U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

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

 

For Fiscal Year Ended: December 31, 2016

 

OR

 

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

 

For the transition period from _______________ to _______________

 

Commission file number: 000-55269

 

MOJO Organics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		26-0884348
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

 

185 Hudson Street, Floor 25
Jersey City, New Jersey		07302
(Address of principal executive offices)		(Postal Code)

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:

 

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

 

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

Yes ☐   No ☒

 

As of June 30, 2016 (the last day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s common stock (based on its reported last sale price on such date of $0.503 per share) held by non-affiliates of the registrant was $5,264,972.

 

On March 23, 2017, there were 18,380,326 shares of the registrant's common stock, par value $0.001, issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None.

  

 

 

 

 

  

  

TABLE OF CONTENTS

 

		Page
Forward Looking Information		1
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	4
Item 2.	Properties	4
Item 3.	Legal Proceedings	4
Item 4.	Mine Safety Disclosures	4
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5
Item 6.	Selected Financial Data	6
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 8.	Financial Statements and Supplementary Data	9
Item 9.	Changes and Disagreements With Accountants on Accounting and Financial Disclosure	9
Item 9A.	Controls and Procedures	10
Item 9B.	Other Information	10
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	11
Item 11.	Executive Compensation	13
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	16
Item 13.	Certain Relationships and Related Transactions, and Director Independence	17
Item 14.	Principal Accountant Fees and Services	18
PART IV
Item 15.	Exhibits, Financial Statement Schedules	20
SIGNATURES		24

 

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements using words such as “expects,” “anticipates,” “intends,” “believes” and similar language.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the sections “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

All references in this Annual Report on Form 10-K to “MOJO,” “MOJO Organics,” the “Company,” “we,” “us” or “our” mean MOJO Organics, Inc.

 

 

PART I

ITEM 1.  BUSINESS

 

COMPANY OVERVIEW

 

Headquartered in Jersey City, New Jersey, the Company engages in new product development, production, marketing, distribution and sales of beverage brands that are natural, USDA Organic and Non GMO Project Verified.

 

CURRENT OPERATIONS

 

Sales and Distribution

 

The Company began selling MOJO Naturals Pure Coconut Water in December 2015. In addition to Pure Coconut Water, the Company produces Coconut Water + Peach Mango Juice and Coconut Water + Pineapple Juice. We seek to grow the market share of our products by expanding our distribution network through the relationships and efforts of our management and third party distribution relationships.

 

Production

 

The Company has multiple sources for its products.  The Company’s fruit sources are of high quality and are part of the overall taste and quality of its products.  The Company’s current arrangements for production and packaging exceed required levels.

 

Competition

 

The beverage industry is competitive.  Competitors in our market compete for brand recognition, ingredient sourcing, qualified personnel and product shelf space.  Our competitors have similar distribution channels and retailers to deliver and sell their products.   

 

Government Regulation

 

Within the United States, beverages are governed by the U.S. Food and Drug Administration (the “FDA”).  As such, it is necessary for the Company to establish, maintain and make available for inspection records as well as to develop labels (including nutrition information) that meet legal food labeling requirements.  The Company’s production facilities are subject to FDA regulation.

 

Employees

 

As of March 23, 2017, the Company had three employees.  The Company also uses the services of contractors, consultants and other third-parties. We contract with food brokers to represent our products to retail stores, and in certain regions of the United States, we utilize the services of direct sales and distribution companies that sell our products to their customers. This alleviates the need for a large sales and merchandising force.  We use third-party manufacturing facilities to produce our products and we outsource the storage and transportation of our products.

 

CORPORATE HISTORY AND DEVELOPMENT

 

On January 20, 2016, the Company approved a subscription agreement (the “2016 Subscription”) whereby shares of the Company’s common stock, $0.001 par value (“Common Stock”) were offered to accredited investors for $0.35 per share. For every two shares purchased, the investor received a warrant to acquire one share of Common Stock at an exercise price of $0.70 per share exercisable for a period of two years from the date of issuance. The Company issued a total of 964,286 shares of Common Stock and two year purchase warrants to acquire a total of 482,143 shares of Common Stock to four accredited investors for consideration of $337,500.

 

 

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.

 

On October 20, 2015, the Company filed a Form S-8 with the SEC registering an aggregate of 1,500,000 shares of Common Stock for the issuance of shares under the 2015 Incentive Stock Plan (the “2015 Plan”).

 

ITEM 1A.   RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or results of operations in future periods. The risks described below are not the only risks facing our Company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.

 

If we are unable to expand our operations in the marketplace, our growth rate could be negatively affected.

 

Our success depends in part on our ability to grow our business. We have adopted and implemented a strategic plan to increase awareness of our products, secure additional distribution channels, and foster and strengthen our supply, manufacturing and distribution relationships.   Our strategic plan includes continuously anticipating and addressing changes in the market.  There can be no assurance that we will achieve the growth necessary to achieve our objectives.

 

We may need additional capital in the future to expand our operations and execute our business objectives.

 

Should we require additional capital to expand our operations, financing transactions may include the issuance of equity or debt securities or obtaining credit facilities.

 

The challenges of competing with other beverage companies could result in reductions to our revenue and operating margins.

 

The nonalcoholic beverage segment of the beverage industry is competitive. We compete with numerous beverage companies, including those marketing similar products. All beverages companies are competing for stomach share on a daily basis which is approximately 64 oz. of fluid per day or eight 8 oz. servings. Our success depends on our ability to secure distribution channels for our products, our ability to make consumers aware of our products and the appeal and popularity of our products to consumers. 

 

Disruption of supply, increase in costs or shortage of ingredients could affect our operating results.

 

Availability of supply and the prices charged by the producers of the ingredients used in our products can be affected by a variety of factors, including the general demand by other buyers for the same fruits used by us in our products, and politics and economics in the regions in which our fruits are grown.  

 

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 the pricing of any fruit that we use in our products may have an adverse effect on our margins. Higher energy costs may affect the cost of transporting our supplies, thereby increasing costs to us. Conversely, lower fruit prices and energy prices may have a positive result on transport and packaging costs. Any or all of these conditions could have an impact on our operating margins.

 

 

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

 

We use third party bottlers for the production and filling 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 bottlers.  Accordingly, we are dependent on the bottlers and their ability to meet production demands and to monitor and ensure product quality.  

 

Litigation and publicity concerning food quality, health claims, and other issues could expose us to significant liabilities.

 

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 predict the ultimate outcome of any such proceedings. An unfavorable outcome may have an adverse impact on our business and financial condition. In addition, any litigation or regulatory proceedings may result in substantial costs and may require that we devote substantial resources to the defense.

 

ITEM 1B.   UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.  PROPERTIES

 

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 September 15, 2016 at a rate of $2,230 per month. Subsequent to year end, the Company signed a new lease agreement for the period March 1, 2017 to February 28, 2018. The new rent under this agreement is $2,259 per month.

 

ITEM 3.  LEGAL PROCEEDINGS

 

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

 

ITEM 4.  MINE SAFETY DISCLOSURE

 

Not applicable.

 

 

PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s Common Stock is currently quoted on the OTCQB under the symbol “MOJO.”

 

For the period from January 1, 2015 to December 31, 2016, the following table sets forth the high and low closing bid prices by quarter, based upon information obtained from inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions: 

		High				Low
2016
Fourth Quarter		$	0.57			$	0.40
Third Quarter		$	0.64			$	0.50
Second Quarter		$	0.50			$	0.40
First Quarter		$	0.60			$	0.40
2015
Fourth Quarter		$	0.57			$	0.05
Third Quarter		$	0.27			$	0.16
Second Quarter		$	0.32			$	0.16
First Quarter		$	0.38			$	0.15

 

Holders

 

As of March 23, 2017, there were 18,380,326 shares of Common Stock issued and outstanding held by 113 shareholders of record.

