ||||||||
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Cost of Revenues
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166,664 | - | 166,664 | - | ||||||||||||
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Gross Profit
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19,727 | - | 19,727 | - | ||||||||||||
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Operating Expenses
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General and administrative
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731,675 | 417,707 | 1,813,228 | 818,082 | ||||||||||||
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Total Operating Expenses
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731,675 | 417,707 | 1,813,228 | 818,082 | ||||||||||||
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Loss from Operations
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(711,948 | ) | (417,707 | ) | (1,793,501 | ) | (818,082 | ) | ||||||||
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Other Expenses
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Interest expense
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- | - | 1,658 | - | ||||||||||||
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Loss on change in fair value of derivative liabilities
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- | - | 1,949 | - | ||||||||||||
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Total Other Expenses
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- | - | 3,607 | - | ||||||||||||
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Loss Before Provision for Income Taxes
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(711,948 | ) | (417,707 | ) | (1,797,108 | ) | (818,082 | ) | ||||||||
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Provision for Income Taxes
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- | - | - | - | ||||||||||||
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Net Loss
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$ | (711,948 | ) | $ | (417,707 | ) | $ | (1,797,108 | ) | $ | (818,082 | ) | ||||
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Preferred stock dividend
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- | - | 158,463 | - | ||||||||||||
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Net Loss available to common stockholders
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$ | (711,948 | ) | $ | (417,707 | ) | $ | (1,955,571 | ) | $ | (818,082 | ) | ||||
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Net loss available to common stockholders, basic and fully diluted
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$ | (0.06 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.14 | ) | ||||
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Basic and diluted weighted average number of common shares outstanding
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11,654,360 | 8,242,965 | 10,141,011 | 5,923,281 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
MOJO ORGANICS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Nine Months Ended September 30,
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2013
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2012
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Cash flows from operating activities:
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Net loss
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$ | (1,797,108 | ) | $ | (818,082 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation
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1,029 | 224 | ||||||
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Share-based compensation
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1,306,820 | 685,827 | ||||||
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Stock issued for compensation and consulting services
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59,900 | |||||||
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Loss on change in fair value of derivative liabilities
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1,949 | - | ||||||
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Changes in assets and liabilities:
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Increase in accounts receivable
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(30,332 | ) | ||||||
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Increase in inventory
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(224,343 | ) | - | |||||
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Increase in supplier deposits
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(99,992 | ) | - | |||||
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Increase in prepaid expenses
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(21,028 | ) | - | |||||
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Increase in security deposits
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- | (5,798 | ) | |||||
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Increase (decrease) in accounts payable and accrued expenses
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(59,597 | ) | 73,718 | |||||
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Net cash used in operating activities
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(862,702 | ) | (64,111 | ) | ||||
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Net cash from investing activities:
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Purchases of property and equipment
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(3,236 | ) | (2,854 | ) | ||||
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Net cash used in investing activities
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(3,236 | ) | (2,854 | ) | ||||
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Net cash from financing activities:
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Notes payable to related parties
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50,000 | 67,500 | ||||||
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Issuance of preferred stock
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412,134 | - | ||||||
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Issuance of common stock
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448,681 | - | ||||||
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Net cash provided by financing activities
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910,815 | 67,500 | ||||||
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Net increase in cash and cash equivalents
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44,877 | 535 | ||||||
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Cash and cash equivalents at beginning of period
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1,379 | - | ||||||
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Cash and cash equivalents at end of period
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$ | 46,256 | $ | 535 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Interest paid
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$ | 7,262 | $ | - | ||||
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Taxes paid
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$ | - | $ | - | ||||
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NON CASH INVESTING AND FINANCING ACTIVITIES:
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Preferred stock issued for the conversion of notes payable to related parties
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$ | 378,700 | $ | - | ||||
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Accrued compensation converted to notes payable to related parties
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$ | 196,200 | $ | - | ||||
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Common stock issued for the conversion of notes payable to related parties
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$ | 55,000 | $ | - | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
MOJO ORGANICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Overview
Headquartered in Jersey City, New Jersey, MOJO Organics, Inc. (the “Company” or “MOJO”) is incorporated in Delaware. The Company engages in product development, production, marketing and distribution of CHIQUITA TROPICALS™. CHIQUITA TROPICALS™ are a 100% fruit juice, produced under license agreement from Chiquita Brands L.L.C. (“Chiquita”). The mission of MOJO is to promote a better-for-you lifestyle for everyone through affordable natural ingredient beverages and organic ingredient beverages.
