EQUATOR Beverage Co - Quarter Report: 2015 September (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q 

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2015

OR

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number: 000-55269

Registrant’s telephone number: 201 633 6519

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding past 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. Yes  ☒     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).  Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of the “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐   No ☒

On October 7, 2015, there were 17,883,881 shares of the registrant's common stock, par value $0.001, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

MOJO ORGANICS, INC.

Notes to Condensed Financial Statements

September 30, 2015

NOTE 1 – BUSINESS

Overview

Headquartered in Jersey City, NJ, MOJO Organics, Inc. (“MOJO” or the “Company”) develops emerging beverage brands that are natural, USDA Organic and non-genetically modified (“Non GMO”). The Company has developed a line of coconut water beverages which are tropically flavored as well as natural, organic and Non GMO. The Company expects to launch these beverages in October 2015.

Since July 2013, the Company has produced 100% tropical fruit juices, under a license branding agreement (the “License Agreement”) from Chiquita Brands L.L.C. (“CBLLC”). The License Agreement was terminated effective September 27, 2015 and the Company has the right to sell its products through October 2015. See Note 5 to the Notes to Condensed Financial Statements.

Interim Financial Statements

The accompanying unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q  and article 10 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited interim condensed financial statements included in this document have been prepared on the same basis as the annual audited financial statements, and in the Company’s opinion, reflect all adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the nine months ended September 30, 2015 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, 2014 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.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides for probable uncollectible amounts based upon its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of September 30, 2015 and December 31, 2014 was $7,726 and zero, respectively.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market. When necessary, the Company provides allowances to adjust the carrying value of its inventories to the lower of cost or net realizable value. 

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 useful life 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.  At September 30, 2015 and December 31, 2014, accumulated depreciation related to property and equipment was $2,845 and $5,539, respectively.

Revenue Recognition

Revenue from sales of products are recognized when title and risk of loss passes to the customer.  Recognition of revenue also requires reasonable assurance of collection of sales proceeds.

Deductions from Revenue

Costs incurred for sales incentives and discounts are accounted for as a reduction in revenue. These costs include payments to customers for performing merchandising activities on our behalf, including in-store displays, promotions for new items and obtaining optimum shelf space.

Shipping and Handling Costs

Shipping and Handling Costs incurred to move finished goods from our sales distribution centers to customer locations are included in the line Selling, General and Administrative Expenses in our Statements of Operations.

Net Loss Per Common Share

The Company computes per share amounts in accordance with the 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 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 following potentially dilutive securities have been excluded from the computation of weighted average shares outstanding for the nine months ended September 30, 2015 and 2014, as they 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 Topic 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 2010 to 2014 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.

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 Topic 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 Topic 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 Topic 820 describes the following three levels of inputs that may be used:

The Company did not have any assets or liabilities measured at fair value on a recurring basis at September 30, 2015 or December 31, 2014. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2015 or 2014.

New Accounting Pronouncements

In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which creates ASC Topic 606, “Revenue from Contracts with Customers”, and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts,” and creates new Subtopic 340-40, “Other Assets and Deferred Costs—Contracts with Customers.” In summary, the core principle of ASC Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. Therefore the amendments in ASU 2014-09 will become effective for us as of the beginning of our 2017 fiscal year. The Company is currently assessing the impact of implementing the new guidance.

In June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period must be treated as a performance condition.

A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015.  Earlier adoption is permitted.  The Company is currently evaluating the impact of the adoption of ASU 2014-12 on the Company's financial statements.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards.

Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of

management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying 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 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, 2015, the Company had no inventory. As of December 31, 2014, inventory consisted of finished goods of $308,708 and raw materials of $136,620.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company maintains office space in Jersey City, New Jersey. The Company leases the space from a third-party pursuant to a lease agreement dated May 1, 2015 at a rate of $1,389 per month.  This agreement will terminate on April 30, 2016.

Licensing Agreement

On March 27, 2015, pursuant to the terms of the License Agreement, CBLLC provided the Company with written notice of termination effective September 27, 2015. The notice (i) provided the Company with a right of sell off of existing inventory of the licensed products through October 31, 2015 and (ii) demanded payment by the Company of liquidated damages and royalties in the amount of $2,283,089.

