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

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q 

(Mark One)

For the Quarterly Period Ended: March 31, 2015

OR

For the transition period from _______________ to _______________

Commission file number: 000-55269

Registrant’s telephone number: 201 633 6519

Securities registered under Section 12(b) of the Act: None           

Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value per share          

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes  ☐     No ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

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 May 4, 2015, there were 16,907,396 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

March 31, 2015

NOTE 1 – BUSINESS

Overview

MOJO Organics, Inc. (“MOJO” or the “Company”) was incorporated in the State of Delaware on August 2, 2007.  Headquartered in Jersey City, NJ, the Company is a developer of emerging beverage brands that are natural, USDA Organic, non-genetically modified (“Non GMO”) and certified by the Rainforest Alliance.

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 during 2015.

Since July 2013, the Company has produced 100% tropical fruit juices, produced under a license agreement (the “License Agreement”) from Chiquita Brands L.L.C. (“CBLLC”), a wholly owned subsidiary of Chiquita Brands International, Inc.

Pursuant to the License Agreement, CBLLC granted to the Company an exclusive license to use its marks in the manufacture, sale, promotion, marketing, advertising and distribution of certain fruit juice products in select containers in Connecticut, New Jersey and New York and a non-exclusive license for the other states. If the Company failed to attain the minimum sales volume and/or minimum royalty payments required pursuant to the License Agreement in the exclusive territory for certain periods of time, CBLLC had the right to terminate the License Agreement by written notice.

On March 27, 2015, pursuant to the terms of the License Agreement, CBLLC provided the Company with a letter: (i) providing written notice of termination effective September 27, 2015 for failure by the Company to achieve the minimum sales volume in the exclusive territory; (ii) providing the Company with a right of sell off of any existing inventory of the licensed products; (iii) demanding payment by the Company of liquidated damages in the amount of $1,515,076; (iv) demanding a minimum royalty payment for contract period three in the amount of $507,223; and (v) demanding payment of additional royalties earned in the non-exclusive territories in the aggregate amount of $7,174.88. CBLLC also informed the Company that if all royalties due are not received by April 30, 2015, CBLLC will exercise its right to immediate termination for nonpayment of royalties under the License Agreement. As of the filing date, no payment has been made by the Company to CBLLC. Accordingly, CBLLC may immediately terminate the License Agreement at any time.

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 financial statements, and in the Company’s opinion, reflect all adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 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 March 31, 2015 and December 31, 2014 was $8,803 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 -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 March 31, 2015 and December 31, 2014, accumulated depreciation related to property and equipment was $2,866 and $5,539, respectively.

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.

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 three months ended March 31, 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 March 31, 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 three months ended March 31, 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 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 three months ended March 31, 2015, the Company incurred a net loss from continuing operations of $2,671,684.  At March 31, 2015, the Company had accumulated losses of $21,008,528, which includes accumulated losses from discontinued operations of $8,576,094.

As discussed in Note 1, CBLLC has provided the Company with a letter terminating the License Agreement effective September 27, 2015. As of March 31, 2015, the Company owed CBLLC minimum royalty payments of $507,223, additional royalty payments of $7,175 and interest of $7,504. These payments were due April 30, 2015. In addition, the Company has accrued $253,611 for royalty payments not payable until August 2015 and liquidating damages pursuant to the License Agreement equal to $1,515,076. The Company’s business is largely predicated on its relationship with CBLLC and this adverse change in the relationship could have a material adverse impact on its business. As of the filing date, no payment has been made by the Company to CBLLC. Accordingly, CBLLC may immediately terminate the License Agreement at anytime.

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 March 31, 2015, inventory consisted of finished goods of $156,928 and raw materials of $35,964. 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 February 11, 2014 at a rate of $1,147 per month.  This agreement terminated on April 30, 2015.

Licensing Agreement

See Note 1 and Note 3 for a discussion of the termination of the License Agreement. 

NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIT)

The Company has authorized 10,000,000 shares of preferred stock (“Preferred Stock”) and 190,000,000 shares of common stock (“Common 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.

Private Placement Offering

In March 2014, the Company consummated two concurrent private placement offerings (the “2014 Offerings”), receiving an aggregate of $1,819,832, net of expenses, from accredited investors.  In one of the offerings, the Company sold an aggregate of 917,582 shares of Common Stock for $0.91 per share for a total of $835,000.  For each share purchased in this offering, investors received an immediately exercisable, five year warrant to purchase one share of Common Stock at a price of $0.91 per share.  In the concurrent offering, the Company sold 1,098,901 shares of Common Stock for $0.91 per share for a total of $1,000,000.  The investor in the 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 certain of its directors, executive officers and employees. Unvested restricted shares are subject to forfeiture. With the exception of 2,665,251 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 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 certain of 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 $374,978 and $602,597 for the three months ended March 31, 2015 and 2014, respectively.  As of March 31, 2015, there was $3,991,704 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation.  That cost is expected to be recognized during the years 2015 and 2016.

Stock Warrants

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 three months ended March 31, 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 three months ended March 31, 2014.

On October 3, 2013, the Company entered into an agreement for strategic business advisory services, public relations services and investor relations services with Mr. 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 Mr. 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 three months ended March 31, 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. The Company believes, however, that Mr. Thompson failed to perform in all material respects under the terms of the agreement.  On June 27, 2014, the Company terminated the agreement.  Accordingly, the final tranche of 50,000 shares did not vest.  Further, the Company is taking all necessary steps for the cancellation of the other shares totaling 317,204 shares, due to lack of delivery of consideration and breach of the agreement.

NOTE 7 – STOCK OPTIONS

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 expire in July 2015.

During the three months ended March 31, 2015 and 2014, compensation expense of $19,165 and $25,358, respectively, was recorded. As of March 31, 2015, there was $111,797 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized during 2015 and 2016 in conjunction with the vesting period.

NOTE 8 – RELATED PARTY TRANSACTIONS

As of March 31, 2015 and December 31, 2014, accrued payroll amounted to $255,532 and $220,677, respectively. This amount includes unpaid salary due to the Chief Executive Officer of the Company of $212,500 pursuant to his employment agreement with the Company and unpaid salary of $43,032 payable to the Controller (and Principal Accounting Officer) of the Company.

During the three months ended March 31, 2014, the Company issued 23,272 shares of 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 March 31, 2015. In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued. 

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, non-genetically modified and certified by the Rainforest Alliance. Since July 2013, the Company has produced CHIQUITA TROPICALS™, which are 100% fruit juices produced under a license agreement (the “License Agreement”) from Chiquita Brands L.L.C. (“CBLLC”), a wholly owned subsidiary of Chiquita Brands International, Inc. 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 these beverages will be launched during 2015.

Pursuant to the License Agreement, CBLLC granted to the Company an exclusive license to use its marks in the manufacture, sale, promotion, marketing, advertising and distribution of certain fruit juice products in select containers in Connecticut, New Jersey and New York and a non-exclusive license for the other states. If the Company failed to attain the minimum sales volume and/or minimum royalty payments required pursuant to the License Agreement in the exclusive territory for certain periods of time, CBLLC had the right to terminate the License Agreement by written notice.

On March 27, 2015, pursuant to the terms of the License Agreement, CBLLC provided the Company with a letter: (i) providing written notice of termination effective September 27, 2015 for failure by the Company to achieve the minimum sales volume in the exclusive territory; (ii) providing the Company with a right of sell off of any existing inventory of the licensed products; (iii) demanding payment by the Company of liquidated damages in the amount of $1,515,076; (iv) demanding a minimum royalty payment for contract period three in the amount of $507,223; and (v) demanding payment of additional royalties earned in the non-exclusive territories in the aggregate amount of $7,174.88. CBLLC also informed the Company that if all royalties due were not received by April 30, 2015, CBLLC will exercise its right to immediate termination for nonpayment of royalties under the License Agreement.   As of the filing date, no payment has been made by the Company to CBLLC. Accordingly, CBLLC may immediately terminate the License Agreement at any time.

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.

Results of Operations

Three Months Ended March 31, 2015 and 2014

Revenues

During the three months ended March 31, 2015, the Company reported revenue of $68,885. Sales were primarily comprised of orders from distributors, direct accounts and direct sales distributors (“DSDs”). Sales to distributors, direct accounts and DSDs amounted to approximately 71%, 24% and 5% of total revenue, respectively. The Company has exclusive agreements with several DSDs that cover certain geographical areas. There are no contracts with our other customers.

Revenues for the three months ended March 31, 2014 were $85,478. Sales were comprised of orders from direct accounts, distributors and DSDs. Sales to direct accounts, DSDs and distributors amounted to approximately 44%, 33% and 23% of total revenue, respectively. The Company had agreements with two DSD’s in the form of the Company’s standard distribution agreement. This form agreement provides for an initial term of one year, with automatic renewals for additional one year periods unless terminated after the initial one year term upon 60 days prior written notice by the Company. The standard distribution agreement provides the distributors with the nonexclusive right to distribute the Company’s products in the United States. These agreements contemplate the setting of minimum purchase levels by the distributors in amounts to be mutually agreed upon by the parties. In some cases minimums have not been sent, in some cases minimum purchase commitments per territory range from 2,500 to 5,000 cases of product in the first year of distribution, and increase yearly. The agreements provide for certain allocations of marketing expenses between the Company and the distributors, with sales incentives and discounts shared on a 50/50 basis. Purchases are made under the agreements pursuant to purchase orders from time to time and on an order by order basis; the price paid by the distributor is as agreed to by the parties and is, historically, at a substantial discount to retail. Payment by the distributors is due within 30 days of receipt of the products. The distributors are not permitted to sell competing products during the terms of the agreement or for a period of six months after termination thereof and are not permitted to sell any product licensed from CBLLC during the term of the agreement or for a period of two years thereafter. Both of these DSDs were terminated in early 2015.

All of the Company’s revenue for the three months ended March 31, 2015 and 2014 were derived from the sale of products under the License Agreement.

Cost of Revenues

Cost of Revenues includes production costs, raw material costs and consideration in the form of free product offered to certain customers.  As a result, cost of revenues as a percentage of sales can vary from period to period. For the three months ended March 31, 2015, cost of revenues was $109,739 or 159% as a percentage of revenues, compared to $80,631 or 94% as a percentage of revenues for the three months ended March 31, 2014.

Operating Expenses

For the three months ended March 31, 2015, operating expenses were $2,624,233, an increase of $1,164,197 or 80% over operating expenses for the three months ended March 31, 2014 of $1,460,036.  

The increase is primarily due to the accrual of liquidated damages of $1,515,076 recorded as a result of the impending termination of the License Agreement as discussed in Note 1 of the Notes to the Financial Statements. This increase was partially offset by a reduction in stock-based compensation costs to directors and employees of $480,291. These costs, which consist of charges to income for vesting in connection with restricted stock issuances, stock options and warrants, were $394,143 for the three months ended March 31, 2015, compared to $874,434 for the three months ended March 31, 2014.  Although stock-based compensation costs reduce the Company’s earnings, they do not reduce cash and have no effect on working capital.

Liquidity and Capital Resources

Liquidity

As of March 31, 2015, the Company had negative working capital of $2,165,208.

The Company utilizes third party production facilities and outsources its logistics.  These services are performed on an as-needed basis.  There are no minimum payments or contractual obligations associated with these services.

Working Capital Needs

The Company believes it does not have sufficient cash to fund the operations of the Company for the next twelve months.  As a result, we will need to raise additional financing.  The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company expects that any sale of additional equity securities or convertible debt will result in additional dilution to our stockholders.   In addition, the Company may not be able to obtain additional debt or equity financing on terms acceptable to it, or at all. If the Company is not able to secure additional capital, it could be required to delay paying its account payables or forego business opportunities. Further, in connection with the termination of the License Agreement, CBLLC has demanded payment by the Company of liquidated damages in the amount of $1,515,076, a minimum royalty payment for contract period three in the amount of $507,223 and additional royalties earned in the non-exclusive territories in the aggregate amount of $7,174.88. The Company intends to negotiate a settlement with CBLLC regarding this matter. If a settlement is not reached with CBLLC and the Company is required to make the claimed payments, the Company would be required to raise additional capital of which there is no guarantee.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements as of March 31, 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 March 31, 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

Risks Related to our Business

We may not be successful in implementing our strategic priorities, which may have a material adverse impact on our business and financial results.

We are a small company in the beverage juice product industry. We are dependent on third party suppliers and manufacturers for the ingredients comprising our products and for product production.   We will need to adopt and implement a strategic plan to increase awareness of our products, secure distribution channels, and foster and strengthen our supply, manufacturing and distribution relationships.  It is likely our strategic priorities will need to evolve over time and our business would be materially and adversely effected if we do not properly adapt our strategies to our changing needs and changes in the market.  There can be no assurance that we will be able to successfully implement our strategic priorities or whether these strategic priorities will be successful, and any failure to do so could impede our growth and operating results.

We have a history of net losses and will likely continue to incur losses in the near future.

For the years ended December 31, 2014 and 2013, we had revenues of only $324,394 and $159,144, respectively. For the three months ended March 31, 2015 and March 31, 2014, we had revenues of only $68,885 and $85,478, respectively. We have incurred net losses during the past two years and have only recently started to generate revenues from the commercial sales of our products.  We will likely continue to incur net losses in the near term and will continue to generate net losses if we cannot secure and expand adequate distribution channels for our products.  Accordingly, we cannot assure you that we will ever achieve profitability, or, if we should achieve profitability, that we would be able to sustain profitability.

We will need additional capital in the future to meet our financial obligations and to pursue our business objectives, which may not be available on favorable terms, or at all.

We are not generating sufficient cash flow to internally fund operations and continue our planned growth and we will need to raise additional capital.  Additional capital may not be available on favorable terms, if at all. If adequate capital is not available on acceptable terms, we may be unable to fund our operations and the expansion of our marketing and sales efforts, which could harm our business and results of operations.  Financing, if any, may be in the form of debt or additional sales of equity securities, including common or preferred stock.  The incurrence of debt or the sale of preferred stock may result in the imposition of operational limitations and other covenants and payment obligations, any of which may be burdensome to us. The sale of equity securities, including common or preferred stock, may result in dilution to the current shareholders’ ownership.

Our business has historically been largely predicated on our relationship with CBLLC and the recent termination of our license agreement with CBLLC could materially and adversely affect our business.

We produce all of our current products under our License Agreement with CBLLC. The License Agreement provided for minimum sales volume requirements for each six month contract period. CBLLC may terminate the License Agreement should the Company fail to meet its minimum sales volume requirements for any two consecutive contract periods. The Company did not meet its minimum sales volume requirements during the six month periods ended December 31, 2014, June 30, 2014 and December 31, 2013.   On March 27, 2015, pursuant to the terms of the License Agreement, CBLLC provided the Company with a letter: (i) providing written notice of termination effective September 27, 2015 for failure by the Company to achieve the minimum sales volume in the exclusive territory; (ii) providing the Company with a right of sell off of any existing inventory of the licensed products; (iii) demanding payment by the Company of liquidated damages in the amount of $1,515,076; (iv) demanding a minimum royalty payment for contract period three in the amount of $507,223; and (v) demanding payment of additional royalties earned in the non-exclusive territories in the aggregate amount of $7,174.88. CBLLC also informed the Company that if all royalties due were not received by April 30, 2015, CBLLC will exercise its right to immediate termination for nonpayment of royalties under the License Agreement. As of the filing date, no payment has been made by the Company to CBLLC. Accordingly, CBLLC may immediately terminate the License Agreement at anytime. As a result of the termination of the License Agreement, we will no longer be able to produce and market our Chiquita branded juice products as of the effective date.  We will still be able to produce juice products under our own name, MOJO Organics, using our own suppliers and manufacturers. As a result of the termination of our relationship with CBLLC, the inherent marketing and distribution value of the MOJO Organics brand related to the Chiquita brand will be lost and is it very likely that our business operations, product salability and financial performance will be materially and adversely effected, at least in the short term.  

The challenges of competing with many well-established beverage companies businesses may result in reductions in our revenue and operating margins.

We compete with numerous beverage companies, including those marketing juice products, soft drinks and waters, on the basis of taste, quality, price and overall consumer experience. Our success will depend on our ability to secure distribution channels for our products, our ability to make consumers aware of our products and the general appeal and popularity of our products in the marketplace. Our competitors or potential competitors have substantially greater financial and other resources than we do, which may allow them to secure more robust distribution channels and to react to changes in the market quicker than we can. In addition, aggressive or subsidized pricing by our competitors or the entrance of new products into our markets, could reduce demand for our products, which would adversely affect our business and financial performance.

We are subject to risks associated with regional weather climate.

Regional weather climate conditions directly impact the Company by effecting the supply and cost of the ingredients used in our products.  For example, a poor growing season in any of the geographic regions from which we source the fruit used in the production of our juices would likely increase the cost we pay for such fruit and, in severe circumstances, could eliminate the supply entirely.  The potential impact of adverse climate conditions is impossible to predict and could have a material adverse impact on our business.

Competing demand and regional politics and economics affect our supply costs, which could adversely affect our operating results.

Availability of supply and the prices charged by the producers of the various ingredients used in our products can be affected by a variety of factors beyond regional weather, including the general demand by other product producers for the same fruits used by us in our products, and politics and economics in the regions in which our fruits are produced.  These factors may subject us to shortages or interruptions in product supplies, which could adversely affect our business. In addition, the quality of fruit we seek tends to trade on a negotiated basis, depending on supply and demand at the time of the purchase. An increase in pricing of any fruit that we use in our products could have a significant adverse effect on our margins. In addition, higher diesel and gasoline prices may affect the cost of transporting our supply, thereby increasing costs to us. Although we attempt to mitigate the risks of volatile commodity prices and allow greater predictability in pricing by entering into fixed price or to-be-fixed priced purchase commitments for a portion of our supply requirements, we cannot assure you that these activities will be successful or that they will not result in our paying substantially more for our fruit supply than would have been required absent such activities. Declines in sales may also adversely affect our business to the extent we have long-term purchase commitments in excess of our needs.

We have very limited internal distribution and marketing capabilities and are only in the early stages of building our distribution network.

In order to be successful, we will need to establish relationships with numerous retail outlets through which our beverages can be sold.  While our products have been introduced into numerous retail stores, to date, we have entered into only a limited number of relationships with distributors and retail outlets for the sale of our products and have only recently started to generate revenues through sales.  We have limited internal marketing and distribution capabilities and resources.   There can be no assurance that we will be successful in establishing a distribution network or that if the same is established that such network will result in profitable sales of our products.

We use a third party bottler for the production and bottling of our products and, as such, are subject to such bottler’s production and quality control capabilities.

We use a third party bottler for the production and bottling of our products.  While we play an active role in the production of our products, general supervision of the production process lies with the third party bottler.  Accordingly, we are largely dependent on the bottler and its ability to meet production demands and to monitor and ensure product quality.  A failure of our bottler to produce our products in the capacity or to the standards required could materially and adversely affect our business.  While there are alternative bottlers in the event of a termination of our relationship with our current bottler for any reason, the movement of production to an alternative bottler would require significant time and expenditures to identify an adequate alternative bottler, negotiate the terms of our relationship with such alternative bottler and for machine retooling, implementation of production and capping sizes and technology and product recipe transfer.  In the event we are required to move production to a new third party bottler, our business could experience disruption and our business and financial condition could be adversely effected.