Basis of Presentation
In 2012, the accompanying condensed consolidated financial statements include the accounts of the Company and MOJO Organics Operating Company, Inc., its wholly owned subsidiary ("MOJO Operating"). All significant inter-company accounts and transactions were eliminated in consolidation.
In 2013, the Company determined that the assets assigned to MOJO Operating, including the Dispensing Cap technology and Pinch sweetener, had no economic value. Further, MOJO Operating has been dormant subsequent to the 2011 split off transaction, through which MOJO sold a portion of its business to certain of its shareholders and was deemed to be a voided entity for regulatory purposes. MOJO Operating will no longer be considered an entity under the Company's control for consolidation purposes.
Interim Consolidated Financial Statements
The accompanying unaudited interim condensed consolidated 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 consolidated 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 consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated 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, 2013 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management 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, certificate of deposits and time deposits purchased with a maturity of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.
Supplier Deposits
Supplier Deposits consist of prepaid inventory for which the Company has not yet taken delivery.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed using the straight line method over the estimated lives of the respective assets. Computer equipment is depreciated over a period of 3 to 5 years. Maintenance and repairs are charged to expense when incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is credited or charged to income.
Preferred Stock Classification
Preferred Stock issued by the Company which meets certain redemption or conversion features is classified as temporary or mezzanine capital in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) topic 480, “Distinguishing Liabilities from Equity.”
Revenue Recognition
Revenues from sales of products are recognized at the time of delivery when title and risk of loss passes to the customer. Recognition of revenue also requires reasonable assurance of collection of sales proceeds.
Net Loss Per Common Share
The Company computes per share amounts in accordance with ASC Topic 260, “Earnings per Share.” ASC Topic 260 requires presentation of basic and diluted EPS. 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 conversion of Series A Preferred Stock was excluded from the computation of diluted shares outstanding for the nine months ended September 30, 2013. The loss for the period would have had an anti-dilutive impact on the Company’s net loss per common share.
Start-Up Costs
In accordance with ASC topic 720-15, “Start-Up Costs,” the Company charges all costs associated with its start-up operations to income as incurred.
Income Taxes
The Company provides for income taxes under ASC topic 740, “Income Taxes,” which requires the use of an 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.
ASC 740 also requires the reduction of deferred tax assets 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.
Tax returns for the years from 2009 to 2012 are subject to examination by tax authorities.
Stock-Based Compensation
ASC Topic 718, “Accounting for Stock-Based Compensation,” prescribes accounting and reporting standards for all 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. For non-employee options and warrants, the company uses the fair value method as prescribed in ASC Topic 718.
Derivative Instruments
The Company’s derivative liabilities are related to embedded conversion features issued in connection with the Series A Preferred Stock. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in fair value recognized in earnings each reporting period. The Company uses the Black-Scholes model to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end of each reporting period, in accordance with ASC Topic 815, “Derivatives and Hedging.” Derivative instrument liabilities are classified in the consolidated balance sheets as current or non-current based upon whether or not the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Fair value of financial instruments
The carrying amounts of financial instruments, which include accounts payable, accrued expenses and debt obligations approximate their fair values due to their short-term nature and/or variable interest rates. The Company’s debt obligations bear interest at rates which approximate prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instruments approximate fair value.
The Company adopted ASC Topic 820, "Fair Value Measurement," which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:
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·
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Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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·
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Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
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·
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Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
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The Company did not have any assets or liabilities measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 derivative liabilities related to the Series A Preferred Stock for the nine months ended September 30, 2013:
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Balance, January 1, 2013
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$
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-
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Recognition of embedded derivative liabilities
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158,463
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Reclassification of liability upon conversion of notes
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(160,412
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)
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Change in fair value of derivative liabilities
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1,949
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Balance, September 30, 2013
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$
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-
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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 consolidated financial statements.
NOTE 3 – GOING CONCERN
The Company's financial statements are prepared using GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. For the nine months ended September 30, 2013, the Company incurred a net loss $1,797,108. At September 30, 2013, the Company had working capital $345,215 and accumulated losses of $12,142,865, which includes accumulated losses from discontinued operations of $8,576,094. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company from third parties through the sale of equity and/or debt financing sufficient to meet its minimal operating expenses. Management cannot, however, provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 – INVENTORY
As of September 30, 2013, inventory consisted of finished goods of $117,194 and raw materials of $129,969. At December 31, 2012, the inventory balance of $22,820 consisted of raw materials.
NOTE 5 – SERIES A CONVERTIBLE PREFERRED STOCK
On January 12, 2013, the Company entered into an amended and restated securities purchase agreement for the offer and sale of its Series A Convertible Preferred Stock, par value $0.001 (“Series A Preferred Stock”) at a price of $4.00 per share. In connection with the private sale of its Series A Preferred Stock, the Company raised gross proceeds of $790,834, including $378,700 from the conversion of promissory notes. Each share of Series A Preferred Stock was convertible into 10 shares of the Company’s Common Stock determined by dividing $4.00 by the conversion price of $0.40.
The Series A Preferred Stock includes embedded anti-dilutive provisions that meet the defined criteria of a derivative liability as described in ASC 815 and therefore require bifurcation. These embedded derivatives include certain conversion features indexed to the Company's Common Stock. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related items at their fair values as of the date of issue and at fair value as of each subsequent balance sheet date. Changes in the fair value are charged to income at the end of each reporting period.
During the nine months ended September 30, 2013, a total of 197,708.5 shares of the Series A Preferred Stock had been converted into 1,977,085 shares of Common Stock. As of September 30, 2013 and December 31, 2012, there were zero shares of Series A Preferred Stock issued and outstanding
NOTE 6 – STOCKHOLDERS’ EQUITY
The Company has authorized 190,000,000 shares of common stock with a par value of $0.001 (“Common Stock”) and 10,000,000 shares of preferred stock with a par value of $0.001 (“Preferred Stock”).
Common stock
On April 1, 2013, the Company effected a one-for-ten reverse stock split (“Reverse Split”) of the issued and outstanding shares of Common Stock. The number of authorized shares and the par value of the Common Stock were not changed. The accompanying financial statements have been restated to reflect the Reverse Split.
On May 1, 2013, the Company commenced a private placement offering of up to 1,250,000 shares of its Common Stock (“Private Placement”), at a price of $0.40 per share pursuant to subscription agreements entered into with each investor. As of June 18, 2013, the last date of the offering, 1,171,705 shares of Common Stock were sold, raising an aggregate of $468,574, which amount includes $20,000 of notes outstanding.
As discussed in Note 5, the Company issued 1,977,085 shares of Common Stock during the nine months ended September 30, 2013 in connection with the conversion of 197,708.5 shares of Series A Preferred Stock.
Restricted Stock Compensation
On February 17, 2012, the Company issued 100,000 shares of restricted Common Stock to a director. These shares are fully vested. On May 21, 2012, the Company issued an aggregate of 4,232,462 shares of restricted Common Stock to certain of its directors, executive officers and employees. Of such shares, 6,624 shares were forfeited upon termination of services prior to meeting vesting conditions set forth in the relevant restricted stock agreement, 88,309 shares have vested and the remaining shares remain subject to forfeiture in accordance with the terms of a restricted stock agreement or amended and restated restricted stock agreement, as the case may be. On July 25, 2012, an additional 221,053 shares were issued. These shares are subject to forfeiture in accordance with the terms of the advisor’s amended and restated restricted stock agreement covering such shares, none of which have vested. 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. In connection with the restricted stock issuances, compensation expense of $1,281,462 and $685,827 was recorded during the nine months ended September 30, 2013 and 2012, respectively.
Stock Incentive Plans
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 other stock-based awards for up to an aggregate of 2,050,000 shares of Common Stock.
Advisory Services
On November 28, 2012, the Company entered into an Advisor Agreement to provide strategic business advisory services and assist the Company in networking and capital formation. As compensation for these services, the Company agreed to the issuance of 500,000 shares of Common Stock of the Company, 50% of which was issuable upon execution of the agreement and 50% of which is issuable upon the six month anniversary of the execution of the Advisor Agreement. Accordingly, the Company issued 250,000 shares of Common Stock in 2012. The advisory services agreement has since been terminated and therefore the remaining 250,000 shares have not been, and will not be, issued.
In August and September 2013, the Company issued shares of Common Stock to two firms providing legal services to the Company in lieu of cash. The total number of shares issued was 20,000 shares.
Consultant Compensation
The Company entered into an agreement with a consultant whereby the Company would compensate the consultant for services rendered in Common Stock in lieu of cash. During August and September, 2013, the Company issued 3,331 shares of Common Stock in lieu of $8,400. The number of shares issued was based upon the last sale price of the Company’s Common Stock on the last day of the month.