 

Dividends

 

The Company has not declared a cash dividend with respect to its Common Stock. Future payment of dividends is within the discretion of the Board of Directors and will depend on earnings, capital requirements, financial condition and other relevant factors. Although there are no restrictions limiting, or that are likely to limit, the Company’s ability to pay dividends on its Common Stock, the Company presently intends to retain future earnings for use in the business.

 

Recent Sales of Unregistered Securities, Use of Proceeds from Registered Securities

 

There were no sales of unregistered securities during the quarter ended December 31, 2016.

 

Issuer Purchases of Equity Securities

 

There were no purchases of equity securities during the quarter ended December 31, 2016.

 

Equity Compensation Plans

 

In October 2015, the Company approved the 2015 Plan, which provides the Company with the ability to issue stock options, stock awards and/or restricted stock purchase offers for up to an aggregate of 1,500,000 shares of Common Stock. As of December 31, 2016, there have been no issuances under the 2015 Plan.

 

 

In March 2013, the 2012 plan was approved by our shareholders. The 2012 plan provides the Company with the ability to issue stock options, stock appreciation rights, restricted stock and/or other stock-based awards for up to an aggregate of 2,050,000 shares of Common Stock.  As of December 31, 2016, the Company issued stock options to purchase shares of Common Stock and issued restricted Common Stock under the 2012 Plan to its Directors and employees for 620,000 shares and 1,073,441 shares, respectively.

 

The following table sets forth certain information at December 31, 2016 with respect to our equity compensation plans that provide for the issuance of options, warrants or rights to purchase our securities.

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
2015 Plan			—			$	—				1,500,000
2012 Plan			1,693,441			$	1.22				356,559
Equity compensation plans not approved by security holders			—			$	—				—
Total			1,693,441			$	1.22				1,856,559

 

ITEM 6.  SELECTED FINANCIAL DATA 

 

Not applicable.

 

 

ITEM 7.   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:

 

•

Critical Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

•

Results of Operations — Analysis of our financial results comparing the year ended December 31, 2016 to 2015.

 

•

Liquidity and Capital Resources — Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity.

 

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 employee 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.

 

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.

 

The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic 505-50, “Equity-Based Payments to Non-Employees.”  ASC Topic 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of (i) common stock issued for payments to non-employees is measured at the market price on the date of grant; (ii) equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if it is to pay cash or services instead of paying with or using the equity instrument.

 

Fair Value of Financial Instruments — Our short-term financial instruments, including cash, accounts receivable, 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.

 

Results of Operations

 

Years Ended December 31, 2016 and 2015

 

Revenue

 

During the year ended December 31, 2016, the Company reported revenue of $1,331,552, an increase of $1,133,800 or 573% over revenue of $197,752 for the year ended December 31, 2015. In 2016, revenue was comprised of sales of coconut water. In 2015, revenue was comprised primarily of sales from discontinued products.

 

Cost of Revenue

 

Cost of Revenue includes finished goods purchase costs, production costs, raw material costs and freight in costs.  Also included in Cost of Revenue are adjustments made to inventory carrying amounts, including markdowns to market.

 

For the year ended December 31, 2016, cost of revenue was $741,898 or 56% of revenue, compared to $551,847 or 279% of revenue for the year ended December 31, 2015. During the year ended December 31, 2015, the Company incurred expenses of $81,966 related to the discontinuance of certain products, which amount is included in cost of revenue.

 

Operating Expenses

 

For the year ended December 31, 2016, selling, general and administrative expenses were $1,858,089, an increase of $6,838 over selling, general and administrative expenses for the year ended December 31, 2015 of $1,851,251.  

 

This increase in selling, general and administrative expenses of $6,838 was primarily comprised of an increase in compensation costs of $415,394 and an increase in selling costs of $299,032, offset by a decrease in stock based compensation costs of $655,558.

 

 

Compensation costs increased by $415,394 in 2016 from 2015. This is primarily attributable to accrued stock bonuses of $160,000 and cash bonuses of $165,600 earned by management as a result of the Company reaching certain revenue targets as part of their employment agreements. The bonuses were unpaid as of December 31, 2016.

 

Selling costs, including freight and delivery expenses, broker fees and outside sales fees increased by $299,032 from 2015 to 2016. This is a result of the corresponding increase in sales for 2016.

 

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 $511,231 for the year ended December 31, 2016, compared to $1,166,789 for the year ended December 30, 2015.   This represents a reduction in selling, general and administrative expenses of $655,558. 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 a license agreement resulted in a reduction to operating expenses of $417,223 for the year ended December 31, 2015. See Note 4 of the Notes to the Financial Statements for further discussion.

 

Liquidity and Capital Resources

 

Liquidity

 

As of December 31, 2016, the Company had a working capital deficiency of $113,651, which included the estimated value of a stock bonus payable of 400,000 shares of Common Stock. For financial reporting purposes, the value of the stock bonus was calculated at $160,000 based upon the closing price of the Company’s Common Stock on December 31, 2016 at $0.40 per share. Net cash used in operating activities was $314,274 for the year ended December 31, 2016, a decrease of $164,373 over net cash used in operating activities for the year ended December 31, 2015 of $478,647. Net cash provided by financing activities was $337,500 for the year ended December 31, 2016 compared to $150,000 for the year ended December 31, 2015.

 

Working Capital Needs

 

Our working capital requirements increase as demand grows for our products. Due to an increased demand, the Company raised $337,500 in January and February 2016 through the issuance of Common Stock and warrants. See Note 5 of the Notes to the Financial Statements for further discussion. 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 or obtaining credit facilities.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company had no off-balance sheet arrangements as of December 31, 2016. 

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8.   FINANCIAL STATEMENTS

 

The audited financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On April 20, 2016, Cowan, Gunteski & Co., P.A. (“CG”) discontinued their SEC practice and resigned as the Company’s independent registered public accounting firm. On April 20, 2016, the Company engaged MSPC Certified Public Accountants and Advisors, P.C. (“MSPC”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2016. The decision to engage the New Auditor as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

 

 

ITEM 9A.  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 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 and financial officer concluded, as of the Evaluation Date, that the Company’s disclosure controls and procedures were effective.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The management of MOJO Organics, Inc. is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Rule 13a-15(f)) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

 

Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this evaluation, our officers concluded that, during the period covered by this annual report, our internal controls over financial reporting were not operating effectively.

 

As previously reported, the Company does not have an audit committee and is not currently obligated to have one. Management does not believe that the lack of an audit committee is a material weakness.

 

Attestation Report

 

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as such report is not required for non-accelerated filers.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal controls over financial reporting during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

ITEM 9B.  OTHER INFORMATION

 

Not applicable.

 

 

PART III

 

ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Executive Officers and Directors

 

Below are the names and certain information regarding our current executive officers and directors:

  

Name		Age		Title		Date First Appointed
Glenn Simpson		64		Chief Executive Officer, Chairman and Director		October 27, 2011
Peter Spinner		47		Chief Operating Officer, Director		March 17, 2014
Jeffrey Devlin		69		Director		January 27, 2012
Robert Kaufman		60		Director		April 1, 2015

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Biographical information of each current officer and director is set forth below.

 

Glenn Simpson is Chairman of the Board of Directors and Chief Executive Officer of the Company.  Mr. Simpson joined the Company in October 2011.  He has extensive experience in the beverage industry.   Mr. Simpson was Vice President and Chief Financial Officer of Coca-Cola Bottlers, Inc. in Uzbekistan from 1995 to 2000.  His primary responsibilities included corporate strategy, supervision of bottling and distribution operations and facilities construction.  His accomplishments included growing revenues from a base at $4 million to over $160 million annually.  The company was awarded “Bottler of the Year” by The Coca-Cola Company for two consecutive years under his leadership based upon product quality and revenue growth. From 2009 to 2011, Mr. Simpson was engaged in beverage projects on a consulting basis in Russia and Afghanistan.  Mr. Simpson is a Certified Public Accountant and holds an MBA from Columbia University School of Business.