On May 29, 2015, the Company and CBLLC settled the termination terms of the License Agreement via letter agreement. For the three months ended March 31, 2015, the Company recorded license fees of $260,786 and

liquidating damages of $1,515,076, resulting in a charge to income of $1,775,862. As a result of the settlement reached, the Company recorded income of $2,253,085 during the three months ended June 30, 2015. The Company recorded additional settlement fees of $60,000 during the three months ended September 30, 2015. The aggregate of all of these transactions reflect a credit to income of $477,223 for the nine months ended September 30, 2015. 

NOTE 6 – STOCKHOLDERS’ EQUITY

The Company has authorized 190,000,000 shares of common stock (“Common Stock”) and 10,000,000 shares of preferred stock (“Preferred Stock”), each having a par value of $0.001.

In March 2013, the Company approved the 2012 Long-Term Incentive Equity Plan (the “2012 Plan”), which provides the Company with the ability to issue stock options, stock appreciation rights, restricted stock and/or stock based awards for up to an aggregate of 2,050,000 shares of Common Stock. As of September 30, 2015, there were 111,559 shares available under the 2012 Plan.

Private Placement Offerings

In August 2015, the Company entered into a subscription agreement whereby 750,000 shares of Common Stock were sold to an accredited investor for a total of $150,000, along with a purchase warrant for 1,500,000 shares of Common Stock at a price of $0.40 per share. The five year warrant is immediately exercisable.

In March 2014, the Company consummated two concurrent private placement offerings, receiving an aggregate of $1,819,832, net of expenses, from accredited investors.  The Company sold an aggregate of 2,016,483 shares of Common Stock for $0.91 per share for a total of $1,835,000.  In the first offering, investors received an immediately exercisable, five year warrant to purchase one share of Common Stock at a price of $0.91 per share for each share purchased in the offering.   The investor in the second concurrent offering did not receive warrants. 

Treasury Stock

In April 2014, the Company approved a repurchase of 12,497 shares of Common Stock for $11,372.  The shares were subsequently cancelled.

Restricted Stock Compensation

The Company issued shares of restricted Common Stock to its directors, executive officers and employees. Unvested restricted shares are subject to forfeiture. With the exception of 4,689,105 shares which vest based upon achieving certain milestones, the Company records compensation expense over the vesting period based upon the fair market value on the date of grant for each share, adjusted for forfeitures.

In June 2015, the Company awarded 2,023,854 shares of Common Stock to its officers and employees. The Company issued 226,485 shares in August 2015 and will vest upon the Company reaching a $3,000,000 revenue threshold during any twelve months period. The balance of 1,797,369 shares will be issued and will vest upon the Company reaching a $3,000,000 revenue threshold during any twelve month period. See Note 8 to the Notes to Condensed Financial Statements.

In August 2014, the Company issued 1,500,000 shares of Common Stock to an executive officer. The shares are subject to a restricted stock agreement, and the vesting is conditional upon the Company reaching certain performance goals. Should the executive officer’s employment with the Company end, any unvested shares are forfeited.

In March 2014, the Company issued 465,000 shares of Common Stock under the 2012 Plan to its directors, executive officers and employees. The shares are subject to a restricted stock agreement, pursuant to which the shares will vest one year from the date of such agreement if the grantee is a director or employee (as applicable) of the Company at the time.

A summary of the restricted stock issuances to directors, executive officers and employees is as follows:

In connection with the issuance of restricted stock, the Company recorded share-based compensation expense of $857,669 and $2,853,881 for the nine months ended September 30, 2015 and 2014, respectively.  As of September 30, 2015, there was $2,725,004 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation.  That cost includes $2,026,884 of unrecognized compensation cost related to shares that will vest upon the Company reaching certain performance goals. The balance of $698,120 is expected to be recognized during the remainder of 2015 and 2016.

Stock Warrants

Warrants to purchase 1,500,000 shares of Common Stock were issued as part of a subscription agreement in August 2015 at a price of $0.40 per share. The warrants are exercisable for five years from the date of issuance.

As part of the private placement offering in March 2014, the Company issued warrants to purchase 1,114,776 shares of Common Stock at a price of $0.91 per share. The warrants are exercisable for five years from the date of issuance.