Officer Compensation
During August and September, 2013, the Company converted salary owed to an officer of the Company into promissory notes equal to $18,500 and $16,500, respectively. The notes were subsequently converted into 14,573 shares of Common Stock.
NOTE 7 – STOCK OPTIONS
Stock Incentive Plans
In July 2013, the Company granted certain directors and employees of the Company stock options pursuant to the 2012 Plan to purchase 210,000 shares of Common Stock at an exercise price of 115% of the last sale price of the Common Stock on the date of grant. The options vest in July 2014 and expire in July 2015. In connection with the stock option issuances, compensation expense of $25,358 was recorded during the nine months ended September 30, 2013.
The following table summarizes stock option activity under the Plans:
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Number of
shares
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Weighted-
average
exercise
price
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Weighted-average
remaining
contractual term
(in years)
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Outstanding at December 31, 2012
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-
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$
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-
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Granted
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210,000
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$
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2.07
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Forfeited
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Outstanding at September 30, 2013
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210,000
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$
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2.07
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0.75
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Exercisable at September 30, 2013
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-
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$
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-
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-
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||||||||
As of September 30, 2013, there was $76,075 of total unrecognized compensation cost related to non-vested stock options. That cost will be recognized ratably over the next 3 quarters.
The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued for the nine months ended September 30, 2013 and 2012:
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September 30,
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2013
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2012
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Volatility
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81 | % | - | |||||
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Expected term (years)
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1 | - | ||||||
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Risk-free interest rate
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0.15 | % | - | |||||
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Dividend yield
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0 | % | - | |||||
NOTE 8 – RELATED PARTY TRANSACTIONS
During 2012, various expenses of the Company, including advances for operating purposes, had been paid for or made by officers and shareholders of the Company. At December 31, 2012, amounts due to related parties totaled $187,500 in notes payable. The notes bore interest at rates varying between 8% and 10% and were due on September 15, 2013. The notes contain a conversion feature which allows the holders, at their sole discretion, to convert some or all of the principal amount of their note outstanding into equity or debt securities issued by the Company in connection with any offering made by the Company during the period that the principal amount of the note is outstanding. The conversion terms would be identical to the offering terms.
In January 2013, the Company received an additional advance of $50,000. On January 31, 2013, the balance of notes outstanding of $237,500 was converted into 59,375 shares of Series A Preferred Stock. Accrued interest of $7,262 was paid to the holders of the notes.
In March 2013, the officers of the Company converted salary amounts due to them of $141,200 into notes. The notes were then converted into 35,300 shares of Series A Preferred Stock. As a result of the conversions, there were no amounts due to related parties at June 30, 2013.
During May 2013, salary owed to an officer of the Company was converted into a $20,000 promissory note. The note was subsequently converted into 50,000 shares of Common Stock as part of the Private Placement.
During August and September 2013, the Company converted salary owed to an officer into promissory notes equal to $18,500 and $16,500, respectively. The notes were converted into 14,573 shares of Common Stock.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company entered into an office service agreement for office space for a term of 12 months expiring April 16, 2013. The base monthly office fee under the agreement was $2,899. The Company currently rents its office space for $3,019 per month on a month-to-month basis.
License Agreement
On August 15, 2012, the Company entered into a license agreement (“License Agreement”) with Chiquita for the use of Chiquita’s marks in the manufacture, sale, promotion, marketing, advertising and distribution of certain fruit juice products in select containers. The License Agreement grants the Company an exclusive license in New York, New Jersey and Connecticut and a non-exclusive license for the other states in the United States. The Company will pay Chiquita royalties for products sold under the License Agreement.
The term of the License Agreement is for seven years from July 2013, (the date that the Company first invoiced customers for products sold under the License Agreement), subject to the Company meeting certain minimum sales volume and/or minimum royalty payments. Termination of the License Agreement would have a material and adverse impact on MOJO’s business.
NOTE 10 – 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 consolidated 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 consolidated financial statements as of September 30, 2013. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred through the date these consolidated financial statements were issued.
On October 3, 2013, the Company entered into an advisor agreement whereby the Company would receive strategic business advisory services, distributorship advisory services, sales and sales channel advisory services and investor relation advisory services in exchange for the issuance of 50,000 shares of restricted Common Stock. The Common Stock vests six months from the date of the agreement. In connection with this issuance, the Company will record $150,000 in consulting fees, which is based upon the last sales price of the Common Stock on October 3, 2013 of $3 per share. The consulting fees will be recorded as follows: $75,000 in the last quarter of 2013, and $75,000 in the first quarter of 2014.
