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MOJO ORGANICS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) 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. 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 three months ended and nine months ended September 30, 2014 to 2013. Liquidity and Capital Resources - Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity. CRITICAL ACCOUNTING POLICIES We have prepared our financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), 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 Quarterly 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 GAAP. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Stock-based Compensation - ASC Topic 718, "Accounting for Stock-Based Compensation" prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. ASC Topic 718 requires employee compensation expense to be recorded using the fair value method. The Company accounts for employee stock based compensation in accordance with the provisions of ASC Topic 718. For non-employee options and warrants, the company uses the fair value method as prescribed in ASC Topic 718. Determining the appropriate fair value of the stock-based compensation requires the input of subjective assumptions, including the expected life of the stock-based payment and stock price volatility. The Company uses the Black-Scholes option-pricing option model to value its stock option awards which incorporate the Company's stock price, volatility, U.S. risk-free rate, dividend rate, and estimated life. Fair Value of Financial Instruments - Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities. We believe that the fair values of our current assets and current liabilities approximate their reported carrying amounts. 1 Recent Accounting Pronouncements For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on the Company's financial statements, see Note 2 to the Notes to Condensed Financial Statements included in this Quarterly Report. COMPANY OVERVIEW Headquartered in Jersey City, New Jersey, the Company engages in product development, production, marketing and distribution of CHIQUITA TROPICALS™. CHIQUITA TROPICALS™ are 100% fruit juices produced under license agreement from Chiquita Brands L.L.C. ("Chiquita"). We believe in safe and sustainable corporate practices. We are proud to use Rainforest Alliance Certified fruits, which help the farmers and their families while being environmentally, socially and economically sustainable. RESULTS OF OPERATIONS Three Months Ended September 30, 2014 and 2013 Revenues During the three months ended September 30, 2014, the Company reported revenue of $85,760. Sales were primarily comprised of ordersfrom distributors and direct sales distributors ("DSDs"). Sales to distributors, primarily C&S Wholesale Grocers, and DSDs, primarily Great State Beverage Inc. and Elmhurst Dairy Inc., amounted to 70% and 21%, respectively, of total revenue. The Company has exclusive agreements with several DSDs that cover certain geographical areas. There are no contracts with our other customers. During the three months ended September 30, 2013, the Company reported revenue of $186,391. This revenue was comprised of sales to Eastern Distributors and Wholesome Choice, Inc. All of the Company's revenue for the three months ended September 30, 2014 and 2013, was derived from the sale of products under the License Agreement. The License Agreement with Chiquita provides for minimum sales volume requirements for each six month contract period. Chiquita may terminate the License Agreement should the Company fail to meet its minimum sales volume for any two consecutive contract periods. The Company did not meet its minimum sales volume requirement during the year ended December 31, 2013 and the six months ended June 30, 2014. Chiquita is aware of the Company not meeting these requirements and has informed the Company that it will not elect to terminate the License Agreement at this time. Chiquita will evaluate the relationship at the end of the next six month period (December 31, 2014). Cost of Revenues Cost of Revenues includes production costs, raw material costs, and consideration in the form of free product offered to certain new customers. As a result, cost of revenues as a percentage of sales can vary from period to period. For the three months ended September 30, 2014, cost of revenues was $96,463, or 112% of revenues. This amount includes expenses for consideration offered to establish major new customers. For the three months ended September 30, 2013, cost of revenues was $166,664, or 89% of revenues. Operating Expenses For the three months ended September 30, 2014, operating expenses were $1,280,597, an increase of $548,922 or 75% over operating expenses for the three months ended September 30, 2013 of $731,675. Stock-based compensation costs, which consist of charges to income for vesting in connection with restricted stock issuances, stock options and warrants, were $844,784 for the three months ended September 30, 2014, compared to $452,512 for the corresponding period