We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.

Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully depends in part on our ability to build further brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property. If we fail to properly protect our intellectual property, or if any third party misappropriates or infringes on our intellectual property, the value of our brand may be harmed, which could have a material adverse effect on our business. While we have not encountered claims from prior users of intellectual property relating to our products, there can be no assurances that we will not encounter such claims. If so, this could harm our image, brands or competitive position and cause us to incur significant penalties and costs.

Our business and results may be subject to disruption from work stoppages, terrorism or natural disasters.

Our operations and the operations of our suppliers and bottler may be subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquake, flooding or other natural disasters. These disruptions can result in, among other things, lost sales when consumers stay home or are physically prevented from reaching stores, property damage, lost sales when stores are forced to close for extended periods of time and interruptions in supply when suppliers suffer damages or transportation is affected.

The unexpected loss of our chief executive officer or an inability to identify and secure qualified personnel as needed could adversely affect our business.

Our success currently depends substantially on the contributions and abilities of Glenn Simpson, our chief executive officer.  Our chief executive officer is currently responsible for the implementation of our operational strategies and priorities and the steps necessary to drive our growth.  While we have entered into an employment agreement with our chief executive officer, we cannot make any assurances that we can retain his services for the period necessary for us to achieve and sustain profitability.

As we grow and expand our operations, any failure to recruit, retain, and motivate qualified additional personnel as necessary to implement our strategic priorities could adversely affect our business and results of operations. Competition for personnel in our industry is strong and the ability to hire and retain key employees can be difficult.

Litigation and publicity concerning food quality, health claims, and other issues can result in liabilities, increased expenses, distraction of management, and can also cause customers to avoid our products, which could adversely affect our results of operations, business and financial condition.

Food product businesses can be adversely affected by litigation and complaints from customers or government authorities resulting from food quality, health claims, allergens, illness, injury or other health concerns or operating issues stemming from one or more products. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from buying our products.  In addition, the food services industry has been subject to a growing number of claims based on the nutritional content of food products they sell, and disclosure and advertising practices. We may also be subject to this type of proceeding in the future and, even if not, publicity about these matters may harm our reputation or prospects and adversely affect our results.  Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend our company and could affect the future premiums we would be required to pay on our insurance policies. Further, changes in governmental regulations could have adverse effects on our business and subject us to additional regulatory actions.

Food safety concerns and instances of food-borne illnesses could harm our customers, result in negative publicity and cause the temporary closure of some stores and, in some cases, could adversely affect the price and availability of fruits and vegetables, any of which could harm our brand reputation, result in a decline in revenue or an increase in costs.

We consider food safety a top priority and are dedicated to ensuring that our customers enjoy high-quality, safe and wholesome products. However, we cannot guarantee that our internal controls (or the controls of our suppliers and bottler) will be fully effective in preventing all food-borne illnesses.  Our reliance on third-party suppliers, bottlers and distributors increases the risk that food-borne illness incidents (such as E. coli, hepatitis A, salmonella or listeria) could occur outside of our control. Instances of food-borne illnesses, whether real or perceived, and whether relating to our products or similar products of our competitors, could harm customers and otherwise result in negative publicity about us or the types of products we distribute, which could adversely affect revenue.

Food safety concerns and instances of food-borne illnesses and injuries caused by food contamination have in the past, and could in the future, adversely affect the price and availability of affected ingredients and cause customers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to consumers. As a result, our costs may increase and our revenue may decline. A decrease in customer demand as a result of these health concerns or negative publicity could materially and adversely impact our business, financial condition and results of operations.

Failure of the Company’s internal control over financial reporting could harm its business and financial results.

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes:

(i) maintaining reasonably detailed records that accurately and fairly reflect our transactions; and (ii) providing reasonable assurance that we (a) record transactions as necessary to prepare the financial statements, (b) make receipts and expenditures in accordance with management authorizations, and (c) would timely prevent or detect any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure could cause an immediate loss of investor confidence in us and a sharp decline in the market price of our common stock.

Risks Related to Our Securities

There is a limited trading market for our common stock and we cannot ensure that a more liquid market will ever develop or be sustained.

To date there has been a limited trading market for our common stock. We cannot predict how liquid the market for our common stock might become. Our common stock is quoted for trading on the OTCQB Marketplace. It is a requirement of the OTCQB that issuers quoted thereon be current in their Exchange Act reporting. If not current, an issuer’s stock may be removed from quotation on the OTCQB and quoted instead on the OTC Pink® Marketplace. Our common stock began trading on the OTCQB on April 2, 2013. While we may elect in the future to seek listing of our common stock on the NYSE, the NYSE MKT, The Nasdaq Capital Market or other national securities exchange, we may not ever be able to satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards.  We cannot assure you that we will elect to apply to list our common stock or that if we do apply, that our common stock will be accepted, for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remain quoted on the OTCQB Marketplace or suspended from the OTCQB Marketplace, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.  Furthermore, for companies whose securities are traded in the OTCQB Marketplace, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.

Because our directors and executive officers, as a group, own a significant portion of our outstanding common shares, they can exert significant influence over our business and affairs and have actual or potential interests that may depart from our shareholders.

Our directors and executive officers, as a group, currently beneficially own approximately 53.8% of our outstanding shares of common stock. As a result, in addition to their board seats and offices, such persons will have significant influence over certain corporate actions requiring stockholder approval, including the following actions:

•   to elect or defeat the election of our directors;

•   to amend or prevent amendment of our certificate of incorporation or bylaws;

•   to effect or prevent a merger, sale of assets or other corporate transaction; and

•   to control the outcome of any other matter submitted to our stockholders for vote.

Such persons’ beneficial stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Our certificate of incorporation allows for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.

Future sales of our common stock in the public market could cause our share price to decline.

On June 3, 2014, we registered for resale on a Form S-1 Registration Statement an aggregate of 2,934,067 shares of common stock on the prospectus of which the registration statement formed a part.  Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

Possible additional issuances will cause dilution.

We currently have outstanding 16,907,396 shares of common stock, options to purchase a total of 210,000 shares of common stock at $2.07 per share, options to purchase a total of 620,000 shares of common stock at $0.255 per share and warrants to purchase a total of 1,114,776 shares of common stock at $0.91 per share. We are authorized to issue up to 190,000,000 shares of common stock and are therefore able to issue additional shares without being required under corporate law to obtain shareholder approval. If we issue additional shares, or if our warrant holders exercise their outstanding warrants, our other shareholders may find their holdings drastically diluted, which if it occurs, means that they will own a smaller percentage of our company.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we are subject to the requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act and other applicable securities rules and regulations.  Compliance with these rules and regulations is sometimes time-consuming and costly, increases demand on our limited resources and causes us to incur significant legal, accounting and other expenses. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. In addition, the Company’s common stock is quoted on the OTCQB, which requires that issuers quoted thereon not be delinquent in their Exchange Act reporting. Although we have voluntarily filed Exchange Act reports in the past, we have historically had difficultly timely compiling the information necessary for such reports given our limited accounting staff and resources. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the national securities exchanges, establishes certain requirements for the corporate governance practices of public companies. For example, public companies are required to maintain effective disclosure controls and procedures and internal control over financial reporting. As a reporting company under the Exchange Act, our ability to timely file our Exchange Act reports as and when required will be part of the evaluation of our internal controls and procedures. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results.

In addition, pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of each fiscal year end. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline. Because we are a smaller reporting company, our independent auditor will not be required to issue an attestation report regarding our internal control over financial reporting in the annual reports that we file with the SEC on Form 10-K. We will remain a smaller reporting company as long as the market value of our securities held by non-affiliates is below $75 million.

We do not intend to pay dividends for the foreseeable future, and as a result your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

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.