Also on October 3, 2013, the Company entered into an agreement for strategic business advisory services, public relations services and investor relations services. In connection with this agreement, the Company issued 167,204 shares of restricted Common Stock. The stock is fully vested and will result in a consulting charge of $501,612 in the last quarter of 2013. The advisor was also issued an additional 200,000 shares of restricted Common Stock, which will vest quarterly based upon the Company reaching certain market capitalization and revenue goals. Should the Company not reach these goals, the additional shares will be forfeited.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report includes a number of forward looking statements that reflect the Company’s current views with respect to future events and financial performance. Forward looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward looking statements, which apply only as of the date of this quarterly report. These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or the Company’s predictions.
COMPANY OVERVIEW
Headquartered in Jersey City, New Jersey, the Company engages in product development, production, marketing and distribution of CHIQUITA TROPICALS™. CHIQUITA TROPICALS™ are a 100% fruit juice produced under license agreement from Chiquita Brands L.L.C. The mission of MOJO is to promote a better-for-you lifestyle for everyone with affordable natural ingredient beverages and organic ingredient beverages.
The CHIQUITA TROPICALS™ label tells the story of our juice with easy to read icons: zero added sugar, no preservatives, naturally low sodium, vegan, naturally gluten free, non-genetically modified and kosher. Such attributes are what consumers want today in a beverage. Because of the way we bottle our juice, it does not require refrigeration before opening.
We believe in safe and sustainable corporate practices. We are proud to use Rainforest Alliance Certified fruits, which help the farmers and their families while being environmentally, socially and economically sustainable.
Current Operations
CHIQUITA TROPICALSTM 100% fruit juices first became commercially available in the New York tri-state area in late July 2013. The Company currently produces four exotic juice flavors: Banana Strawberry, Mango, Passion Fruit and Pineapple.
The Company has appointed ESM Ferolie as its sales and marketing broker for the northeast and mid-atlantic states. Additionally, MOJO has entered into agreements with distributors, resulting in the placement of CHIQUITA TROPICALSTM in hundreds of retail outlets. In addition, MOJO began selling its products on Amazon.com in August 2013.
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 2013 and September 30, 2012
Revenues
The Company commenced production of CHIQUITA TROPICALSTM in June 2013 and began selling its products in July 2013. Revenues for the three months and nine months ended September 30, 2013 were $186,391. The Company had no revenues for the three months and nine months ended September 30, 2012.
Cost of Revenues
For the three months and nine months ended September 30, 2013, cost of revenues was $166,664, or 89% of sales. Cost of revenues includes production costs and raw material costs.
Total operating expenses
For the three months ended September 30, 2013 and 2012, operating expenses were $731,675 and $417,707, respectively. This increase of $313,968, or 75% is attributable to various expenses, including employee compensation, start- up costs, marketing and professional fees.
During the three months ended September 30, 2012, the Company incurred no payroll costs. During the three months ended September 30, 2013, salary related expenses amounted to $80,684. Start-up costs of $46,884 were incurred during the three months ended September 30, 2013, compared to zero during the same period of 2012. These costs include product testing as well as costs and adjustments related to the optimization of production. These costs are expected to become smaller as the Company begins producing greater quantities of juice. During the three months ended September 30, 2013, the Company spent $46,731 on marketing expenses and samples, compared to zero in the prior year. Additionally, professional fees increased $32,729 during the three months ended September 30, 2013 over the three months ended September 30, 2012. The Company issued Common Stock as payment of $40,500 in legal fees in 2013.
For the nine months ended September 30, 2013, operating expenses were $1,813,228, an increase of $995,146 over the nine months ended September 30, 2012. The largest component of this difference is due to an increase in stock based compensation costs of $620,993 during the nine months ended September 30, 2013 compared to the same period in 2012. The Company records compensation expense as the restricted stock issuances vest. A large amount of stock was issued in May 2012, resulting in a smaller period of vesting in 2012 compared to 2013. In addition, the Company incurred costs related to the issuance of stock options in 2013, which cost was zero in 2012. Another large component of the increase in operating expenses is $247,266 in employee compensation related costs during the nine months ended September 30, 2013 compared to zero for the same period of 2012. Start- up costs of $80,639 were recorded in 2013 compared to zero in the corresponding period of 2012. The balance of the increase is comprised of increases in various expenses.