 

Peter Spinner joined the Board of Directors of the Company in March 2014 and became the Chief Operating Officer of the Company in August 2014.  He is the founder and managing director of Wyatts Torch Equity Partners LP, (“Wyatts”), a family business focused on public and private investments in the food and beverage industry. As General Partner and Portfolio Manager of Wyatts since 2011, Mr. Spinner is responsible for investing the assets of the Partnership.   From 2009 until Wyatts was founded in 2011, Mr. Spinner was the managing partner of Ardent Asset Management, a money management firm based in New York City.  From 2000 to 2009, Mr. Spinner was a portfolio manager and an equity analyst at Trellus Capital Management focusing on technology, media and telecommunications. During his tenure at Trellus Capital Management, assets under management expanded from $100 million to $2 billion. Prior thereto, Mr. Spinner has also previously served as an analyst and portfolio manager at Irvine Capital and Forstmann, Leff Associates. He began his career at Salomon Brothers Inc. in the equity trading division. Mr. Spinner received his undergraduate degree from Franklin and Marshall College and his MBA from Fordham University.

 

Jeffrey Devlin has served on the Board of Directors of the Company since January 2012. Mr. Devlin has over 25 years of advertising and business development experience.  Mr. Devlin currently serves as Chairman, US Government Practice at WPP, which is a world leader in marketing communications services. He has held various other executive and creative positions over the course of his advertising career, including launching the introduction of Diet Coke for The Coca-Cola Company. Mr. Devlin currently serves on the board of directors of a number of private organizations, as well as on the board of directors of Location Based Technologies, Inc., a publicly traded company. Mr. Devlin received a Bachelor’s degree from Bethel University.

 

 

Robert Kaufman joined the Board of Directors of the Company in April 2015. Since 2012, Mr. Kaufman has served as the General Manager of Woodstock Farms Manufacturing. Woodstock Farms is a natural and organic food manufacturer with over 250 products in 10 categories selling to the natural and organic sector. Woodstock Farms is a division of United Natural Foods, Inc., a NASDAQ listed company with over $6 billion in annual revenue. From 1985 to 2011, Mr. Kaufman served in sales management roles at Performance Food Group, including Director of Special Segment Accounts. Performance Food Group is a broad line food distributor.

 

Board Committees

 

The Company has not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations. Our four directors perform all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.

 

Shareholder Communications

 

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

 

Code of Ethics

 

We have adopted a written code of ethics (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. To request a copy of the Code of Ethics, please make written request to our Company at 185 Hudson Street, Floor 25, Jersey City, New Jersey 07302.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act of 1934, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash only rights) and any changes in that ownership with the SEC.  To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2016 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.

 

 

ITEM 11.   EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the total compensation paid or earned by each of our named executive officers (as defined under SEC rules).

 

 

Summary Compensation Table
Name and Principal Position (a)			Year (b)				Salary ($) (c)				Bonus ($) (d)				Stock Awards ($) (e)				Total ($) (j)
Glenn Simpson			2016			$	126,000	(1)		$	88,800(2)			$	160,000(3)			$	374,800
Chief Executive Officer and Chairman			2015			$	27,500	(1)		$	—			$	—			$	27,500
Peter Spinner			2016			$	112,000	(4)		$	76,800(5)			$	—			$	188,800
Chief Operating Officer			2015			$	74,000	(4)		$	—			$	—			$	74,000

 

The Summary Compensation Table omits columns for Option Awards (f), Non-Equity Incentive Plan Compensation (g), Non-Qualified Deferred Compensation Earnings (h) and (i) All Other Compensation as no such amounts were paid to the named executive officers during the fiscal years ended December 31, 2016 or 2015.

 

(1)

Pursuant to his employment agreement discussed below, Mr. Simpson is entitled to a salary of not less than $18,500 per month, except for June through September 2015, where the amount was reduced to not less than $5,000 per month.  During 2016 and 2015, he received cash payments of $40,000 and $27,500, respectively.  Mr. Simpson forgave $96,000 and $139,500 due to him for the years ended December 31, 2016 and 2015, respectively.  As of December 31, 2016 and 2015, he was owed $87,000 and $1,000, respectively.

 

(2)

Pursuant to his employment agreement discussed below, Mr. Simpson is entitled to a cash bonus of 20% of his salary for achieving certain annual revenue targets, as defined.  As of December 31, 2016 and as a result of reaching said revenue targets, Mr. Simpson is entitled to the cash bonus for both 2016 and 2017.  As of December 31, 2016, he is owed $88,800 in cash bonus.

 

(3)

Pursuant to his employment agreement discussed below, Mr. Simpson is entitled to a stock bonus of 200,000 shares of Common Stock for achieving certain annual revenue targets, as defined.  As of December 31, 2016 and as a result of reaching said revenue targets, Mr. Simpson is entitled to the stock bonus for both 2016 and 2017.  The value of the Common Stock is based upon the closing price of the Common Stock on December 31, 2016 of $0.40 per share.  As of December 31, 2016, Mr. Simpson is owed 400,000 shares of Common Stock.

 

(4)

Pursuant to his employment agreement discussed below, Mr. Spinner is entitled to a salary of not less than $16,000 per month, except for June through September 2015, where the amount was reduced to not less than $8,000 per month.  During 2016 and 2015, he received cash payments of $40,000 and $74,000, respectively.  Mr. Spinner forgave $81,000 and $85,000 due to him for the years ended December 31, 2016 and 2015, respectively.  As of December 31, 2016 and 2015, he was owed $72,000 and $1,000, respectively.

 

(5)

Pursuant to his employment agreement discussed below, Mr. Spinner is entitled to a cash bonus of 20% of his salary for achieving certain annual revenue targets, as defined.  As of December 31, 2016 and as a result of reaching said revenue targets, Mr. Spinner is entitled to the cash bonus for both 2016 and 2017.  As of December 31, 2016, he is owed $76,800 in cash bonus.

 

  

The Company has no other plans in place and has never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

 

Employment Agreements

 

On June 15, 2015, the Company entered into an Amended and Restated Employment Agreement with Glenn Simpson (the “Simpson Agreement”), pursuant to which Mr. Simpson 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, among other items, 1,544,737 shares of Common Stock to be issued to the CEO upon the Company generating revenue of $3,000,000 during any twelve month period during the term (the “Simpson Shares”) and an annual cash and stock bonus (the “Simpson Bonus Plan”) based upon performance goals established by the Board of Directors of the Company. The cash bonus is established at 20% of the annual salary and the stock bonus is set at 200,000 shares of Common Stock per year through December 31, 2021, based upon revenue performance goals which vary by year and range from $900,000 to $19,200,000. The bonus awards may be accelerated should revenue exceed the annual target amounts.

 

In addition, on June 15, 2015, the Company entered into an Amended and Restated Employment Agreement with Peter Spinner (the “Spinner Agreement”) 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, among other items, 252,632 shares of Common Stock to be issued to the COO upon the Company generating revenue of $3,000,000 during any twelve month period during the term (the “Spinner Shares”) and an annual cash and stock bonus (the “Spinner Bonus Plan”) based upon performance goals established by the Board of Directors of the Company. The cash bonus is established at 20% of the annual salary. The stock bonus is set at 375,000 shares of Common Stock per year through December 31, 2018 and 200,000 shares of Common Stock per year beginning 2019 through December 31, 2021. The bonuses are based upon revenue performance goals which vary by year and range from $900,000 to $19,200,000. The bonus awards may be accelerated should revenue exceed the annual target amounts.

 

On December 15, 2015, the Company and Mr. Simpson entered into an amendment to the Simpson Agreement increasing the number of Simpson Shares by 337,500 and the Company and Mr. Spinner entered into an amendment to the Spinner Agreement increasing the number of Spinner Shares by 345,000.

 

On March 3, 2017, the Company entered into an amendment to the Spinner Agreement effective December 31, 2016 reducing the Spinner Bonus Plan by 1,500,000 shares.

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information regarding stock options held by our named executive officers at December 31, 2016.

 

 

									Options awards											Stock awards
Name (a)			Year				Number of securities underlying unexercised options exercisable (#) (b)			Number of securities underlying unexercised options unexercisable (#)(c)(1)				Option exercise price ($) (e)				Option expiration date (f)		Number of shares or units of stock that have not vested (#) (g)				Market value of shares of units of stock that have not vested ($) (h)
Glenn Simpson			2016				222,000			--				0.255				August 14, 2019			--			--
			2015				111,000			111,000				0.255				August 14, 2019			1,577,208			$788,604
Peter Spinner			2016				192,000			--				0.255				August 14, 2019			1,500,000(1)			$600,000
			2015				96,000			96,000				0.255				August 14, 2019			1,500,000(1)			$750,000

 

The Outstanding Equity Awards Table omits column (d) Equity incentive plan awards: Number of securities underlying unexercised unearned options related to Option Awards and columns (i) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) and (j) Equity incentive plan awards: Market value of payout value of unearned shares, units or other rights that have not vested  related to stock awards, as no such awards were outstanding as of December 31, 2016 and December 31, 2015.

 

(1)

Of such shares that have not yet vested, 1,500,000 will vest upon achievement of performance goals.

 

Option Exercises in 2016

 

No options were exercised by our executive officers during the year ended December 31, 2016.

 

 

Director Compensation

 

None of the non-employee directors receive cash compensation for serving as such, for serving on committees (if any) of the Board of Directors or for special assignments. Board members are not reimbursed for expenses incurred in connection with attending meetings.  During the year ended December 31, 2016, there were no arrangements that resulted in our making payments to any of our non-employee directors for any services provided to us by them as directors.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information with respect to the beneficial ownership of our Common Stock known by us as of March 23, 2017 by:

 

	•	each person or entity known by us to be the beneficial owner of more than 5% of our Common Stock;
	•	each director;
	•	each named executive officer; and
	•	all directors and executive officers as a group.

 

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our Common Stock owned by them, except to the extent such power may be shared with a spouse.

 

Name Of Owner		Number Of Shares Owned				Percentage Of Common Stock (1)
Glenn Simpson Chief Executive Officer, Chairman and Director			3,519,665	(2)			19	%
Jeffrey Devlin Director			474,926	(3)			3	%
Robert Kaufman Director			26,250	(4)			—	%
Peter Spinner Chief Operating Officer and Director			6,634,877	(5)			30	%
Wyatts Torch Equity Partners LP			5,975,275				28	%
All Officers and Directors As a Group (4 persons)			10,655,718	(6)			48	%

 

	(1)	Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 23, 2017 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.
	(2)	Includes (i) 3,297,665 shares of restricted Common Stock and (ii) 222,000 shares of Common Stock underlying stock options granted pursuant to the Company’s 2012 Plan.  Does not include a stock bonus of 400,000 shares of Common Stock earned but not issued pursuant to Mr. Simpson’s employment agreement as of December 31, 2016.

	(3)	Includes (i) 439,926 shares of restricted Common Stock and (ii) 35,000 shares of Common Stock underlying stock options granted pursuant to the Company’s 2012 Plan.
	(4)	Includes 26,250 shares of Common Stock underlying stock options granted pursuant to the Company’s 2012 Plan. Does not include 8,750 shares of Common Stock underlying a stock option granted pursuant to the 2012 Plan, which option becomes exercisable June 15, 2017.
	(5)	Includes (i) 75,000 shares of restricted Common Stock; (ii) 2,684,066 shares of Common Stock held by Wyatts, an entity of which Mr. Spinner is the general partner and portfolio manager; (iii) 192,000 shares of Common Stock underlying stock options granted pursuant to the Company’s 2012 Plan; (v) 3,291,209 shares of Common Stock underlying currently exercisable warrants held by Wyatts; (vi) 392,602 shares of Common Stock owned individually and/or jointly with his spouse. Does not include 1,500,000 shares of restricted Common Stock which shares vest upon the achievement of performance goals.
	(6)	Includes (i) 3,812,591 shares of restricted Common Stock; (ii) 475,250 shares of Common Stock underlying stock options granted pursuant to the Company’s 2012 Plan and (iii) 3,291,209 shares of Common Stock underlying warrants, as described above.  Does not include stock options to purchase 8,750 shares of Common Stock, as described above.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

On October 20, 2015, the 2015 Plan was approved by the Board of Directors. The 2015 Plan provides the Company with the ability to issue stock options, stock awards and/or restricted stock purchase offers for up to an aggregate of 1,500,000 shares of Common Stock. As of December 31, 2016, no shares had been issued under the 2015 Plan.

 

On February 22, 2013, the 2012 Plan was adopted by the Board of Directors, subject to stockholder approval.  The Company’s stockholders approved the 2012 Plan on March 29, 2013.  The 2012 Plan provides the Company with the ability to issue stock options, stock appreciation rights, restricted stock and/or other stock-based awards for up to an aggregate of 2,050,000 shares of Common Stock.  As of March 30, 2017, (i) stock options to purchase 620,000 shares of the Company’s Common Stock and (ii) 1,073,441 shares of restricted Common Stock had been issued to directors and employees under the 2012 Plan.

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Other than as disclosed below and in this Form 10-K, there have been no transactions, since January 1, 2015, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years and in which any of our directors, executive officers or beneficial holders of more than 5% of our outstanding Common Stock, or any of their respective immediate family members, has had or will have any direct or material indirect interest. 

 

On March 3, 2017, the Company entered into an amendment to the Spinner Agreement effective December 31, 2016 reducing the Spinner Bonus Plan by 1,500,000 shares.

 

In connection with two private placement offerings in March 2014, investors received one purchase warrant at $0.91 per share for each share of stock purchased. The warrants issued to Wyatts were incorrectly calculated. On March 6, 2017, the Company issued warrants to purchase 915,447 shares of Common Stock at $0.91 per share to Wyatts to correct for this error. There was no financial impact resulting from this warrant understatement other than an understatement of potentially dilutive shares.

 

In January 2016, Wyatts purchased 285,715 shares of Common Stock pursuant to the 2016 Subscription. The purchase price of the shares was $0.35 per share, and included purchase warrants for 142,858 shares at a price of $0.70 per share. The five year warrant is immediately exercisable.

 

 

In August 2015, the Company entered into a subscription agreement (the “2015 Subscription”) whereby 750,000 shares of Common Stock were sold to Wyatts, 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.

 

On December 8, 2015, the Company entered into a settlement agreement with Richard Seet, a former officer and director, pursuant to which the parties agreed (i) to terminate that certain Employment Agreement entered into between the Company and Seet dated October 1, 2012 and that certain Amended and Restated Restricted Stock Agreement entered into between the Company and Seet dated December 4, 2013 and all obligations set forth therein; (ii) that Seet will return stock certificates representing 1,165,251 shares of Common Stock of the Company that would have vested upon certain revenue milestones to the Company for cancellation; (iii) the Company will issue to Seet settlement shares of the Company which will be subject to a certain lock up legend providing that Seet may only sell 145,656 of the settlement shares per quarter upon the Rule 144 holding period being satisfied and upon the Company generating a minimum of $5,000,000 in revenue during any 12 month period; and (iv) Seet will provide the Company with a release and discharge from any and all liability.

 

On June 15, 2015, the Company entered into 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, among other items, the Simpson Bonus Plan and the Simpson Shares (1,544,737 shares) to be issued to the CEO upon the Company generating revenue of $3,000,000 during any twelve month period during the term.

 

In addition, on June 15, 2015, the Company entered into 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, among other items, the Spinner Bonus Plan and the Spinner Shares (252,632 shares) 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.

 

On December 15, 2015, the Company and Mr. Simpson entered into an amendment to the Simpson Agreement increasing the number of Simpson Shares by 337,500 and the Company and Mr. Spinner entered into an amendment to the Spinner Agreement increasing the number of Spinner Shares by 345,000.  

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to (and we do not) have our Board of Directors comprised of a majority of “Independent Directors.”

 

Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the Nasdaq Marketplace Rule 5605(a)(2). In doing so, the Board of Directors has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors. After such review, the Board of Directors has determined that Mr. Devlin and Mr. Kaufman qualify as independent under the requirements of the Nasdaq listing standards.

 

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees

 

On October 23, 2015, Liggett Vogt & Webb (“LVW”) was dismissed as the Company’s independent registered public accounting firm. As of October 23, 2015, the Company engaged Cowan, Gunteski & Co., P.A. (“CG”) as its new independent registered public accounting firm. On April 19, 2016, CG discontinued its SEC practice and resigned as the Company’s independent registered public accounting firm. The Company appointed MSPC, Certified Public Accountants and Advisors, a Professional Corporation (“MSPC”) as its independent registered public accounting firm.

 

 

The aggregate fees billed to the Company for services rendered in connection with the years ended December 31, 2016 and 2015 are set forth in the table below:

 

Fee Category		2016				2015
Audit fees (1)		$	32,000			$	32,500
Audit-related fees (2)			—				—
Tax fees (3)			—				—
All other fees (4)			—				1,500
Total fees		$	32,000			$	34,000

 

	(1)	Audit fees consist of fees incurred for professional services rendered for the audit of financial statements, for reviews of our interim financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.  For 2016, audit fees represent fees billed by MSPC.  For 2015, audit fees represent fees billed by CG and LVW of $20,500 and $12,000, respectively.
	(2)	Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements, but are not reported under “Audit fees.”
	(3)	Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
	(4)	All other fees consist of fees billed for all other services.  For 2015, all other fees were billed by LVW.

 

Audit Committee’s Pre-Approval Practice

 

We currently do not have an audit committee. Our board of directors has approved the services described above.

 

 

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Financial Statement Schedules

 

The financial statements of MOJO Organics, Inc. are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.

 

The following Exhibits are being filed with this Annual Report on Form 10-K:

 

Exhibit No.		SEC Report Reference Number		Description
2.1		2.1		Agreement and Plan of Merger by and among Specialty Beverage and Supplement, Inc., SBSI Acquisition Corp.  and MOJO Ventures, Inc. dated May 13, 2011 (1)
2.2		2.1		Split-Off Agreement, dated as of October 27, 2011, by and among MOJO Ventures, Inc., SBSI Acquisition Corp., MOJO Organics, Inc., and the Buyers party thereto (2)
3.1		3.1		Certificate of Incorporation of MOJO Shopping, Inc. (3)
3.2		3.1		Amendment to Certificate of Incorporation of MOJO Ventures, Inc. (4)
3.3		3.1		Certificate of Amendment to Certificate of Incorporation of MOJO Ventures, Inc. (5)
3.4		3.4		Articles of Merger (1)
3.5		3.1		Certificate of Amendment to Certificate of Incorporation of MOJO Organics, Inc. (9)
3.6		3.1		Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (11)
3.7		3.1		Amended and Restated Bylaws of MOJO Ventures, Inc. (6)
3.8		3.8		Amendment No. 1 to Amended and Restated Bylaws of MOJO Organics, Inc. (13)
10.1		10.1		Form of Second Amended and Restated Restricted Stock Agreement (14)
10.2		10.6		2012 Long-Term Incentive Equity Plan (13)
10.3		10.7		Form of Stock Option Agreement under the 2012 Long-Term Incentive Equity Plan (13) †
10.4		10.8		Form of Indemnification Agreement with officers and directors (13)
10.5		10.1		Form of Promissory Note issued to OmniView Capital LLC and Paul Sweeney (11)

10.6		10.2		Advisor Agreement with OmniView Capital LLC (11)
10.7		10.3		Amended and Restated Securities Purchase Agreement (11)
10.8		10.4		Registration Rights Agreement (11)
10.9		10.5		Commitment letter executed by each of Glenn Simpson, Jeffrey Devlin and Richard Seet (11)
10.10		10.6		Amendment to Richard X. Seet Restricted Stock Agreement (11)
10.11		10.7		Letter Agreement relating to nominee right of OmniView Capital LLC (11)
10.12		10.1		Juice License Agreement between Chiquita Brands L.L.C. and MOJO Organics, Inc. dated as of August 15, 2012 (12)
10.13		10.17		Form of Subscription Agreement for 2013 Offering (13)
10.14		10.18		Employment Agreement dated March 1, 2013 between MOJO Organics, Inc. and Glenn Simpson (13) †
10.15		10.15		Form of Advisor Agreement (14)
10.16		10.16		Form of Restricted Stock Agreement, dated December 4, 2014, between MOJO Organics, Inc. and each of Glenn Simpson, Richard Seet, Jeffrey Devlin and Nicholas Giannuzzi.  (14) †
10.17		10.17		Form of Restricted Stock Agreement, dated March 2014, between MOJO Organics, Inc. and each of Glenn Simpson, Richard Seet, Jeffrey Devlin, Peter Spinner and Marianne Vignone. (14) †
10.18		10.18		Form of Subscription Agreement for March 2014 Stock (with Warrants) Offering (14)
10.19		10.19		Form of Warrant (14)
10.20		10.20		Form of Subscription Agreement for March 2014 Stock Offering (14)
10.21		10.21		Form of Distribution Agreement
10.22		10.2		Form of Stock Option Agreement under the 2012 Long-Term Incentive Equity Plan, dated August 14, 2014, between MOJO Organics, Inc. and each of Glenn Simpson, Peter Spinner, Richard Seet, Jeffery Devlin and Marianne Vignone. (15)
10.23		10.3		Employment Agreement, dated August 12, 2014, between MOJO Organics, Inc. and Peter Spinner. (15)

10.24		10.1		Form of Restricted Stock Agreement, dated August 12, 2014, between MOJO organics, Inc. and Peter Spinner. (15)
10.25		10.1		Settlement and Release Letter Agreement by and between MOJO Organics, Inc. and Richard Seet (17)
10.26		10.1		Letter Agreement by and between MOJO Organics, Inc. and Glenn Simpson dated December 15, 2015 (18)
10.27		10.1		Letter Agreement by and between MOJO Organics, Inc. and Peter Spinner dated December 15, 2015 (18)
10.28		10.1		Common Stock Purchase Agreement by and between MOJO Organics, Inc. and Wyatts Torch Equity Partners, LP dated March 6, 2017
16.1		16.1		Letter from Liggett, Vogt & Webb, P.A. (16)
16.2		16.2		Letter from Cowan, Gunteski & Co., P.C. (19)
31.1		31.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

* Filed herewith.

** Filed previously

† Management compensatory plan, contract or arrangement.

 

(1)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the Securities and Exchange Commission (the “SEC”) on May 18, 2011.

  

(2)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on November 2, 2011.

  

(3)

Incorporated by reference to the Registrant's Registration Statement on Form SB-2 as an exhibit, numbered as indicated above, filed with the SEC on December 19, 2007.

  

(4)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on May 4, 2011.

  

(5)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on January 4, 2012.

  

 

(6)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on October 31, 2011.

  

(7)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on August 12, 2011.

  

(8)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on June 8, 2011.

  

(9)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on April 2, 2013.

  

(10)

Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q as an exhibit, numbered as indicated above, filed with the SEC on June 25, 2013.

  

(11)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on February 1, 2013.

  

(12)

Incorporated by reference to the Registrant’s Current Report on Form 8-K/A as an exhibit, numbered as indicated above, filed with the SEC on February 7, 2013.  Portions of the exhibit and/or related schedules or exhibits thereto have been omitted pursuant to a request for confidential treatment, which has been granted by the Commission.

  

(13)

Incorporated by reference to the Registrant’s Current Report on Form 10-K as an exhibit, numbered as indicated above, filed with the SEC on September 24, 2013.

  

(14)

Incorporated by reference to the Registrant’s Annual Report on Form 10-K as an exhibit, numbered as indicated above, filed with the SEC on April 16, 2014.

  

(15)

Incorporated by reference to the Registrant’s Annual Report on Form 10-Q as an exhibit, numbered as indicated above, filed with the SEC on October 2, 2014.

  

(16)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on October 23, 2015.

  

(17)

Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on December 9, 2015.

 

	(18)	Incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on December 15, 2015.
	(19)	incorporated by reference to the Registrant’s Current Report on Form 8-K as an exhibit, numbered as indicated above, filed with the SEC on April 19, 2016.

 

 

 

SIGNATURES 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	MOJO ORGANICS, INC.
Dated: March 24, 2017	By:	/s/Glenn Simpson
		Glenn Simpson, Chief Executive Officer and Chairman   (Principal Executive and Principal Financial Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE		TITLE		DATE
/s/Glenn Simpson		Director, Chief Executive Officer and Chairman  (Principal Executive and Principal Financial Officer)		March 24, 2017
Glenn Simpson
/s/Marianne Vignone		Controller (Principal Accounting Officer)		March 24, 2017
Marianne Vignone

 

  

PART IV - FINANCIAL INFORMATION

 

	Page
Report of Independent Registered Public Accounting Firm – MSPC Certified Public Accountants and Advisors, A Professional Corporation	F-1
Report of Independent Registered Public Accounting Firm – Cowan, Gunteski & Co., P. A.	F-2
Statements of Operations for the years ended December 31, 2016 and 2015	F-3
Balance Sheets as of December 31, 2016 and 2015	F-4
Statements of  Changes in Stockholders’ Equity /(Deficit) for the years ended December 31, 2016 and 2015	F-5
Statements of Cash Flows for the years ended December 31, 2016 and 2015	F-6
Notes to Financial Statements	F-7

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Mojo Organics, Inc.

We have audited the accompanying balance sheet of MOJO Organics, Inc. as of December 31, 2016, and the related statements of operations, changes in stockholders’ equity/deficit, and cash flows for the year then ended. MOJO Organics, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MOJO Organics, Inc. as of December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MSPC

Certified Public Accountants and Advisors,

A Professional Corporation

 

 

Cranford, New Jersey

March 24, 2017

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and

Stockholders of MOJO Organics, Inc.

 

We have audited the accompanying balance sheet of MOJO Organics, Inc. as of December 31, 2015, and the related statements of operations, changes in stockholders’ equity/deficit, and cash flows for the year then ended. MOJO Organics, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MOJO Organics, Inc. as of December 31, 2015, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ Cowan, Gunteski & Co., P.A.

 

February 15, 2016

Tinton Falls, NJ

 

Reply to: 730 Hope Road Tinton Falls NJ 07724 Phone: 732.676.4100 Fax: 732.676.4101

40 Bey Lea Road, Suite A101 Toms River NJ 08753 Phone: 732.349.6880 Fax: 732.349.1949

Member of CPAmerica International

www.CowanGunteski.com

 

 

 

MOJO ORGANICS, INC.
Statements of Operations
For the Years Ended December 31, 2016 and 2015
			2016				2015
Revenue		$	1,331,552			$	197,752
Cost of Revenue			741,898				551,847
Gross Profit (Loss)			589,654				(354,095	)
Operating Expenses
Selling, general and administrative			1,858,089				1,851,251
License Settlement			—				(417,223	)
Total Operating Expenses			1,858,089				1,434,028
Loss from Operations			(1,268,435	)			(1,788,123	)
Total Other Income			518				114
Loss Before Provision for Income Taxes			(1,267,917	)			(1,788,009	)
Provision for Income Taxes			—				—
Net Loss		$	(1,267,917	)		$	(1,788,009	)
Net loss per common share, basic and diluted		$	(0.07	)		$	(0.10	)
Basic and diluted weighted average number of common shares outstanding			18,192,787				17,154,855
The  accompanying notes are an integral part of these financial statements.

 

 

MOJO ORGANICS, INC.
Balance Sheets
As of December 31, 2016 and 2015
ASSETS
			2016				2015
CURRENT ASSETS:
Cash and cash equivalents		$	38,668			$	15,442
Accounts receivable, net			29,872				6,636
Inventory			312,029				33,473
Supplier deposits			—				33,835
Prepaid expenses			29,709				10,350
Total Current Assets			410,278				99,736
PROPERTY AND EQUIPMENT, net			—				1,811
Security deposit			4,461				2,778
TOTAL ASSETS		$	414,739			$	104,325
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	39,329			$	16,730
Accrued payroll to related parties			484,600				3,050
Total Current Liabilities			523,929				19,780
Commitments and Contingencies
STOCKHOLDERS'  EQUITY (DEFICIT)
Preferred stock, 10,000,000 shares authorized at $0.001 par value, no shares issued and outstanding			—				—
Common stock, 190,000,000 shares authorized at $0.001 par value,  18,380,326 and 17,309,590 shares issued and outstanding, at December 31, 2016 and December 31, 2015, respectively			18,380				17,309
Additional paid in capital			21,265,200				20,192,089
Accumulated deficit			(21,392,770	)			(20,124,853	)
Total Stockholders' Equity (Deficit)			(109,190	)			84,545
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)		$	414,739			$	104,325
The accompanying notes are an integral part of these financial statements.

 

 

MOJO ORGANICS, INC.
Statements of Changes in Stockholders' Equity (Deficit)
For the Years Ended December 31, 2016 and 2015
		Common Stock
		Shares				Amount				Additional Paid-In Capital				Accumulated Deficit				Stockholders’ Equity (Deficit)
Balance, December 31, 2014			16,907,396			$	16,907			$	18,436,503			$	(18,336,844	)		$	116,566
Issuance of restricted Common Stock and Warrants:
Private Placement			750,000				750				149,250				—				150,000
Directors and Employees, vest upon future performance			226,485				226				(226	)			—				—
Advisors and Consultants			8,334				8				4,159				—				4,167
Advisors and Consultants, vest upon future performance			582,626				583				(583	)			—				—
Stock cancelled from former director			(1,165,251	)			(1,165	)			1,165				—				—
Stock based compensation
Stock options			—				—				77,135				—				77,135
Restricted Common Stock vesting			—				—				1,089,654				—				1,089,654
Accrued payroll to related parties - forgiven			—				—				435,032				—				435,032
Net loss			—				—				—				(1,788,009	)			(1,788,009	)
Balance, December 31, 2015			17,309,590			$	17,309			$	20,192,089			$	(20,124,853	)		$	84,545
Issuance of restricted Common Stock and Warrants:
Private Placement			964,286				965				336,535				—				337,500
Advisors and Consultants			106,450				106				48,345				—				48,451
Stock based compensation :
Stock options			—				—				45,097				—				45,097
Restricted Common Stock vesting			—				—				466,134				—				466,134
Accrued payroll to related parties - forgiven			—				—				177,000				—				177,000
Net loss			—				—				—				(1,267,917	)			(1,267,917	)
Balance, December 31, 2016			18,380,326			$	18,380			$	21,265,200			$	(21,392,770	)		$	(109,190	)
The accompanying notes are an integral part of these financial statements.

 

 

MOJO ORGANICS, INC.
Statements of Cash Flows
For the Years Ended December 31, 2016 and 2015
		2016				2015
Cash flows from operating activities:
Net loss		$	(1,267,917	)		$	(1,788,009	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			458				1,512
Loss on disposal of property and equipment			1,102				807
Stock-based compensation - stock options			45,097				77,135
Stock and warrants issued to directors and employees			466,134				1,089,654
Stock and warrants issued to advisors and consultants			48,451				4,167
Bad debt expense			—				7,726
License agreement			—				(417,223	)
Changes in assets and  liabilities:
Decrease (increase) in accounts receivable			(23,236	)			29,528
Decrease (increase) in inventory			(278,556	)			411,855
Decrease (increase) in supplier deposits			33,835				(32,053	)
Decrease (increase) in prepaid expenses			(19,359	)			27,537
Increase in security deposit			(1,683	)			(484	)
Increase (decrease) in accounts payable and accrued expenses			22,850				(108,204	)
Increase in accrued payroll to related parties			658,550				217,405
Net cash used in operating activities			(314,274	)			(478,647	)
Net cash used in investing activities:
Purchase of property and equipment			—				(1,527	)
Net cash used in investing activities			—				(1,527	)
Net cash from financing activities:
Sale of common stock, net			337,500				150,000
Net cash provided by financing activities			337,500				150,000
Net increase (decrease) in cash and cash equivalents			23,226				(330,174	)
Cash and cash equivalents at beginning of period			15,442				345,616
Cash and cash equivalents at end of period		$	38,668			$	15,442
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid		$	—			$	—
Taxes paid		$	—			$	—
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Accrued payroll to related parties converted to additional paid-in capital		$	177,000			$	435,032
The accompanying notes are an integral part of these financial statements.

 

 

 

MOJO ORGANICS, INC.

Notes to Financial Statements

December 31, 2016 and 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 engages in new product development, production, marketing, distribution and sales of beverage brands that are natural, USDA Organic and Non GMO Project Verified.

  

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

Cash equivalents include investment instruments and time deposits purchased with a maturity of three months or less.

 

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides for probable uncollectible amounts based upon its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of December 31, 2016 and 2015 was zero and $3,000, respectively.

 

Inventories

Inventories, consisting solely of finished goods, 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 years.  Computer software is depreciated over a one year period. 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.  

 

Revenue Recognition

Revenues 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 years ended December 31, 2016 and 2015, as they would have had an anti-dilutive impact on the Company’s net loss per common share:

		2016				2015
Shares underlying options outstanding			620,000				620,000
Shares underlying warrants outstanding			3,096,919				2,614,776
Total			3,716,919				3,234,776

 

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 2015 are subject to examination by tax authorities.

 

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2016 and 2015, the Company had no accrued interest or penalties. The Company has had no Federal or state tax examinations in the past nor does it have any at the current time.

 

Stock-Based Compensation

ASC Topic 718, “Accounting for Stock-Based Compensation” prescribes accounting and reporting standards for employee 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.

 

The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic 505-50, “Equity-Based Payments to Non-Employees.”  ASC Topic 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of (i) common stock issued for payments to non-employees is measured at the market price on the date of grant; (ii) equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if it is to pay cash or services instead of paying with or using the equity instrument.

 

Fair value of financial instruments

The carrying amounts of financial instruments, which include cash, accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short-term nature.

 

 

New Accounting Pronouncements

In 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 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.

 

Reclassifications

Certain amounts in the 2015 Financial Statements have been reclassified to conform to the presentation used in the 2016 Financial Statements.

 

NOTE 3 – INCOME TAX

 

The Company accounts for income taxes under the assets and liability method.  Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards.  Deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are  reduced by a  valuation  allowance  when,  in the opinion  of  management,  it is more  likely  than not  that  some portion or all of the deferred  tax assets will not be realized.

 

 

The reconciliation of income taxes at the statutory rate of 34% to the provision for income taxes recorded in the Statements of Operations is as follows:

 

		Year ended December 31,
		2016				2015
Tax benefit at federal statutory rate			34.0	%			34.0	%
State tax expense, net of federal benefit			5.6				5.6
Change in valuation allowance			(39.6	)			(39.6	)
Effective tax rate			—				—

 

The reported provision for income tax differs from the amount computed by applying the statutory income tax rates to the loss before income tax as follows:

 

		Year ended December 31,
		2016				2015
Income tax expense at statutory rate		$	(502,095	)		$	(708,052	)
Valuation allowance			502,095				708,052
Income tax expense		$	—			$	—

 

Net deferred tax assets consist of the following components:

 

		As of December 31,
		2016				2015
Net operating loss carryover		$	2,187,491			$	1,889,053
Stock-based compensation			2,886,566				2,684,119
Deferred tax asset			5,074,057				4,573,172
Valuation allowance			(5,074,057	)			(4,573,172	)
Net deferred tax asset		$	—			$	—

 

An income tax benefit has not been recognized for operating losses generated in prior periods based on uncertainties concerning the ability to generate taxable income in future periods.  At December 31, 2016, the Company had available net operating loss carry-forwards of approximately $5,268,748 which expire in various years through the year ending December 31, 2036.  Utilization of the tax loss carry-forwards are not assured, however, because the Company has incurred significant operating losses.  As a result, the deferred income tax asset arising from these net operating loss carry-forwards and from other temporary differences are not recorded in the accompanying Balance Sheets.  Due to the uncertainty of the Company’s realization of this benefit, a valuation allowance was established to fully reserve such assets. The valuation allowance increased by $502,095 and $708,052 for the years ended December 31, 2016 and 2015, respectively.

  

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

On June 15, 2015, the Company entered into an Amended and Restated Employment Agreement (the "Simpson Agreement") with Glenn Simpson pursuant to which Mr. Simpson will continue to act as the Company's CEO and Chairman for a term of five (5) 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, par value $0.001 (“Common Stock”) to be issued to Mr. Simpson upon the Company generating revenue of $3,000,000 during any 12 month period during the term (the “Simpson Shares”) and (iii) an annual bonus comprised of cash and Common Stock based on performance goals established by the Board of Directors of the Company as set forth in the Simpson Agreement.  The cash bonus is established at 20% of the annual salary. The stock bonus is set at 200,000 shares of Common Stock per year through December 31, 2021 based upon revenue performance goals. The revenue goals range from $900,000 to $19,200,000 per year. The bonus awards may be accelerated should revenue exceed the annual target amounts. On December 15, 2015, the Company and Mr. Simpson entered into an amendment to the Simpson Agreement increasing the Simpson Shares by 337,500.

 

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 (5) 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 Mr. Spinner upon the Company generating revenue of $3,000,000 during any 12 month period during the term (the “Spinner Shares”) and (iii) an annual bonus comprised of cash and Common Stock based on performance goals established by the Board of Directors of the Company as set forth in the Spinner Agreement.  The cash bonus is established at 20% of the annual salary. The revenue goals range from $900,000 to $19,200,000 per year. The bonus awards may be accelerated should revenue exceed the annual target amounts. On December 15, 2015, the Company and Mr. Spinner entered into an amendment to the Spinner Agreement increasing the number of Spinner Shares by 345,000. The Company amended the Spinner Agreement effective December 31, 2016 by reducing the stock bonus shares in the Spinner Agreement by 1,500,000 shares.

 

As of December 31, 2016, the revenue goals pursuant to the Simpson Agreement and the Spinner Agreement for the years ended December 31, 2016 and 2017 were met. As a result, Mr. Simpson and Mr. Spinner each earned the cash bonus for the years ended December 31, 2016 and December 31, 2017. In addition, Mr. Simpson earned the stock bonus for the years ended December 31, 2016 and 2017. Accordingly, the accompanying financial statements include charges to income for cash and stock bonus of $165,600 and $160,000, respectively. As of December 31, 2016, neither the cash nor the stock bonuses had been paid.

 

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 September 15, 2016 at a rate of $2,230 per month.  The lease agreement was terminated on February 28, 2017. The Company signed a new lease agreement for the period March 1, 2017 to February 28, 2018. The new rent under this agreement is $2,259 per month. Lease expense amounted to $25,021 and $20,982 for the years ended December 31, 2016 and 2015, respectively.

 

Licensing Agreement

On March 27, 2015, pursuant to the terms of a license agreement, the Company was provided with written notice of termination effective September 27, 2015. The notice demanded payment by the Company of liquidated damages and royalties. On May 29, 2015, the parties settled the termination terms of the license agreement via letter agreement. The accompanying statement of operations for the year ended December 31, 2015 reflects income of $417,223, representing the reversal of accrued royalties offset by the final termination settlement amount of $90,000.

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

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

 

In October 2015, the Company approved the 2015 Incentive Stock Plan, which provides the Company with the ability to issue stock options, stock awards and/or restricted stock purchase offers for up to an aggregate of 1,500,000 shares of Common Stock.

 

In 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 Offerings

On January 20, 2016, the Company approved a subscription agreement (the “2016 Subscription”) whereby shares of Common Stock were offered to accredited investors for $0.35 per share. For every two shares purchased, the investor will receive a warrant to acquire one share of Common Stock at an exercise price of $0.70 per share exercisable for a period of two years from the date of issuance. As of February 12, 2016, the Company received proceeds of $337,500 from the 2016 Subscription for a total Common Stock and warrant issuance of 964,286 and 482,143 shares, respectively.

 

 

In August 2015, the Company entered into a subscription agreement (the “2015 Subscription”) 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.

 

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 1,726,485 shares issued to employees and directors and 582,626 shares issued to a former director, 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 December 2015, the Company entered into a settlement with a former director of the Company whereby restricted Common Stock amounting to 1,165,251 shares was cancelled. The former director was issued 582,626 shares of restricted Common Stock subject to a lock up legend providing that the Company generate certain minimum revenues and providing for limitations on the amount of Common Stock that the former director can sell per quarter.

 

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, which shares will vest upon the Company reaching a $3,000,000 revenue threshold during any twelve month 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. In December 2015, the Company awarded 682,500 shares of Common Stock to its officers and employees. These 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 Financial Statements.

 

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

 

				Number of Shares				Weighted Average Grant Date Fair Value
	Unvested share balance, January 1, 2015				6,091,992			$	1.07
	Granted				809,111				0.34
	Vested				(1,525,546	)			1.32
	Forfeited				(1,165,251	)			1.40
	Unvested share balance, December 31, 2015				4,210,306			$	0.75
	Granted				—				—
	Vested				(1,901,193	)			1.33
	Forfeited				—				—
	Unvested share balance, December 31, 2016				2,309,113			$	0.21

  

In connection with the issuance of restricted stock, the Company recorded share-based compensation expense of $466,134 and $1,089,654 for the years ended December 31, 2016 and 2015, respectively.   As of December 31, 2016, there was $1,308,437 of unrecognized compensation expense related to unvested share-based compensation which vests only upon the achievement of certain performance criteria.

 

Stock Warrants

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

 

 

The following table summarizes warrant activity during the period:

 

		Number of Warrants
Outstanding at January 1, 2015			1,114,776
Issued in connection with the 2015 Subscription			1,500,000
Outstanding at December 31, 2015			2,614,776
Issued in connection with the 2016 Subscription			482,143
Outstanding at December 31, 2016			3,096,919
Exercisable at December 31, 2016			3,096,919

 

Advisory Services

On October 3, 2013, the Company entered into an agreement with Ian Thompson 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.  The stock is vested; however it is restricted from trading. Ian Thompson was also issued 200,000 shares of restricted Common Stock, which was to vest quarterly based upon the Company reaching certain market capitalization and revenue goals, in addition to providing the above services, with the last tranche vesting scheduled to vest on June 30, 2014. Consulting fees amounting to $105,000 and $280,000 were recorded in 2014 and 2013, respectively, related to the 200,000 shares of Common Stock.  Throughout the term of the agreement, the Company requested that Ian Thompson to render performance under the agreement and to provide evidence of same. Ian Thompson failed to perform in all material respects under the terms of the agreement and refused to provide evidence.

 

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

 

NOTE 6 – 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 are exercisable in four equal tranches in December 2015, June 2016, December 2016 and June 2017. They expire in June 2020.

The following table summarizes stock option activity under the Plans:

 

				Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)
	Outstanding, January 1, 2015				830,000			$	0.714				3.4
	Granted				35,000			$	0.255				5.0
	Expired				(210,000	)		$	2.070				—
	Forfeited				(35,000	)		$	0.255				3.7
	Outstanding, December 31, 2015				620,000			$	0.255				3.7
	Granted				—				—				—
	Expired				—				—				—
	Forfeited				—				—				—
	Outstanding, December 31, 2016				620,000			$	0.255				2.7
	Exercisable, December 31, 2016				611,250			$	0.255				2.7

 

During the years ended December 31, 2016 and 2015, compensation expense of $45,097 and $77,135, respectively, was recorded. As of December 31, 2016, there was $1,330 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized in 2017.

 

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2016 and 2015 was $89,900 and $151,900, respectively.  Aggregate intrinsic value represents the difference between the Company's closing stock price on the last trading day of the fiscal period, which was $0.40 and $0.50 as of December 31, 2016 and 2015, respectively, and the exercise price multiplied by the number of options outstanding. 

 

The following table summarizes weighted-average assumptions using the Black-Scholes option-pricing model used on the date of the grants issued for the years ended December 31, 2015: 

		2015
Volatility			207	%
Expected term (years)			5
Risk-free interest rate			1.71	%
Dividend yield			0	%

 

The exercise price on the grant date in relation to the market price during 2015 is as follows:

 

		2015
Exercise price lower than market price		$	—
Exercise price equal to market price		$	—
Exercise price exceeded market price		$	0.165

 

NOTE 7 – CONCENTRATIONS

 

Major Customers

During the year ended December 31, 2016, the Company had two customers that accounted for approximately 45% and 16% of revenue. Accounts receivable at December 31, 2016 from these two customers amounted to $12,494 and zero, respectively. For the year ended December 31, 2015, there were no major customers accounting for more than 10% of total revenue.

 

Major Suppliers

During the year ended December 31, 2016, the Company purchased its inventory from a single supplier. The Company has established relationships with other suppliers which management believes could meet its needs on similar terms. Accounts payable at December 31, 2016 to this supplier was zero. At December 31, 2016, the supplier owed the Company $14,381, which amount was included in prepaid expenses.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

As of December 31, 2016, accrued payroll of $484,600 was payable to the Chief Executive Officer (the “CEO”) and the Chief Operating Officer (the “COO”). This amount included unpaid bonus as well as unpaid salary. As of December 31, 2015, accrued payroll of $3,050 was payable to the CEO, COO and Controller (and Principal Accounting Officer) of the Company.

 

During 2016, the CEO and the COO forgave unpaid salary due to them of $96,000 and $81,000, respectively. During 2015, the CEO, the COO and the Controller of the Company forgave unpaid salary due to them of $307,000, $85,000, and $43,032, respectively. This resulted in increases to additional paid in capital of $177,000 and $435,032 for the years ended December 31, 2016 and 2015, respectively.

 

In January 2016, the Company sold 285,715 shares of Common Stock and warrants to purchase 142,857 shares of Common Stock at $0.70 per share to Wyatts Torch Equity Partners, LP (“Wyatts”) for $100,000 pursuant to the 2016 Subscription. The managing member of Wyatts is the COO of the Company, as well as a Director of the Company.

 

 

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 into the 2015 Subscription with Wyatts 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. See Note 5 for further discussion.

 

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 December 31, 2016. In preparing these financial statements, the Company evaluated the events and transactions that occurred through the date these financial statements were issued. 

 

On March 3, 2017, the Company entered into an Amended and Restated Employment Agreement with Peter Spinner, reducing the eligible bonus shares by 1,500,000 shares.

 

In connection with two private placement offerings in March 2014, investors received one purchase warrant at $0.91 per share for each share of Common Stock purchased. The warrants issued to Wyatts were incorrectly calculated. On March 6, 2017, the Company issued warrants to purchase 915,447 shares of Common Stock at $0.91 per share to Wyatts to correct for this error. There was no financial impact resulting from this warrant understatement other than an understatement of potentially dilutive shares.