Advisory Services

In March 2014, the Company entered into two agreements pursuant to which the Company was to receive advisory services related to strategy, distributorship, sales and sales channels and investor relations.  The Company granted to each advisor 100,000 shares of restricted Common Stock, subject to forfeiture if the advisor terminated or materially breached the agreement before the six-month anniversary thereof.  The aggregate value of the advisory fees of $260,000 was calculated based upon the closing price of the Company’s Common Stock on the date of the agreement. Advisory fees of $21,667 were charged to income during the nine months ended September 30, 2014.

Also in March 2014, the Company issued 82,418 and 1,234 shares of Common Stock for advisory work and consulting work, respectively.  The number of shares issued was calculated based upon the fair market value of the stock.

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 vested on April 3, 2014.  In connection with this issuance, the Company recorded $75,000 in consulting fees during the nine months ended September 30, 2014.

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.  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; there was no cash payment to Ian Thompson by the Company.  The stock is fully vested; however it is restricted from trading. The advisor was also issued an additional 200,000 shares of restricted Common Stock, which was to vest quarterly based upon the Company reaching certain market capitalization and revenue goals, in addition to providing the above services, with the last

tranche vesting scheduled to vest on June 30, 2014. Consulting fees amounting to $72,500 were recorded during the nine months ended September 30, 2014 related to the additional shares of Common Stock issued.  Throughout the term of the agreement, the Company requested the advisor 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 failed to provide evidence. 

On June 27, 2014, the Company terminated the agreement.  The Company is taking all necessary steps for the cancellation of the shares totaling 367,204 shares, due to lack of delivery of consideration and material breach of the agreement.

NOTE 7 – STOCK OPTIONS

In June 2015, the Company granted a director of the Company stock options to purchase 35,000 shares of Common Stock pursuant to the 2012 Plan. The exercise price is $0.255 per share and the options become exercisable in four equal tranches in December 2015, June 2016, December 2016 and June 2017. They expire in June 2020.

In August 2014, the Company granted certain directors and employees of the Company stock options to purchase 620,000 shares of Common Stock pursuant to the 2012 Plan. The exercise price is $0.255 per share and the options become exercisable in four equal tranches in February 2015, August 2015, February 2016 and August 2016. They expire in August 2019.

In July 2013, the Company granted certain directors and employees of the Company stock options pursuant to purchase 210,000 shares of Common Stock at an exercise price of $2.07 per share, which was 115% of the last sale price of the Common Stock on the date of grant. The options were granted pursuant to the 2012 Plan and became exercisable in July 2014. They expired July 1, 2015.

During the nine months ended September 30, 2015 and 2014, compensation expense of $57,722 and $60,299, respectively, was recorded. As of September 30, 2015, there was $72,781 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized 2015 through 2017 in conjunction with the applicable vesting periods.

NOTE 8 – RELATED PARTY TRANSACTIONS

In September 2015, the Chief Executive Officer (the “CEO”) and the Chief Operating Officer (the “COO”) of the Company forgave unpaid salary due to them of $15,000 and $24,000, respectively. In June 2015, pursuant to letter agreements, the CEO, the COO and the Controller (and Principal Accounting Officer) of the Company forgave unpaid salary due to them of $239,500, $16,000 and $43,032, respectively. This resulted in a reduction in operating expenses of $337,532 for the nine months ended September 30, 2015.

In August 2015, the Company issued its Controller 226,485 shares of Common Stock of the Company in consideration of her previous and continued services as Controller of the Company. These shares will vest upon the Company generating revenue of $3,000,000 during any twelve month period on or prior to June 26, 2025.

Also in August 2015, the Company entered in a subscription agreement with Wyatts Torch Equity Partners, LP (“Wyatt”) for the sale of 750,000 shares of Common Stock for $150,000 and warrants to purchase 1,500,000 shares of Common Stock at $0.40 per share. The managing member of Wyatt is the COO of the Company, as well as a Director of the Company. See Note 6 for further discussion.

On June 15, 2015, the Company entered into an Amended and Restated Employment Agreement (the "Simpson Agreement") with the CEO pursuant to which the CEO will continue to act as the Company's CEO and Chairman of the Board for a term of five years as extended in consideration of (i) a base salary of $5,000 per month from June 2015 through September 2015 and then increasing to $18,500 per month, (ii) 1,544,737 shares of Common Stock of the Company to be issued to the CEO upon the Company generating revenue of $3,000,000 during any twelve

month period during the term and (iii) an annual bonus based on performance goals established by the Board of Directors of the Company as set forth in the Simpson Agreement.

In addition, on June 15, 2015, the Company entered into an Amended and Restated Employment Agreement (the "Spinner Agreement") with Peter Spinner pursuant to which Mr. Spinner will continue to act as the Company's COO for a term of five years as extended in consideration of (i) a base salary of $8,000 per month from June 2015 through September 2015 and then increasing to $16,000 per month, (ii) 252,632 shares of Common Stock of the Company to be issued to the COO upon the Company generating revenue of $3,000,000 during any twelve month period during the term and (iii) an annual bonus based on performance goals established by the Board of Directors of the Company as set forth in the Spinner Agreement.

In February 2014, the Company issued 23,272 shares of restricted, non-transferable Common Stock to an officer of the Company as payment of salary in lieu of cash, equivalent to $37,000. The shares were valued by the Company at the closing price of the Company’s Common Stock on the last trading day of the applicable month for which payment was due.  

In December 2013, the Company received $24,000 in non-interest bearing, demand loans from certain related parties.  The loans were repaid in full by February 2014.

NOTE 9 – 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 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 financial statements as of September 30, 2015. In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued. There were no subsequent events at the date of issue.

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:

This report includes a number of forward looking statements that reflect our 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 annual report.  These forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Critical Accounting Policies

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions.

All of our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Annual Report. We have identified the following as our critical accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Use of Estimates — The financial statements are prepared in conformity with accounting principles generally accepted in the United States ("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.

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. 

Determining the appropriate fair value of the stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based payment and stock price volatility. The Company uses the Black-Scholes option-pricing option model to value its stock option awards which incorporate the Company’s stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life.

Fair Value of Financial Instruments — Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC, did not, or are not believed by management, to have a material impact on the Company's present or future financial statements.

COMPANY OVERVIEW

Headquartered in Jersey City, New Jersey, the Company engages in product development, production, marketing and distribution of emerging beverage brands that are natural, USDA Organic and non-genetically modified.

The Company has developed a line of coconut water beverages with tropical juice which are natural, organic and Non GMO. The Company expects these beverages will be launched during late October 2015.

Results of Operations

Three Months Ended September 30, 2015 and 2014

Revenue

During the three months ended September 30, 2015, the Company reported revenue of $43,475. Sales were comprised of the sale of raw materials not required for the production of future products, which amounted to 41% of total revenue, and sales to direct accounts amounting to 39%. The balance of revenue was comprised of sales to distributors. During the three months ended September 30, 2014, the Company reported revenue of $85,760. Sales were primarily comprised of orders from distributors, representing 91% of total revenue.  

Cost of Revenue

Cost of Revenue includes production costs, raw material costs and slotting fees offered to customers.  As a result, cost of revenue as a percentage of sales can vary from period to period. For the three months ended September 30, 2015, cost of revenue was $81,835 or 188% of revenue, compared to $96,463 or 112% of revenue for the three months ended September 30, 2014.

Operating Expenses

For the three months ended September 30, 2015, operating expenses were $372,629. For the three months ended September 30, 2014, operating expenses were $1,280,597. This represents a decrease in operating expenses of $907,968. The decrease is primarily attributable to a decrease in stock-based compensation costs of $475,855, a decrease in licensing fees of $193,612 and a decrease in advisory fees of $108,334. See below for additional discussion.

Stock-based compensation costs to directors and employees, which consist of charges to income for vesting in connection with restricted stock issuances, stock options and warrants, were $251,012 for the three months ended September 30, 2015, compared to $726,867 for the three months ended September 30, 2014.  This represents a decrease of $475,855. Although stock-based compensation costs reduce the Company’s earnings, they do not reduce cash and have no effect on working capital.

The termination of the license agreement resulted in a reduction of license fees, net of settlement fees of $193,612 for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. See Note 5 of the Notes to the Condensed Financial Statements.

Advisory fees, which are primarily paid in Common Stock, were zero for the three months ended September 30, 2015, as compared to $108,334 for the three months ended September 30, 2014.

Nine Months Ended September 30, 2015 and 2014

Revenue

During the nine months ended September 30, 2015, the Company reported revenue of $190,081. Sales were primarily comprised of orders from distributors, which amounted to 66% of total revenue. Sales to direct accounts amounted to 26% of total revenue. During the nine months ended September 30, 2014, the Company reported revenue of $247,538. Sales were primarily comprised of orders from distributors and major grocers of 63% and 26% of total revenue, respectively. 

Cost of Revenue

Cost of Revenue includes production costs, raw material costs and slotting fees offered to customers.  As a result, cost of revenue as a percentage of sales can vary from period to period. For the nine months ended September 30, 2015, cost of revenue was $320,568 or 169% of revenue, compared to $252,860 or 102% of revenue for the nine months ended September 30, 2014.

Operating Expenses

For the nine months ended September 30, 2015, operating expenses were $877,437, a decrease of $3,059,294 over operating expenses for the nine months ended September 30, 2014 of $3,936,731.  This decrease of $3,059,294 was primarily comprised of a decrease in stock-based compensation costs of $1,447,717, a decrease in license fees of $855,075 and a decrease in advisory fees of $561,620. See below for additional discussion.

Stock-based compensation costs to directors and employees, which consist of charges to income for vesting in connection with restricted stock issuances, stock options and warrants, were $915,391 for the nine months ended September 30, 2015, compared to $2,363,109 for the nine months ended September 30, 2014.  This represents a reduction in operating expenses of $1,447,717. Although stock-based compensation costs reduce the Company’s earnings, they do not reduce cash and have no effect on working capital.

The termination of the license agreement resulted in a reduction to operating expenses of $855,075 for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. See Note 5 of the Notes to the Condensed Financial Statements.

Advisory fees were zero for the nine months ended September 30, 2015, as compared to $561,620 for the nine months ended September 30, 2014. Of the total advisory fees of $561,620, only $12,500 or 2% of the total were paid in cash. The balance was paid in Common Stock.

Liquidity and Capital Resources

Liquidity

As of September 30, 2015, the Company had working capital of $170,156.

Working Capital Needs

Our working capital requirements increase when we experience a demand for our new products.  Currently, the Company believes it has sufficient capital resources to meet projected cash flow requirements for the next twelve months. If during the next twelve months the Company requires additional working capital, it may seek to raise additional funds. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Further, if the Company issues additional equity or convertible debt securities, stockholders may experience dilution and the new equity securities could have rights, preferences or privileges senior to those of existing holders of the Company’s Common Stock. If additional financing is not available or is not available on acceptable terms, the Company’s operations could be impacted.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements as of September 30, 2015. 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure 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 the Company’s principal executive officer and financial officer and the Company’s principal accounting 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 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 internal controls over financial reporting and its disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings arising in the ordinary course of business.  We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

ITEM 1A.  RISK FACTORS

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company awarded and issued to its Controller 226,485 shares (“the Controller Grant Shares”) in consideration of her previous and continued services as Controller of the Company, which such Controller Grant Shares are subject to a restrictive legend providing that the shares may not be sold or transferred until the Company generates revenue of $3,000,000 during any twelve month period on or prior to June 26, 2025.

On August 19, 2015, the Company entered and closed a subscription agreement with Wyatts Torch Equity Partners, LP (“Wyatts”). Peter Spinner, the Chief Operating Officer and a director of the Company, is the Managing Member of Wyatts. Wyatts purchased 750,000 shares of the Company’s common stock for an aggregate purchase price of $150,000, together with a common stock purchase warrant to acquire an aggregate of 1,500,000 shares of common stock at $0.40 per share for a period of five years.

This issuance of these above securities is exempt from the registration requirements under Rule 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 as promulgated under Regulation D. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.  

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None. 

ITEM 4.  MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.  OTHER INFORMATION

On August 19, 2015, Richard Seet resigned as a director of the Company.

ITEM 6.  EXHIBITS

*  Filed herewith.

†            Management compensatory plan, contract or arrangement.

 SIGNATURES

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.