Net Loss
The Company’s net loss for the three months ended September 30, 2013 and 2012 was $711,948 and $417,707, respectively. The increase of $294,241 corresponds with the increase in operating expenses of $313,968, offset by the Company’s gross profit of $19,727.
For the nine months ended September 30, 2013 and 2012, net losses were $1,797,108 and $818,082, respectively. The increased loss of $979,026 corresponds with the increase in operating expenses, net of gross profit, for the same period.
The Company’s accumulated deficit as of September 30, 2013 was $12,142,865, which includes accumulated losses from discontinued operations of $8,576,094.
Liquidity and Capital Resources
As of September 30, 2013, the cash balance was $46,256, an increase of $44,877 over the December 31, 2012 balance of $1,379. The Company received cash proceeds from the sale of its Series A Preferred Stock of $412,134 during the nine months ended September 30, 2013. In addition, cash proceeds of $448,682 were realized as a result of the Company’s private placement offering in May and June 2013. The aggregate amount realized from these two offerings was $860,716. The Company utilized $283,858 for the production of finished goods and $190,169 for the purchase of raw materials, which are currently available for future production. The balance of the proceeds, net of the increase to the cash balance, was used to pay expenses of the Company.
Working Capital Needs
At the current level of operations, there is insufficient cash to meet the expenses of the Company for the next six months. The Company expects that it will need to obtain additional capital in order to maintain public company regulatory requirements and execute its business plan, build its operations and become profitable.
The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. MOJO may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, MOJO may be unable to implement its current plans which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of September 30, 2013.
GOING CONCERN
The Company’s financial statements are prepared using GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company’s auditors have indicated that its ability to continue as a going concern is dependent on its obtaining adequate capital to fund operating losses until the Company becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company from third parties through the sale of equity and/or debt financing sufficient to meet its minimal operating expenses. Management cannot, however, provide any assurances that the Company will be successful in accomplishing any of these plans.
The Company’s ability to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if MOJO is unable to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Under the supervision and with the participation of the Company’s senior management, consisting of Glenn Simpson, the Company’s principal executive and financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, the Company’s principal executive and financial officer concluded, as of the Evaluation Date, that the Company’s disclosure controls and procedures were effective.
As previously reported, the Company does not have an audit committee and is not currently obligated to have one. Although it remains management’s view that such a committee is an important internal control over financial reporting, management does not believe that the lack of an audit committee could result in a material misstatement in the Company’s financial statements in the near future. Accordingly, management has concluded that this deficiency alone does not constitute a material weakness in the Company’s internal control over financial reporting, and has considered the foregoing in its determination that the Company’s disclosure controls and procedures were effective as of the Evaluation Date.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 22, 2013, the Company issued 10,000 shares of its Common Stock to its current legal counsel in consideration of services rendered. Such shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Act.
On September 26, 2013, the Company issued 10,000 shares of its Common Stock to its former legal counsel in consideration of services rendered. Such shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Act.
On September 30, 2013, the Company issued an aggregate of 3,331 shares of its Common Stock to a consultant of the Company as payment of her consulting fees for services provided in August (1,750 shares at $2.00 per share) and September (1,581 shares at $3.10 per share). Shares due in payment of such fees for each month were valued at the last sale price of the Company’s Common Stock on the last trading day of the subject month. Such shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Act.
On September 30, 2013, the Company issued an aggregate of 14,573 shares of its Common Stock to its chief executive officer as payment for amounts of the officer’s base salary due and owing under his employment agreement for the months of August (9,250 shares at $2.00 per share) and September (5,323 shares at $3.10 per share). The shares were valued at the last sale price of the Company’s Common Stock on the last trading day of the subject month. Such shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS
The following Exhibits are being filed with this Quarterly Report on Form 10-Q:
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Exhibit No.
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Description
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10.1
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Form of Stock Option Agreement under the 2012 Long-Term Incentive Equity Plan (1)
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31.1/31.2
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*
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32.1/32.2
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*
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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* Furnished herewith. This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
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(1)
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Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
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In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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MOJO ORGANICS, INC.
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Dated: October 9, 2013
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By:
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/s/Glenn Simpson
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Glenn Simpson, Chief
Executive Officer and Chairman
(Principal Executive and Principal
Financial and Accounting Officer)
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