in 2013. This increase of $392,271 represents 71% of the increase in total operating expenses. The balance of the increase consisted primarily of increased marketing, promotional, selling and licensing fees for the three months ended September 31, 2014 compared to the corresponding prior year period. Net Loss For the three months ended September 30, 2014 and 2013, the Company had net losses of $1,291,204 and $711,948, respectively. This increase in net loss of $579,256 is primarily attributable to the increase in operating expenses. Nine Months Ended September 30, 2014 and 2013 Revenues During the nine months ended September 30, 2014, the Company reported revenue of $247,538. Sales were primarily comprised of orders from distributors, major grocers and DSDs. Sales to distributors, consisting of C&S Wholesale Grocers, Bozzuto's, Inc. and several other distributors, amounted to 44% of total revenue. This was followed by sales to major grocers, including Albertsons LLC and Stater Bros, and DSDs, including Great State Beverage Inc., Pine State Beverage Co., and Elmhurst Dairy Inc., of 26% and 19% of total revenue, respectively. The Company has exclusive agreements with several DSDs that cover certain geographical areas. There are no contracts with our other customers. During the nine months ended September 30, 2013, sales amounted to $186,391 and were comprised of sales to Eastern Distributors and Wholesome Choice, Inc. All of the Company's revenue for the nine months ended September 30, 2014 and 2013 were derived from the sale of products under the License Agreement. The License Agreement with Chiquita provides for minimum sales volume requirements for each six month contract period. Chiquita may terminate the License Agreement should the Company fail to meet its minimum sales volume for any two consecutive contract periods. The Company did not meet its minimum sales volume requirement during the year ended December 31, 2013 and the six months ended June 30, 2014. Chiquita is aware of the Company not meeting these requirements and has informed the Company that it will not elect to terminate the License Agreement at this time. Chiquita will evaluate the relationship at the end of the next six month period (December 31, 2014). Cost of Revenues Cost of Revenues includes production costs and raw material costs and consideration in the form of free product offered to certain new customers. As a result, cost of revenues as a percentage of sales can vary from period to period. For the nine months ended September 30, 2014, cost of revenues was $252,860. For the nine months ended September 30, 2014, cost of revenues was $166,664. Operating Expenses For the nine months ended September 30, 2014, operating expenses were $3,936,731, an increase of $2,123,503 or 117% over operating expenses for the nine months ended September 30, 2013 of $1,813,228. Stock-based compensation costs, which consist of charges to income for vesting in connection with restricted stock issuances, stock options and warrants, were $2,914,181 for the nine months ended September 30, 2014, compared to $1,366,720 for the corresponding period in 2013. This increase of $1, 547,461 represents 73% of the increase in total operating expenses. Marketing, promotional, selling and licensing fees were $508,612 for the nine months ended September 30, 2014, compared to $59,258 for the corresponding period in 2013. This increase of $449,354 represents 21% of the total increase in operating costs. 2 Net Loss For the nine months ended September 30, 2014 and 2013, the Company had net losses of $3,941,648 and $1,797,108, respectively. This increase in net loss of $2,144,540 is primarily attributable to the increase in operating expenses. LIQUIDITY AND CAPITAL RESOURCES Liquidity During the nine months ended September 30, 2014, the Company received net cash proceeds of $1,819,832 from the sale of Common Stock and warrants to purchase Common Stock in concurrent private placements consummated in March 2014. As of September 30, 2014, the Company had working capital of $747,230. Working Capital Needs The Company is currently not generating sufficient cash flow to internally fund operations and continue our planned growth. As a result, we will need to raise additional financing. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company expects that any sale of additional equity securities or convertible debt will result in additional dilution to our stockholders. In addition, the Company may not be able to obtain additional debt or equity financing on terms acceptable to it, or at all. If the Company is not able to secure additional capital, it could be required to delay paying its account payables or forego business opportunities. OFF-BALANCE SHEET ARRANGEMENTS The Company had no off-balance sheet arrangements as of September 30, 2014. GOING CONCERN The Company's financial statements are prepared using GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to successfully obtain and retain customers in order to achieve profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |