UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

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

 ACT OF 1934

For the quarterly period ended: November 30, 20192021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 ACT OF 1934

For the transition period from: _____________ to _____________

Commission File Number:  333-234048000-56250

MJ Harvest, Inc.

 (Exact name of registrant as specified in its charter)

NEVADAnevada82-3400471
(State or Other Jurisdiction(I.R.S. Employer
of Incorporation)Identification No.)

9205 W. Russell Road, Suite 240, Las Vegas, Nevada89139

(Address of Principal Executive Office) (Zip Code)

(954)519-3115

(954) 519-3115

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

———————

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolName of each exchange on which registered.
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "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☒
Emerging growth company☒

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

☒ Yes ☐ No 

If an emerging growth company, indicate by check markcheckmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

☐ Yes ☒ No

The number of shares of the issuer's Common Stock outstanding as of January 14, 2020,December 30, 2021 is 20,031,268.33,068,952.

1

 

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

Attached after signature page.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a differences include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Results of Operations

Three Months Ended November 30, 2019,2021 compared with the Three Months Ended November 30, 20182020

RevenueThe narrative comparison of results of operations for the three-month periods ended November 30, 20192021 and 2018 was $67,130 and $17,328, respectively. Cost of revenues for2020, is based on the three-month periodsfollowing table.

  Three Months Ended
  A B A-B %
  November 30, 2021 November 30, 2020 Change Change
REVENUE $48,367  $42,307  $6,060   14%
COST OF REVENUE  16,240   16,953   (713)  -4%
Cost of revenue as a % of total revenue  34%  40%  -6%    
Gross Profit  32,127   25,354   6,773   27%
Gross profit as a % of revenue  66%  60%  6%    
OPERATING EXPENSES                
Officer and director compensation  203,785   135,000   68,785   51%
General and administrative  38,519   17,564   20,955   119%
Professional fees and contract services  79,372   144,171   (64,799)  -45%
Advertising and promotion  67,516   —     67,516   n.a. 
Total operating expenses  389,192   296,735   92,457   31%
OPERATING LOSS - CONTINUING OPERATIONS  (357,065)  (271,381)  (85,684)  32%

Revenues increased 14% in the quarter ended November 30, 20192021 compared with the same period in 2020. The increase in the current quarter was largely due to direct sales efforts by our sales team. Management refocused sales efforts on the debudder products after discontinuing operations of the soils business acquired from Elevated Ag Solutions, Inc. (“Elevated”) in early October 2020. In the prior period, management had expended considerable time and 2018effort on the soils division. The soils division was $24,626 and $4,933, respectively. Gross profit fordiscontinued in the three-month periodsquarter ended November 30, 20192020 and 2018 was $42,504is not reflected in operating results for the periods presented above (see “Discontinued Operations”). We anticipate that the marketing focus on the debudder products will continue now that the soils division has been discontinued.

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Total operating expenses increased in the current period primarily due to increased expenditures for advertising and $12,395, respectively.  Sales revenuespromotion. In the three months ended November 30, 2021, we participated in the MJBIZCON trade show in Las Vegas and the increase in advertising for the period is attributable to trade show expenses. Officer and director compensation increased largelyand professional fees and contract services decreased in 2021 compared with 2020, primarily due to the appointment of one of our contractors as a resultdirector in the current period and the associated reclassification of the acquisition of control over the sales processhis contract fees to “Officer and director compensation.” General and administrative expenses increased in the current period compared to a year earlier, primarily driven by travel expenses associated with the prior year. InCompany’s investment in PPK Investment Group, Inc., and other merger and acquisition work performed during the three months ended May 31, 2019, the Company owned 100% of G4 Products LLC (G4) and was able to control marketing activities to increase sales more efficiently than when G4 was owned 49% by an unrelated party who controlled most aspects of the marketing program. Cost of goods sold as a percentage of salescurrent period.

Net loss from continuing operations increased in the three months ended November 30, 2019 (36.7%)2021 compared to the same period in 2018 (28%)with 2020 primarily due to the use of independent fulfillment centers to satisfy customer orders. In the prior period, the company fulfilled orders through a controlled subsidiary.

Total operating expenses were $357,969 for the three-month period ended November 30, 2019 and $250,781 for the three-month period ended November 30, 2018, resulting in an increase in total operating expenses of $107,188.  The increase was attributable primarily to an impairment expense of $100,000 on intangible assets that was recognized in the current period.  Officeradvertising and director compensation decreased during the current period to $112,500 from $140,000, and general and administrative expenses decreased $5,308 to $17,076 from $22,384, primarily due to normalizing of operations following the changes that occurred in the quarter ended August 31, 2019 with the shift to fulfillment centers. These decreases were offset by a $39,996 increase in professional fees and contract services in the current period, to $128,393 from $88,397. The increase was the result of $20,000 paid for non-recurring professional services relating to due diligence investigations of acquisition candidates, and added costs for legal and accounting relating to the filing of an S-1 Registration Statement in the current period.

1

promotion expenses.

Net loss from operations for the three-month period ended November 30, 2019 was $315,465 compared to net loss of $250,781 for the three-month period ended November 30, 2018.  The higher net loss from operations was primarily the result of the impairment expense.

Six-monthsSix Months Ended November 30, 2019,2021 compared with the Six-monthsSix Months Ended November 30, 20182020

RevenueThe narrative comparison of results of operations for the six-month periods ended November 30, 20192021 and 2018 was $88,090 and $35,714, respectively, an increase of 147%. Cost of revenues for2020, is based on the following table.

  Six Months Ended
  A B A-B %
  November 30, 2021 November 30, 2020 Change Change
REVENUE $123,052  $73,136  $49,916   68%
COST OF REVENUE  36,369   30,134   6,235   21%
Cost of revenue as a % of total revenue  30%  41%  -11%    
Gross Profit  86,683   43,002   43,681   102%
Gross profit as a % of revenue  70%  59%  -11%    
OPERATING EXPENSES                
Officer and director compensation  347,359   265,000   82,359   31%
General and administrative  64,873   36,383   28,490   78%
Professional fees and contract services  145,691   239,853   (94,162)  -39%
Advertising and promotion  347,373   —     347,373   n.a. 
Total operating expenses  905,296   541,236   364,060   67%
OPERATING LOSS - CONTINUING OPERATIONS  (818,613)  (498,234)  (320,379)  64%

Revenues increased 68% in the six-month periodsperiod ended November 30, 20192021 compared with the same period in 2020. Management refocused sales efforts on the debudder products after discontinuing operations of the soils business acquired from Elevated Ag Solutions, Inc. (“Elevated”) in early October 2020. In the prior period, management had expended considerable time and 2018effort on the soils division The soils division was $37,070 and $11,192, respectively. Gross profit fordiscontinued in the six-month periodsquarter ended November 30, 20192020 and 2018is not reflected in operating results for the periods presented above (see “Discontinued Operations”). We anticipate that the marketing focus on the debudder products will continue now that the soils division has been discontinued.

Total operating expenses increased in the current period, primarily due to increased expenditures for advertising and promotion. In the six-month period ended November 30, 2021, we retained a consultant to communicate with prospective funding sources, coordinate press releases, and in general assist with market awareness of the company. The cost of this program was $51,020paid partially in cash and $24,522, respectively. Aspartially in stock with an aggregate cost of $250,250. Additional advertising expenses were incurred for trade show expenses in connection with our attendance at the second quarter discussed above,MJBIZCON trade show in Las Vegas. Officer and director compensation increased and professional fees and contract services decreased in 2021 compared with 2020, primarily due to the increased revenue isappointment of one of our contractors as a resultdirector in the current period and the associated reclassification of increased marketing effortshis contract fees to “Officer and control over the entire sales processdirector compensation.” General and administrative expenses increased in the current period compared to a year earlier, primarily driven by travel expenses associated with the prior year. CostCompany’s investment in PPK Investment Group, Inc. Professional fees and contract services decreased in 2021 compared with 2020 due to efforts by the Company to move more of goods sold as a percentage of salesthe marketing efforts and target acquisition due diligence costs in-house.

3

Net loss from continuing operations increased in the six-months ended November 30, 2019 (42.0%)2021 compared to the same period in 2018 (31.3%)with 2020 primarily due to the use of independent fulfillment centers to satisfy customer orders. increase in advertising and promotion expenses.

Non-Operating Expenses.

In the prior period, the company fulfilled orders through a controlled subsidiary. The set-up costs for the fulfillment centers included initial transportation costs to shift inventory fromthree and six-month periods ended Novmeber 30, 2021, the Company controlled warehouseincurred $132,812 and $611,458, respectively, in interest and finance expense relating to the fulfillment centers, which increased cost of sales morenotes payable from a funding transaction on March 22, 2021. The six month amount included $550,000 in discount on notes payable. The Company had no comparable outstanding debt in the three months ended August 31, 2019 compared to the three months ended November 30, 2019.

Net loss from operations for theand six-month period ended November 30, 2019 was $596,764 compared to net loss of $375,876 for the six-month period ended November 30, 2018.  As with the three-month periods ended November 30, 20192020.

Discontinued Operations.

In the prior year, after operating the soils division for first four months of the year ended May 31, 2021, management undertook an in-depth assessment of Elevated Ag Solutions, Inc. (“Elevated”) and 2018,concluded that the increasesoils division was attributable primarilynot as represented at the time of the acquisition in January 2020, was not likely to an impairment expenseever operate profitably without significant revisions to operating methods and changes in personnel and was likely to create significant business questions and concerns should it be continued. Accordingly, management elected to discontinue the business acquired from Elevated. Upon discontinuation of $100,000 on intangiblethe Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets that was recognizedacquired in the current period.  In addition, fortransaction to Elevated. During the six months ended November 30, 2019,2020, the company incurred higher operating costs due to added personnel, increased patent counselcommon stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, were cancelled, and professional fees, and higher officer and director compensation. The additional operating costs were incurred as the Company ramped up its reviewpaid a $10,000 walk-away fee. In the aggregate, the Company recognized a loss from discontinued operations of potential acquisition candidates and focused on building sales of its existing products. The Company also incurred increased costs relating to the filing of an S-1 Registration Statement during the current period.$10,000.

Total operating expenses were $647,784Operating results for the three and six-month periodperiods ended November 30, 2019 and $400,398 for2020 from the six-month period ended November 30, 2018, resultingdiscontinued operations are reflected in an increase in total operating expenses between periods of $247,386.  The increase was comprised of $57,947 in professional fees and contract services, $62,500 in officer and director compensation, $26,939 in general and administrative expenses, and $100,000 in impairment of intangible assets expense.the following table.

  Three Month Period Ended November 30, 2020 Three and Six-Month Periods Ended November 30, 2020
Revenue $—    $75,217 
Cost of revenue  —     66,243 
Amortization  —     13,125 
Gross profit  —     (4,151)
Loss on discontinued operations  (10,000)  (10,000)
  $(10,000) $(14,151)

Liquidity and Capital Resources

Cash flow fromused in operating activities for the six-month period ended November 30, 2019,2021 was a negative $167,917.$252,786 compared to $153,329 in the comparable period 2020. During the period, our total cash decreased by $1,958.$99,286. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $165,959.$153,500.

The Company continues to make progress in growing sales of its existing product line, but the business is not yet sufficient to support our current operating structure. Our current working capital is negative $1,159,061, based on current assets of $68,226 and current liabilities of $1,227,287. We continue to seek out potential acquisition candidates and distributorships and hope to see continuing growth in sales in the coming periods. The Company is currently reliant on funding through advances from related parties, but we have no binding agreements or commitments for such funding and no assurances can be given that such funding will continue to be available in future periods.

4

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  As stated above, weWe incurred net losses from continuing operations of $596,764$489,877 and $375,876, respectively,$1,430,071 for the three and six-month periods ended November 30, 2019, and 2018,2021, respectively, and had an accumulated deficit of approximately $2,815,483$10,528,328 as of November 30, 2019.2021. In addition, we have notes payable aggregating $900,000 that will be due on March 22, 2022.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt.  It will be important for the Company to be successfulsucceed in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner.  Raising additional capital in this manner willmay cause dilution to current shareholders.

COVID-19

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. To date, the disruption did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the first quarter.

The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Company’s operations due to COVID-19.

In addition, the economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.

Off Balance Sheet Arrangements

None

2


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures.

Management of the Company believes that these material weaknesses are due primarily to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

5

 

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended November 30, 20192021 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.

Item 1A.  Risk Factors

Not required.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended November 30, 2019,2021, the boardCompany issued 1,338,102 shares of common stock without registration under the Securities Act. Of these, 200,000 shares valued at $90,000 were issued to a contractor for investor relations services. An additional 566,037 shares valued at $300,000 were issued to acquire an 10% interests in WDSY LLC and Blip Holdings LLC, which own and market the Weedsy and BLVK Brands, respectively. An additional 69,245 shares ($23,571) were issued to two contractors and 102,800 shares ($35,000) were issued to three officers and directors for services. The Company also issued 896,000 unregistered common400,000 shares to six unrelated persons and four related parties that were officers and/or directorsagainst stock compensation payable for patent obligations incurred in exchange for services rendered to2019. All of the Company.  Theabove shares were valued and issued at $0.25 per share.  The issuancein exempt transactions under Section 4(a)(2) of the shares was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering.

Item 3.  Defaults Upon Senior Securities.

None.

3

6

 

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

Item 6.  Exhibits. 

The following documents are included as exhibits to this report:

(a) Exhibits

Exhibit

Number

SEC Reference Number

Title of Document

   
3.1*3Articles of Incorporation of MJ Harvest, Inc.
   
3.2*3Amended Bylaws of MJ Harvest, Inc.
   
10.1*10Independent Contractor Agreement with Patrick Bilton effective January 1, 2019
   
10.2*10Independent Contractor Agreement with Brad Herr effective January 1, 2019
   
10.3*10Securities Purchase Agreement by and between MJ Harvest, Inc. (fka EM Energy, Inc). and Original Ventures, Inc. dated November 7, 2017
   
10.4*10Securities Purchase Agreement by and between MJ Harvest, Inc. and Original Ventures, Inc. dated December 7, 2018
   
31.131Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)
   
31.231Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)
   
32.132Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)
   
32.232Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

*Incorporated by reference to Exhibits 3.1, 3.2, 10.1, 10.2, 10.3, and 10.4 of the Company's Registration Statement on Form S-1 which was declared effective on January 9, 2020.  

4

SIGNATURES

    
Exhibit NumberSEC Reference Number Title of Document
31.131 Section 302 Certification of Principal Executive Officer
31.231 Section 302 Certification of Principal Financial Officer
32.132 Section 1350 Certification of Principal Executive Officer
32.232 Section 1350 Certification of Principal Financial Officer
101.INS  XBRL Instance Document
101.SCH  XBRL Taxonomy Extension Schema
101.CAL  XBRL Taxonomy Extension Calculation Linkbase
101.DEF  XBRL Taxonomy Extension Definition Linkbase
101.LAB  XBRL Taxonomy Extension Label Linkbase
101.PRE  XBRL Taxonomy Extension Presentation Linkbase
    
XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement, prospectus or other document to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.   

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MJ Harvest, Inc. 

Date:  January 21, 2020

MJ Harvest, Inc.
Date:  January 14, 2022By: /s/ Patrick Bilton

Patrick Bilton, Principal Executive OfficerCEO

Date:  January 14, 2022By:  /s/ Brad E. Herr
Brad E. Herr, Chief Financial Officer and Principal Financial Officer

5

7

 

MJ Harvest, Inc.

Contents

Contents

Page
FINANCIAL STATEMENTS –(Unaudited):
 FINANCIAL STATEMENTS – Three and Six Months Ended November 30, 2019:
Consolidated balance sheetsF-2
Consolidated statements of operationsF-33
Consolidated statements of changes in stockholders’ equity (deficit)4
F-4
Consolidated statements of cash flows5
Notes to the consolidated financial statements6 - 17
  
Consolidated statements of cash flowsF-5
Notes to consolidated financial statementsF-6- F-12

6

 

MJ HARVEST, INC.

   EM ENERGY, INC.Consolidated Balance Sheets

   CONSOLIDATED BALANCE SHEETS(unaudited)

       
  November 30,
2021		  May 31,
2021		 
ASSETS 
CURRENT ASSETS:        
Cash and cash equivalents $24,033  $123,319 
Accounts receivable  15,700   — 
Inventory  28,493   28,159 
Total current assets  68,226   151,478 
         
NON-CURRENT ASSETS:        
Investments  3,091,666   1,000,000 
Fixed assets, net  8,319   10,839 
Finite-lived intangible assets, net  118,334   125,834 
Indefinite-lived intangible assets, net  6,000   6,000 
Total non-current assets  3,224,319   1,142,673 
Total Assets $3,292,545  $1,294,151 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) 
CURRENT LIABILITIES:        
Accounts payable and other current liabilities $177,694  $103,815 
Accounts payable to related party  149,593   77,779 
Notes payable, net of discount  900,000   350,000 
Total Current Liabilities  1,227,287   531,594 
         
LONG-TERM LIABILITIES:        
Common stock payable  118,785   100,000 
Advances from related parties  1,611,482   1,317,982 
Total long-term liabilities  1,730,267   1,417,982 
Total Liabilities  2,957,554   1,949,576 
         
COMMITMENTS AND CONTINGENCIES (Note 6)        
         
STOCKHOLDERS’ EQUITY (DEFICIT):        
Preferred stock, par value $0.0001, 5,000,000 shares authorized, 0 shares issued and outstanding  —   — 
Common stock, $0.0001 par value per share, 100,000,000 shares authorized, 32,787,446 and 25,302,122 issued and outstanding, respectively  3,279   2,530 
Additional paid-in capital  10,860,040   8,440,302 
Accumulated deficit  (10,528,328)  (9,098,257)
Total stockholders’ equity (deficit)  334,991   (655,425)
Total Liabilities and Stockholders’ Equity (Deficit) $3,292,545  $1,294,151 

 

The accompanying notes are an integral part of these consolidated financial statements.

        November 30, May 31,
        2019 2019
           
     ASSETS 
   CURRENT ASSETS:       
    Cash   $           11,634 $         13,592
    Accounts receivable                  100           9,191
    Inventory             44,295         56,205
     Total current assets             56,029         78,988
           
   NON-CURRENT ASSETS:       
    Machinery & equipment - net             18,399         20,919
    Deposits                       -              480
    Intangible assets - net           148,334       150,000
     Total non-current assets           166,733       171,399
           
     Total Assets   $         222,762 $       250,387
           
     LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) 
  CURRENT LIABILITIES:       
   Accounts payable and other liabilities   $           15,470 $         15,915
  LONG-TERM LIABILITIES:       
   Common stock payable           218,500       127,125
   Advances from related parties           705,663       539,704
     Total long-term liabilities           924,163       666,829
           
     Total Liabilities           939,633       682,744
           
  COMMITMENTS AND CONTINGENCIES (Note 4)       
           
  STOCKHOLDERS’ EQUITY (DEFICIT):       
   Preferred stock, par value $0.0001, 5,000,000 shares authorized,    
    no shares issued and outstanding                      -                   -   
   Common stock, $0.0001 par value per share, 50,000,000 shares    
    authorized, 20,007,739 and 18,758,739 issued and       
    outstanding, respectively               2,001           1,876
   Additional paid-in capital        2,096,611    1,784,486
   Accumulated deficit       (2,815,483)  (2,218,719)
    Total stockholders' deficit          (716,871)     (432,357)
     Total Liabilities and Stockholders' Deficit   $         222,762 $       250,387

F-2

FS-2 

 

MJ HARVEST, INC

 EM ENERGY, INC.Consolidated Statements of Operations

   STATEMENTS OF OPERATIONS(unaudited)

   (unaudited)

                 
  Three months ended  Six months ended 
  November 30,
2021		  November 30,
2020		  November 30,
2021		  November 30,
2020		 
             
REVENUE $48,367  $42,307   123,052  $73,136 
COST OF REVENUE  16,240   16,953   36,369   30,134 
Gross profit  32,127   25,354   86,683   43,002 
                 
                 
OPERATING EXPENSES:                
Officer and director compensation  203,785   135,000   347,359   265,000 
General and administrative  38,519   17,564   64,873   36,383 
Professional fees and contract services  79,372   144,171   145,691   239,853 
Advertising and promotion  67,516   —   347,373   — 
Total operating expenses  389,192   296,735   905,296   541,236 
                 
NON-OPERATING EXPENSES                
Interest and financing expense  132,812   —   611,458   — 
                 
NET LOSS FROM CONTINUING OPERATIONS  (489,877)  (271,381)  (1,430,071)  (498,234)
                 
LOSS FROM DISCONTINUED OPERATIONS                
Operating loss on discontinued operations  —   —   —   (4,151)
Loss on discontinued operations  —   (10,000)  —   (10,000)
NET LOSS FROM DISCONTINUED OPERATIONS  —   (10,000)  —   (14,151)
                 
NET LOSS $(489,877) $(281,381) $(1,430,071) $(512,385)
                 
NET LOSS PER COMMON SHARE - Basic and diluted                
From continuing operations $(0.02) $(0.01) $(0.05) $(0.02)
From discontinued operations  —   —   —   — 
Total $(0.02) $(0.01) $(0.05) $(0.02)
                 
WEIGHTED AVERAGE NUMBER OF COMMON  SHARES OUTSTANDING - Basic and diluted  31,955,781   22,997,841   29,163,613   22,945,071 

The accompanying notes are an integral part of these consolidated financial statements.

 

       Three months ended  Six months ended
       November 30, November 30,  November 30, November 30,
       2019 2018  2019 2018
               
  REVENUE   $          67,130 $          17,328  $          88,090 $          35,714
   Cost of sales            24,626            4,933           37,070          11,192
    Gross profit            42,504          12,395           51,020          24,522
               
  OPERATING EXPENSES:           
   Officer and director compensation          112,500        140,000         262,500        200,000
   General and administrative             17,076          22,384           51,932          24,993
   Impairment of intangible assets          100,000                   -         100,000                   -
   Professional fees and contract services          128,393          88,397         233,352        175,405
    Total operating expenses          357,969        250,781         647,784        400,398
               
  NET LOSS FROM OPERATIONS        (315,465)      (238,386)       (596,764)      (375,876)
               
  Net income attributable to non-controlling interest                     -          (3,995)                    -          (5,730)
               
  NET LOSS ATTRIBUTABLE TO MJ HARVEST, INC.   $      (315,465) $      (242,381)  $      (596,764) $      (381,606)
               
  NET LOSS PER COMMON SHARE - Basic and diluted   $            (0.02) $            (0.01)  $            (0.03) $            (0.02)
               
   WEIGHTED AVERAGE NUMBER OF COMMON           
    SHARES OUTSTANDING - Basic and diluted     19,538,464   17,655,652    19,156,116   17,715,214

F-3

FS-3 

 

MJ HARVEST, INC 

 EM ENERGY, INC.Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 

 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)(unaudited)

FOR THE THREE MONTHSAND SIX MONTH PERIODS ENDED AUGUST 31, 2019NOVEMBER 30, 2021 AND 20182020

                     
        Additional       
  Common Stock  Paid-In  Accumulated    
Three Month Shares  Amount  Capital  Deficit  Total 
BALANCES, August 31, 2020  22,892,874  $2,289  $3,763,374  $(4,413,398) $(647,735)
Shares issued for services  158,000   16   62,944   —   62,960 
Shares issued for common stock payable  296,857   30   59,541   —   59,571 
Net loss  —   —   —   (281,381)  (281,381)
BALANCES, November 30, 2020  23,347,731   2,335   3,885,859   (4,694,779)  (806,585)
                     
BALANCES, August 31, 2021  31,449,344  $3,145  $10,311,603  $(10,038,451) $276,297 
Shares issued for common stock payable  772,065   77   248,494   —   248,571 
Shares issued for investments  566,037   57   299,943       300,000 
Net loss  —   —   —   (489,877)  (489,877)
BALANCES, November 30, 2021  32,787,446  $3,279  $10,860,040  $(10,528,328) $334,991 
                     
Six Month                    
BALANCES, May 31, 2020  22,892,874  $2,289  $3,763,374  $(4,182,394) $(416,731)
Shares issued for services  454,857   46   122,485   —   122,531 
Net loss  —   —   —   (512,385)  (512,385)
BALANCES, November 30, 2020  23,347,731   2,335   3,885,859   (4,694,779)  (806,585)
                     
                     
BALANCES May 31, 2021  25,302,122   2,530   8,440,302   (9,098,257)  (655,425)
Shares issued for common stock payable  400,000   40   99,960   —   100,000 
Shares issued for services  547,065   55   228,766   —   228,821 
Shares issued for investments  6,538,259   654   2,091,012   —   2,091,666 
Net loss  —   —   —   (1,430,071)  (1,430,071)
BALANCES, November 30, 2021  32,787,446  $3,279  $10,860,040  $(10,528,328) $334,991 

 

             
      Additional      
  Common Stock Paid-In Accumulated Non-controlling  
  Shares Amount Capital Deficit Interest Total
             
 BALANCES, May 31, 2018  17,598,739  $1,760  $1,418,227  $(1,256,448) $140,645  $304,184 
 Shares issued for compensation  119,000   12   29,738           29,750 
 Net loss for the three months ended August 31, 2018              (139,225)  1,735   (137,490)
 BALANCES, August 31, 2018  17,717,739  $1,772  $1,447,965  $(1,395,673) $142,380  $196,444 
                         
 Share issued for compensation  150,000   15   37,485           37,500 
 Net loss for the three months ended November 30, 2018              (242,381)  3,995   (238,386)
 BALANCES, November 30, 2018  17,867,739  $1,787  $1,485,450  $(1,638,054) $146,375  $(4,442)
                         
                         
 BALANCES, May 31, 2019  18,758,739  $1,876  $1,784,486  $(2,218,719) $—    $(432,357)
 Share issued for common stock payable  353,000   35   88,215           88,250 
 Net loss for the three months ended August 31, 2019              (281,299)  —     (281,299)
 BALANCES, August 31, 2019  19,111,739  $1,911  $1,872,701  $(2,500,018) $—    $(625,406)
                         
 Share issued for compensation  740,500   75   185,050           185,125 
 Share issued for common stock payable  155,500   15   38,860           38,875 
 Net loss for the three months ended November 30, 2019              (315,465)  —     (315,465)
 BALANCES, November 30, 2019  20,007,739  $2,001  $2,096,611  $(2,815,483) $—    $(716,871)

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

FS-4 

 

 

MJ HARVEST, INC.

EM ENERGY, INC.Consolidated Statements of Cash Flows

   STATEMENTS OF CASH FLOWS(unaudited)

   (unaudited)

         
 Six months ended 
  November 30,
2021		  

November 30,

2020

 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(1,430,071) $(512,385)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  10,020   23,145 
Share based compensation  347,606   181,102 
Advances to related party for services  140,000   140,000 
Amortization of note payable discount  550,000   — 
Changes in operating assets and liabilities:        
Accounts receivable  (15,700)  5,981 
Vendor deposits  —   20,000 
Inventory  (334)  763 
Payable for discontinued operations  —   8,000 
Accounts payable and other current liabilities  73,879   (54,935)
Accounts payable to related party  71,814   35,000 
NET CASH (USED IN) OPERATING ACTIVITIES  (252,786)  (153,329)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from advances by related parties  153,500   126,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES  153,500   126,000 
         
NET CHANGE IN CASH AND CASH EQUIVALENTS  (99,286)  (27,329)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  123,319   32,343 
         
CASH AND CASH EQUIVALENTS END OF PERIOD $24,033  $5,014 
         
Non-cash financing and investing activities:        
Shares issued for common stock payable $100,000  $59,571 
Shares issued for investments $2,091,666  $— 
Shares to be cancelled on discontinued operations (Note 10) $—  $336,875 

 

     Six months ended 
    November 30, November 30,
    2019 2018
       
  CASH FLOWS FROM OPERATING ACTIVITIES     
  Net loss  $       (596,764) $      (375,876)
  Adjustments to reconcile net loss to net cash     
  used in operating activities:     
   Depreciation and amortization              4,186            1,670
   Share based compensation          185,125          67,250
   Common stock payable for compensation          118,500        149,750
   Impairment of intangible assets          100,000                   -
  Changes in operating assets and liabilities:     
   Accounts receivable              9,091        (35,714)
   Deposits                 480                   -
   Inventory            11,910        (29,790)
   Accounts payable and other current liabilities               (445)          (3,113)
   NET CASH (USED IN) OPERATING ACTIVITIES        (167,917)      (225,823)
       
  CASH FLOWS FROM INVESTING ACTIVITIES     
   Purchases of machinery and equipment                     -        (19,209)
   NET CASH (USED IN) INVESTING ACTIVITIES                     -        (19,209)
       
  CASH FLOWS FROM FINANCING ACTIVITIES     
   Proceeds from advances by related parties          165,959        253,000
   NET CASH PROVIDED BY FINANCING ACTIVITIES          165,959        253,000
       
       
  NET CHANGE IN CASH AND CASH EQUIVALENTS            (1,958)            7,968
       
  CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR            13,592            3,277
       
  CASH AND CASH EQUIVALENTS END OF YEAR  $           11,634 $          11,245
       
  Non-cash financing and investing activities:     
   Shares issued for common stock payable  $         127,125 $                 -   
   Shares payable for intangible assets  $         100,000 $                 -   

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5

FS-5 

 

MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The CompanyMJ Harvest, Inc. (the “Company”), develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis space. In 2017, theretail industry. The Company acquired a 51% interest inowns 100% of G4 Products LLC, (“G4”) which owns the intellectual property for a patented manual debudder product line marketed under the Original 420 Brand as the Debudder Bucket Lid and Edge. The Company also organizedowns 100% of AgroExports LLC to serve(“Agro”) which serves as the domestic and international distribution arm for sales of agricultural and horticultural tools and implements, and createdimplements. The Company operates its sales portal website, www.procannagro.com, for online sales of its products.

In September 2018, the Company filed a Notification of Change with FINRA and OTC Markets to obtain approval of a name change to MJ Harvest, Inc. and a change of trading symbol to MJHI. Following approval of the change by FINRA and OTC Markets, the Company filed amended and restated articles of incorporation with the State of Nevada to reflect the name change with an effective date of September 18, 2018.

On December 7, 2018, the Company acquired the remaining 51% of G4 Products LLC, making it a wholly owned subsidiary. On April 10, 2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online payments from sales in the Canadian Market.Canada. Sales in Canada are currently serviced through a fulfillment center in Toronto.

In the year ending May 31, 2021, the Company expanded its focus to include a minority investment interest in PPK Investment Group, Inc. (“PPK”), a vertically integrated cannabis company in Oklahoma that operates as a grower, harvester, processor, manufacturer and distributor of the Country Cannabis Brand of cannabis products. The investment in PPK represents a shift in focus from an agricultural implements-based business to a broader cannabis industry focus. The Company has continued to expand its cannabis focus in the current year with new investments in WDSY LLC and BLIP Holdings LLC, owners of the Weedsy and BLVK brands, respectively.

Basis of Presentation and Consolidation

The Company’s fiscal year-end is May 31. The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, accordingly,information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six-month periods ended November 30, 20192021 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2020.2022.

For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended May 31, 2021 in the Form S-110-K as filed with the SEC on October 2, 2019.Securities and Exchange Commission.

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries AgroExports LLC (“Agro”),Agro, G4, Products LLC (“G4”), and AgroExports.CA ULC. G4 was a 51%Agro Canada. All subsidiaries were wholly owned subsidiary in 2018 and the Statements of Operations for the three and six-month periods ended November 30, 2018 include the net loss of the non-controlling interest in G4, represented by the non-controlling interest’s proportionate share of its ownership in G4.presented. All intercompany transactions have been eliminated.

Going Concern

The Company has an accumulated deficit as of $2,815,483 which, among otherNovember 30, 2021 of $10,528,328 and negative working capital of $1,159,061. In addition, we have notes payable aggregating $900,000 that will be due on March 22, 2022.  These factors raisesraise substantial doubt about the Company'sCompany’s ability to continue as a going concern.   The ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

FS-6 

 

In the year ended May 31, 2018, the Company acquired a 51% interest in G4, a controlled subsidiary that owned certain intangible assets and in the year ended May 31, 2019, the Company acquired the remaining 49% of G4 and thereby became the sole owner of the intangible assets. The intangible assets serve as a building block for the Company’s efforts to grow revenues. In the year ended 2019, the Company began generating operating revenue but the level of revenue from the current product line is expected to not be sufficient to support profitable operations in the fiscal year ending May 31, 2020. MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

Additional acquisitions and business opportunities are under consideration, but the Company has not reached agreement with any other acquisition candidates or business opportunities. Management intends to finance operating costs over the next twelve months with advancescash flows from directors and/or aoperations, private placement or public offering of common stock.stock or debt instruments, and when necessary, advances from directors and officers. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

F-6

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Share based compensation, impairment of long-lived assets, amortization of intangible assets, and income taxes are subject to estimates. Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period presentation.

New Accounting Standards

Leases:In February 2016, the FASB issued ASU No.2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases longer than one year. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted the new standard on June 1, 2019 and as of November 30, 2019, the Company had no leases and the update did not have a material effect on the financial statements.

Nonemployee compensation: In June 2018,August 2020, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements2020-06 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expandsaddress issues identified as a result of the scopecomplexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goodsliabilities and services from nonemployees.equity. The update is effective for fiscal years beginning after December 15, 2018, and2021, including interim periods within those fiscal years. The Company adopted the new standard on June 1, 2019years and with early adoption permitted. Management is evaluating the impact of this update had no material effect on itsthe Company’s consolidated financial statements and related disclosures.statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Fair Value MeasurementsRevenue Recognition

GAAP specifies a hierarchy of valuation techniquesThe Company generates revenue based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement)sales of products and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose valuerevenue is based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).

Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3recognized when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company has no assets or liabilities subject to fair value measurement on a recurring basis.

Financial Instruments

The carrying amounts of cash and advances from related parties reported on the balance sheets approximate their fair value as of November 30, 2019 and May 31, 2019.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturitysatisfies its performance obligation by shipping products to our customers. Our products consist of three months or less when acquired to be cash equivalents.

F-7

Revenue Recognition

Revenuesagricultural tools and implements, soils, and soil additives used primarily in growing and harvesting hemp and marijuana. Shipments terms are FOB origination, and revenue is recognized when controlthe product is delivered to the shipper by our fulfillment centers or, in the case of drop shipments of distributed products, when the promised goods or servicesproducts are transferredshipped from the manufacturer. At the time the products are delivered to a customer,the shipper, no other performance obligations remain. Revenue is recognized in an amount that reflects the consideration that the Company expects to receiveis received in exchange for those goods or services. the products shipped.

The Company recognizes revenue fromaccounts for shipping and handling activities as a fulfillment cost and include fees received for shipping and handling as part of the sale of products and services in accordance with ASC 606,”Revenue Recognition”. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

·identify the contract with a customer;
·identify the performance obligations in the contract;
·determine the transaction price;
·allocate the transaction price to performance obligations in the contract; and
·recognize revenue as the performance obligation is satisfied.

transaction price. Provision for sales incentives, discounts, and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. Sales incentives, discounts and returns and allowances were not material in the periods presented in the accompanying consolidated financial statements. The companyCompany had no warranty costs associated with the sales of its products in the periods presented in the accompanying Consolidated Statementsconsolidated statements of Operationsoperations and no provision for warranty expenses has been included.

FS-7 

 

InventoryMJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

Inventory

Inventory consists of purchased products and areis stated at the lower of cost or net realizable value,market, with cost being determined using the average cost method. Allowances for obsolete inventory are recognized when the inventory is determined to be unsalable through the normal course of business.

Machinery & EquipmentInvestments

MachineryEquity securities are generally measured at fair value. Unrealized gains and equipment consists of molds usedlosses for equity securities are included in earnings. If an equity security does not have a readily determinable fair value, the Company may elect to measure the security at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the manufacturing processsame issuer. At the end of each reporting period, the Company reassesses whether an equity security without a readily determinable fair value qualifies to be measured at cost minus impairment, considers whether impairment indicators exist to evaluate whether the investment is impaired and, are recorded at cost. Maintenance, repairs, and minor replacements are expensed as incurred. Gainsif so, records an impairment loss. Upon sale of an equity security, the realized gain or losses on disposition or retirement of property and equipment areloss is recognized in operating expenses. Depreciationearnings.

Intangible Assets

Intangible asset amounts are initially recognized at the acquisition date fair values of intangible assets acquired.

Finite-lived intangible assets are amortized over their useful lives. The carrying amounts of finite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount.

When there is computed usingno foreseeable limit on the straight-line methodperiod of time over which an intangible asset is expected to contribute to the estimated useful livescash flows of the molds whichCompany, an intangible asset is five years.

Accounting for Acquisitions

We recognize and measure identifiabledetermined to have an indefinite life. Indefinite life intangible assets acquired and liabilities assumed in acquired entities in accordance with ASC 805, Business Combinations. The allocation of the purchase consideration for acquisitions can require extensive use of accounting estimates and judgments to allocate the purchase consideration to the assets acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets and liabilities is recorded as goodwill. Critical estimates in valuing certain identifiable assets include but are not limited to expected long-term revenues; future expected operating expenses; cost of capital; assumed attrition rates; and discount rates.

Intangible Assets

We account for intangible assets in accordance with ASC 350“Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that intangible assets with indefinite lives beamortized but tested for impairment annually or on an interim basis if events or circumstances indicate that themore frequently when indicators of impairment exist.

Determination of acquisition date fair value of an asset has decreased below its carrying value. Application of thevalues and intangible asset impairment test requires judgment, including the identification of intangible assets and determining their fair value.tests require judgment. Significant judgments required to estimate the fair value of intangible assets include determining the appropriate valuation method, identifying market prices for similar type items, estimating future cash flows, determining appropriate discount rates and other assumptions. If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model. Changes in estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.estimates.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense is included as a component of cost of product revenue. For the three and six months ended November 30, 2019, the Company has recognized $1,666 in amortization expense for its intangible assets. The Company’s intangible assets consist primarily of two patents which issued on October 8, 2019. The Patents expire on October 8, 2034 and the Company is amortizing these intangible assets over 180 months commencing in October 2019.

Income taxes

The Company utilizes the liability method of accounting for income taxes which requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Additionally, deferred tax assets are evaluated, and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. There can be no assurance that the Company’s future operations will produce sufficient earnings so that the deferred tax asset can be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets.

F-8

Net Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, potentially dilutive common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the three months ended August 31, 2021, the Company had 3,000,000 warrants outstanding which were anti-dilutive due to the net loss recognized in the period. In the three and six-month periods ended November 30, 2019 and 2018,2021, the Company had no common stock equivalents outstanding.

FS-8 

 

MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

Share-Based Payments

The fair value of common shares is determined by the management by considering a number of objective and subjective factors including data from other comparable companies, sales of common shares to unrelated third parties, the fair value of services provided for shares, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, among other factors. The fair value of the underlying common shares will be determined by management until such time as the shares are listed on an established stock exchange, national market system or other quotation system and the trading volume is sufficient to support a determination that an active market exists. The Company recognizes the fair value ofAll transactions in which goods or services are received in share-based payment transactionsfor the issuance of shares of the Company’s common stock are accounted for based uponon the fair value of the goods or services receivedcommon stock issued and recognized when the board of directors authorizes the issuance.

NOTE 2 – FIXED ASSETS

Fixed assets consisted of the following at November 30, 2021 and May 31, 2021:

Schedule of fixed assets

       
  November 30,  May 31, 
Property & Equipment 2021  2021 
Equipment - production molds $25,109  $25,109 
Less: Accumulated amortization  (16,790)  (14,270)
Net Equipment $8,319  $10,839 

Depreciation expense for the three and six-month periods ended November 30, 2021 were $1,260 and $2,520, respectively, and for the three and six months ended November 30, 2020 were $1,260 and $2,520, respectively.

NOTE 3 - INTANGIBLE ASSETS

The Company’s intangible assets consist of both finite and indefinite lived assets. At November 30, 2021 and May 31, 2021, intangibles assets are:

FS-9 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Schedule of intangible assets

      
  November 30,  May 31, 
Intangibles 2021  2021 
Finite lived intangibles        
Patents $250,000  $250,000 
Less: impairment of patents  (100,000)  (100,000)
   150,000   150,000 
Less: accumulated amortization  (31,666)  (24,166)
Patents, net  118,334   125,834 
         
Non-compete agreement  —   157,000 
Less: impairment of non-compete  —   (107,000)
   —   50,000 
Less: accumulated amortization  —   (6,900)
Less: adjustment for discontinued operations  —   (43,100)
Non-compete agreement, net  —   — 
         
Customer relationships  —   826,000 
Less: impairment of relationships  —   (551,000)
   —   275,000 
Less: accumulated amortization  —   (6,225)
Less: adjustment for discontinued operations  —   (268,775)
Customer relationships, net  —   — 
Total finite lived intangibles  118,334   125,834 
         
Indefinite lived intangibles        
Domain names  6,000   31,000 
Less: adjustment for discontinued operations  —   (25,000)
Total domain names  6,000   6,000 
Total intangibles $124,334  $131,834 

Amortization expense for the three and six-month periods ended November 30, 2021 were $3,750 and $7,500, respectively and for the three and six month periods ended November 30, 2020, were $3,750 and $20,625, respectively. The patents are amortized over their useful lives of ten years. Amortization of intangibles is expected to be $15,000 for each of the next five years.

On May 28, 2021, the Company acquired the domain name, MJHI.com for $6,000. The new domain name matches the Company’s stock symbol and is likely to be easier for customers and other stakeholders to remember. The domain name is an indefinite lived intangible asset and will not be amortized.

FS-10 

MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

NOTE 4 – INVESTMENTS

At November 30, 2021 and May 31, 2021, investments are:

Schedule of investments

       
  November 30,  May 31, 
Investments 2021  2021 
PPK Investment Group, Inc. $2,791,666  $1,000,000 
WDSY, LLC  200,000   — 
BLIP Holdings, LLC  100,000   — 
Total investments $3,091,666  $1,000,000 

PPK

On March 24, 2021, the Company, as lender, closed a loan to PPK Investment Group, Inc. (“PPK”) in the form of a convertible note (“Note”) in the amount of $620,000. The convertible note bore interest at 6% per annum and was due on September 1, 2021. In accordance with its terms, the Company converted the Note on May 19, 2021 into a 6.2% interest in PPK. Upon conversion, the interest accrued of $5,707 through the date of conversion was forgiven.

Upon conversion, a Securities Purchase Agreement dated March 24, 2021 (the “PPK Agreement”) became effective and the Company acquired an additional 3.8% interest in PPK (10% in total) for payment of $380,000 by issuance of 1,520,000 shares of restricted common stock of the Company. The fair value of shares was $972,800 based on the closing price of the Company’s shares of $0.64. The Company determined that the fair value of the goods3.8% interest on the conversion date was $380,000 which was the negotiated price between the two parties. Thus, the Company recorded an impairment expense of $592,800 on the conversion date.

The PPK Agreement includes a put option allowing PPK to put shares of the Company’s common stock received as part of the Company’s investment in PPK, back to the Company at $0.25 per share. The put option protects PPK against a drop in the market price of the Company’s common stock below $0.25 per share. The put option may be exercised after six months from the date of the investment on May 19, 2021. Not more than 5% of the total shares held by PPK can be put back to the Company in any calendar quarter. The put option had no value at November 30, 2021 and servicesMay 31, 2021 as the Company’s common stock was trading above $0.25 on both dates.

The PPK Agreement gives the Company the right to increase its investment up to a 100% ownership interest in PPK, provided such increased ownership is in compliance with Oklahoma State cannabis licensing requirements. Terms of purchase for increased ownership of PPK will be similar to those as the initial acquisition with a more reliable measurementcombination of fair value thancash and shares of the equity instruments issued.Company’s common stock.

On August 26, 2021, the Company acquired an additional 15% interest in PPK (25% ownership in total) pursuant to a Securities Purchase Agreement with an effective date of May 19, 2021 through issuance of 5,972,222 shares of restricted common stock valued at $1,791,666 based on the closing price of the Company’s common stock on the of $0.30 per share as of August 16, 2021, the date fixed by agreement for pricing the issuance of the shares. The additional 15% acquisition under the Securities Purchase Agreement called for payment of $930,000 in cash and $570,000 in stock, but by supplemental agreement, PPK agreed to accept payment for 15% in the form of all common stock of the Company.

The Company, pursuant to the PPK Agreement, is also obligated to pay an earnout to PPK as follows:

●The Company is required to pay additional consideration to PPK for an earnout in the event the PPK business valuation at the end of a pre-determined look back period is greater than $10,000,000. For purposes of the earnout, the valuation will be based on three times earnings before interest, taxes, depreciation, and amortization (EBITDA). If EBITDA exceeds $3,333,333 in the twelve months immediately preceding the look back date of March 31, 2023, additional consideration will be owed to PPK under the earnout in an amount sufficient to equal the earnout valuation less $10,000,000 times the percentage of PPK then owned by the Company. Such additional consideration will be paid 62% in cash and 38% in shares of the Company’s common stock.

FS-11 

 

NOTE 2 –ACQUISITIONS OF G4MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

●The Company also agreed to employ Ralph Clinton Pyatt III (“Clinton Pyatt”), President of PPK, to continue his role as Chief Executive Officer and President of PPK business for a period of at least three years effective May 22, 2022.

The Company also has an option to acquire the real estate that PPK utilizes in its operations. The real estate is currently under lease to PPK by an affiliated company owned by Clinton Pyatt, the President of PPK.

WDSY and BLIP

On November 17, 2017,October 8, 2021, the Company entered into two brand development agreements with WDSY, LLC (“WDSY”) and Blip Holdings, LLC (“BLIP”) for expansion of the “WEEDSY” and “BLVK” brands, respectively, into Oklahoma and South Dakota. Under the agreements, PPK will manufacture and distribute these brands in Oklahoma and South Dakota and will pay the respective companies 10% royalties on all net sales of the branded products in those territories.

On October 8, 2021, the Company acquired a controlling 51%10% interest in G4 Products, LLC (“G4”),WDSY in exchange for 377,358 shares of the Company’s common stock and a newly formed Nevada limited liability company that owned a provisional patent on a device used in stripping buds from plants (the Product) from Original Ventures, Inc. (“Original Ventures”). On December 7, 2018, the Company acquired the remaining 49%10% interest in G4 from Original Ventures.

At the timeBLIP in exchange for 188,679 shares of the second acquisitionCompany’s common stock. The shares to be issued were valued at the closing price of the interest in G4, the assets of G4 consisted primarily of a provisional U.S. Patent application and certain other international patent applications. Two of the patents were approved and issuedcommon stock, $0.53 per share, on October 8, 2019.

2021. Additional shares may be due to WDSY and BLIP based on lookback valuations of both companies. The acquisitionlookback valuations will be based on trailing twelve months sales for WDSY and trailing three-month sales for BLIP on the second anniversary of each agreement, foror sooner if the initial purchase of 51% of G4 and foragreements are terminated before the follow-on acquisition of the remaining 49% interest in G4 included certain earnout provisions that are described in Note 4 – Commitments and Contingencies.

NOTE 3 – RELATED PARTY TRANSACTIONS

second anniversaries. At November 30, 2019,2021, management has assessed the probability of a potential liability due under the lookback valuation provisions of WDSY and BLIP to be low and no stock payable was due.

NOTE 5 – NOTES PAYABLE

On March 22, 2021, the Company entered into agreements with AJB Capital Investments LLC (“AJB”) and SDT Holdings LLC (“SDT”) for the purchase of an aggregate of $900,000 in Promissory Notes (the “Notes”), $300,000 from AJB and $600,000 for SDT. The terms of the Notes are the same except for the dollar amounts and fees which are double for SDT compared to AJB. The terms of the Notes are described below in the aggregate.

The Notes provided for an original issue discount of 10% or $90,000, payment of legal fees of $22,500, and payment of $10,500 for due diligence fees, resulting in net proceeds to the Company of $777,000. The Notes bore interest at the rate of 12% for the period from March 22 through September 22, 2021 and bear interest at the rate of 15% from September 23, 2021 through March 22, 2022. On September 20, 2021, the Company extended the Notes for an additional six months. The Notes are now due March 21, 2022. The Notes are secured by all assets of the Company.

FS-12 

MJ HARVEST, INC. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(unaudited)

Interest on the notes is payable in monthly installments of $11,250 ($9,000 for the first six months of the term) on the first of each month with the first payment due on April 1, 2021. An aggregate of $32,100 and $59,100 in interest was recognized as an expense on the notes in the three and six-month periods ended November 30, 2021. At November 30, 2021, $11,250 of the accrued interest was outstanding and was paid in December 2021.

In March 2021, the Company also paid a financing fee of $3,683,000 by issuance of 1,200,000 shares of its restricted common stock and 3,000,000 warrants to purchase shares that are exercisable at $0.38 per share with a three-year term expiring on March 21, 2024. The financing fee shares were valued at $1,800,000 based on the closing price of the Company’s common stock on the date of the borrowing. The warrants were valued at $1,883,000 using the Black-Scholes method based on a current stock price of $1.50 per share on the warrant issuance date, exercise price of $0.38, an expected term of three years, stock volatility of 334.5% and a discount rate of .32%. One half of the warrants were redeemable for an aggregate payment of $1.00 if the notes payable were paid in full by September 21, 2021. The Company extended the notes on September 20, 2021 for six months and the redemption provision has now expired.

In the aggregate, financing fees and original issue discount totaled $3,806,000 which is greater than the note payable balance of $900,000. As a result, the Company recorded a full discount of $900,000 against the balance of the note payable and is amortizing the discount over the term of the note. During the three and six-month periods ended November 30, 2021, the Company recognized $450,000 and $550,000 respectively, of amortization expense as interest and finance expense. The remaining amount of the financing fees of $2,906,000 was recognized as expense for the year ended May 31, 2021.

In an event of default, the remaining principal amount of the notes plus all accrued interest and any other fees then due may be converted at the sole election of the note holders into shares of the Company’s common stock.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Agreement with Borders Consulting LLC. On June 9, 2021, the Company entered into an agreement with Borders Consulting LLC (“Borders”), an unrelated third-party vendor, to provide consulting services in connection with corporate finance relations, introductions to funding sources, and to enhance the Company’s visibility in the financial markets. The agreement was for a three-month term at compensation of $50,000 per month payable in cash plus common stock aggregating 250,000 shares. The Company paid the first two months of the contract through cash payments of $70,000 and issuance of 175,000 shares of stock valued at $80,250.

On November 29, 2021, the Company reached a settlement agreement with Borders providing for a final payment of $10,000 in cash and 200,000 shares of common stock. As a result of the settlement agreement, an aggregate of $90,000 ($0.45 per share on the settlement date) was paid in during the six month period ended November 30, 2021. At November 30, 2021, the Company owed $10,000 to Borders which is included in accounts payable. The settlement agreement provides for this amount to be paid in four monthly installments commencing on December 1, 2021. Total of all payments under the initial agreement of $250,250 have been recognized as advertising and promotion on the consolidated statements of operations for the six months ended November 30, 2021.

NOTE 7 – RELATED PARTY TRANSACTIONS

At November 30, 2021 and May 31 2019,2021, the Company had advances from and costs of services provided by related parties totaling $705,663$1,6111,482 and $539,704,$1,317,982, respectively. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock. These amounts consisted of the following:

FS-13 

 

·         AsMJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Schedule of November 30, 2019 and May 31, 2019, the Company owed Mr. Jerry Cornwell,related party transactions

                   
  Related Party Advances at  Additions During the Three Months Ended August 31, 2021  Additions During the Three Months Ended November 30, 2021  Related Party Advances at 
  May 31, 2021  Advances  Services  Advances  Services  November 30, 2021 
Related Parties                        
Patrick Bilton, CEO and Director                        
Cash Advances $928,414  $64,000  $—  $87,500  $—  $1,079,914 
Payable for services  280,000       70,000   —   70,000   420,000.0 
  David Tobias, Director  80,553   —   —   2,000   —   82,553.0 
  Jerry Cornwell, Director  29,015   —   —   —   —   29,015 
Total for related parties $1,317,982  $64,000  $70,000  $89,500  $70,000  $1,611,482 
                   
  Related Party Advances at  Additions During the Three Months Ended August 31, 2020  Additions During the Three Months Ended November 30, 2020  Related Party Advances at 
  May 31, 2020  Advances  Services  Advances  Services  November 30, 2020 
Related Parties                        
Patrick Bilton, CEO and Director                        
Cash Advances $726,414  $65,000  $—  $55,000  $—  $846,414 
Payable for services  —   —   —   —   140,000  $140,000 
  David Tobias, Director  80,553   —   —   —   —   80,553 
  Jerry Cornwell, Director  23,015   1,000   —   5,000   —   29,015 
Total for related parties $829,982  $66,000  $—  $60,000  $140,000  $1,095,982 

Nexit, Inc., a director, $15,696.

·         As of November 30, 2019 and May 31, 2019, the Company owed David Tobias, a majority shareholder and director, $75,553.

·         As of November 30, 2019 and May 31, 2019, Patrick Bilton, a director and the Company’s Chief Executive Officer, was owed $566,959 and $401,000, respectively, for advances to the Company for operating capital and an additional $47,455 at November 30, 2019 and May 31, 2019, for expenses paid on behalf of the Company. Collectively, Mr. Bilton is owed $614,414 and $448,455, respectively, as of November 30, 2019 and May 31, 2019.

The Company also owed Mr. Cornwell $818 for expenses he paid on behalf of the Company in prior periods. This amount is classified as an account payable at November 30, 2019, and May 31, 2019.

At November 30, 2019 and May 31, 2019, the Company had common stock payable totaling $218,500 and $127,125, respectively. Of these amounts, $90,000 and $75,000, respectively, were payable to related parties. These amounts consisted of the following:

·         The Company had common stock payable to Mr. Cornwell of $5,000 and -0- at November 30, 2019 and May 31, 2019, respectively, for services as a director.

·         The Company also had common stock payable to Mr. Tobias of $5,000 and -0- at November 30, 2019 and May 31, 2019, respectively, for services as a director.

·         The Company also had common stock payable to Mr. Bilton of $65,000 and $60,000 at November 30, 2019 and May 31, 2019, respectively, for services as an officer and director.

·         As of November 30, 2019 and May 31, 2019, the Company had common stock payable to Nexit, Inc, an entitycompany solely owned by Brad Herr, the Company’s Chief Financial Officer, of $15,000was owed $149,593 and $15,000,$77,779 at November 30, 2021 and May 31, 2021, respectively, for services as an officer of the Company.services. These amounts are included in accounts payable to related party.

F-9

FS-14 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 48 – COMMITMENTS AND CONTINGENCIES

The agreement for the acquisition of G4 from Original Ventures includes earn-out provisions that provide for Original Ventures to “earn-out” additional compensation dependent upon product sales. As of November 30, 2019, and May 31, 2019, no earnout compensation was owed by G4 to Original Ventures. The earn-out provision is applicable to sales of G4’s products for calendar years 2018-2020. The earn-out compensation due Original Ventures is based upon a calculation of sales of G4’s products less the Company’s original investment in G4. If any earnout is due to Original Ventures based on sales in calendar years 2019 and 2020, the earnout will be paid in common stock of the Company in accordance with the agreement.

In addition, an earn-out compensation payment of $100,000, payable in shares of the Company’s common stock, became due to Original Ventures upon the issuance of the non-provisional patent to G4, which occurred on October 8, 2019. This amount is accrued as of November 30, 2019 and is classified as common stock payable. The $100,000 was capitalized as intangible assets at the time of the accrual and immediately impaired based on the impairment analysis performed in the fiscal year ended May 31, 2019.

NOTE 5 – SHARE CAPITAL

The authorized capital of the Company consists of 50,000,000 common shares with a par value of $0.0001 per share, and 5,000,000 preferred shares with a par value of $0.0001 per share.

As of November 30, 2019 and May 31, 2018, there were 20,007,739 and 18,758,739, respectively, of shares of common stock outstanding and there were no preferred shares issued and outstanding.

In the three and six-month periods ended November 30, 2019,2021 and November 30, 2020, shares were issued for stock payable, services and investments in the amounts set forth in the following table.

Schedule of common stock were issued to related and non-related parties for services performed. The following table breaks out the issuances by type of transaction and by related and unrelated parties: 

  Three months ended Six months ended
Issued to: November 30, 2019 November 30, 2019
Related parties Shares Amount Shares Amount
Patrick Bilton  366,667  $91,666   540,000  $135,000 
Brad Herr  80,000   20,000   120,000   30,000 
Jerry Cornwell  46,666   11,667   60,000   15,000 
David Tobias  46,666   11,667   60,000   15,000 
Unrelated parties  356,001   89,000   469,000   117,250 
Total issued  896,000  $224,000   1,249,000  $312,250 
Three Months
     Value of Shares Issued for:    
Three Months Ended November 30, 2021 Total Shares Issued  Stock Payable  Services  Investment and Other  Total Value  Stock Payable 
Related Parties                        
David Tobias, Director  29,377  $10,000  $—  $—  $10,000  $10,000 
Jerry Cornwell, Director  29,377   10,000   —   —   10,000   10,000 
Brad Herr, CFO  44,066   15,000   —   —   15,000   15,000 
Randy Lanier, Director  25,179   8,571           8,571   68,785 
Total for related parties  127,999   43,571   —   —   43,571   103,785 
Unrelated Parties  1,210,103   146,979   57,921   300,000   504,900   15,000 
Aggregate Totals November 30, 2021  1,338,102  $190,550  $57,921  $300,000  $548,471  $118,785 
Three Months Ended November 30, 2020                        
Related Parties                        
David Tobias, Director  50,000  $10,000  $—  $—  $10,000  $10,000 
Jerry Cornwell, Director  50,000   10,000   —   —   10,000   10,000 
Brad Herr, CFO  75,000   15,000   —   —   15,000   15,000 
Randy Lanier, Director  —   —   —   —   —   — 
Total for related parties  175,000   35,000   —   —   35,000   35,000 
Unrelated Parties  279,857   24,571   62,960   —   87,531   123,571 
Aggregate Totals November 30, 2020  454,857  $59,571  $62,960  $—  $122,531  $158,571 
                   
Six Months
     Value of Shares Issued for:    
Six Months Ended November 30, 2021 Total Shares Issued  Stock Payable  Services  Investment and Other  Total Value  Stock Payable 
Related Parties                        
David Tobias, Director  29,377  $—  $10,000  $—  $10,000  $10,000 
Jerry Cornwell, Director  29,377   —   10,000   —   10,000   10,000 
Brad Herr, CFO  44,066   —   15,000   —   15,000   15,000 
Randy Lanier, Director  25,179   —   8,571   —   8,571   68,785 
Total for related parties  127,999   —   43,571   —   43,571   103,785 
Unrelated Parties  7,357,325   100,000   185,250   2,091,666   2,376,916   15,000 
Aggregate Totals November 30, 2021  7,485,324  $100,000  $228,821  $2,091,666  $2,420,487  $118,785 
Six Months Ended November 30, 2020                        
Related Parties                        
David Tobias, Director  50,000  $—  $10,000  $—  $10,000  $10,000 
Jerry Cornwell, Director  50,000   —   10,000   —   10,000   10,000 
Brad Herr, CFO  75,000   —   15,000   —   15,000   15,000 
Randy Lanier, Director  —   —   —   —   —   — 
Total for related parties  175,000   —   35,000   —   35,000   35,000 
Unrelated Parties  279,857   —   87,531   —   87,531   123,571 
Aggregate Totals November 30, 2020  454,857  $—  $122,531  $—  $122,531  $158,571 

F-10

Common stock Payable

The Company had an aggregate of $218,500 of common stock payable as of November 30, 2019. Of this amount, $100,000 relates to amounts due to Original Ventures, Inc upon issuance of patents, and $118,500 was for services rendered in the current period. This will result in the issuance of 874,000 shares of common stock during the year ending May 31, 2020. Of the total, $90,000 was payable to related parties. See Note 3.

In the three and six-month periods ended November 30, 2018 shares of common stock were issued to related and non-related parties for services performed in the year ended May 31, 2019. The following table breaks out the issuances by related and unrelated parties: 

 

FS-15 

  Three months ended Six months ended
Issued to: November 30, 2018 November 30, 2018
Related parties Shares Amount Shares Amount
Brad Herr  —    $—     60,000  $15,000 
Unrelated parties  150,000   37,500   209,000   52,250 
Total issued  150,000  $37,500   269,000  $67,250 

Common stock Payable

The Company also had an aggregate of $127,125 of common stock payable as of May 31, 2019 that resulted in the issuance of 508,500 shares of common stock in the six months ended November 30, 2019. Of the total, $75,000 (300,000 shares) were issued to related parties. See Note 3.

Shares issued to non-related parties in the three and six-month periods ended November 30, 2019 and 2018 were issued to non-employee contractors for services rendered during the periods. Share based compensation expense is recognized on non-employee awards on the date granted and based upon management’s estimate of fair value of the securities issued. The Company estimated the fair value of the common stock to be $0.25 per share at the times of issuance. The Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares.

NOTE 6 – NON-CONTROLLING INTEREST

In the year ended May 31, 2018, the Company acquired a 51% interest in G4 Products LLC. The Company recognized the 49% non-controlling interest in the ownership of G4 as of the date of the acquisition. The non-controlling interest was reduced by $27,492 during the year ended May 31, 2018 representing its share of the losses incurred that were attributable to the minority interest.

In December 2018, the Company acquired the remaining 49% interest in G4 for aggregate consideration of $70,000 (see Note 2). During the year ended May 31, 2019, the non-controlling interest earned $5,730 of net income prior to the Company’s acquisition of the remaining 49%.

As a result of the acquisition, the Company now owns 100% of G4. The non-controlling interest equity balance of $146,375 less the consideration paid was eliminated through additional paid-in capital as a result.

F-11

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 79 – IMPAIRMENT OF INTANGIBLE ASSETSREVENUE FROM CONTINUING OPERATIONS

 

For the year ended May 31, 2019, the Company performed a year-end impairment analysis of the carrying value of its intangible assets. The analysis was triggered by the acquisition of the non-controlling interest during the year ended May 31, 2019 and the lower than expected revenues generated from sales of its products during the year. The analysis included an evaluation of expected future revenues and earnings from the intangible assets and determined that a reasonable value for the intangible assets was $150,000 at May 31, 2019, and as a result the Company recorded an impairment loss of $178,137 for the year ended May 31, 2019.

During the three months ended November 30, 2019, the Company acquired an additional $100,000 of intangible assets as a result of an earnout due upon issuance of patents. The patents were issued on October 8, 2019 and represent the same intangible assets that were impaired at May 31, 2019. As a result, management determined that a further impairment equivalent to the earnout due on issuance of the patents ($100,000) was warranted. Upon issuance of the patents, the Company also began amortizing the patents over the 15-year life of the patents. As of November 30, 2019, the carrying value of intangible assets is $148,334.

Based on future earning potential from the intangible assets, the length of time remaining on the patents, and the historical sales of the product to date, management believes that the current recorded value of the intangible assets totaling $148,334 is recoverable. The Company will continue to evaluate the intangible assets for additional impairments as appropriate in future periods.

NOTE 8 – REVENUE

The Company’s product revenue is currently generated exclusively though sales of its debudder products.products produced by third parties and distributed by the Company. The Company’s customers, to which trade credit terms are extended, consist almost exclusively of foreign and domestic companies.

ForThe following table sets out product sales for the three and six-month periods ended November 30, 2019, domestic2021 and 2020, along with customer concentration information for each period.

Schedule of revenues

       
  Three months ended November 30, 
  2021  2020 
Debudder product revenues $48,367  $42,307 
Customer concentrations        
Debudder sales        
Customer A $23,500  $— 
Customer B  23,760   — 
Customer C  —   19,885 
Customer D  —   12,100 
Totals $47,260  $31,985 
% of total revenues  98%  76%
       
  Six months ended November 30, 
  2021  2020 
Debudder product revenues $123,052  $73,136 
Customer concentrations        
Debudder sales        
Customer A $37,900  $— 
Customer B  23,760   — 
Customer C  14,680   34,285 
Customer D  43,320   26,130 
Totals $119,660  $60,415 
% of total revenues  97%  83%

All sales were $65,430 and $86,390, respectively, anddomestic except international sales were $1,700of $23,760 and $1,700, respectively. International sales accounted for 3% and 2% of total sales$23,852 in the three and six-month periods ended November 30, 2019,2021, respectively.

For All sales were domestic except international sales of $3,471 and $4,021 in the three and six-month periods ended November 30, 2018, domestic sales2020, respectively.

As of November 30, 2021 and May 31, 2021, there were $17,328$15,700 and $35,714,nil, respectively, and no sales were made to internationalof accounts receivable from the Company’s primary customers.

 

ShipmentsNOTE 10 – DISCONTINUED OPERATIONS

In the year ended May 31, 2021, the Company unwound its acquisition of assets from Elevated Ag Solutions, Inc. As a result of the unwinding, the net income (loss) from the Elevated business segment is included in Discontinued Operations in the statements of operations for all periods presented. As a result of the unwinding in the year ended May 31, 2021, the Company reversed the acquisition of intangible assets, cancelled 1,300,000 out of the 1,400,000 shares of common stock that were issued in the acquisition, and paid a $10,000 walk-away fee to one customer duringthe prior owners.

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MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Discontinued operations operating results for the three and six-monthsix month periods ended November 30, 2019 totaled $30,2262021 and $45,013, respectively, or 45%2020 are reflected in the following tables.

Schedule of discontinued operations

Three and Six-Month Periods Ended November 30, 2021Three and Six-Month Periods Ended November 30, 2020
Revenue$—$75,217
Cost of revenue—66,243
Amortization—13,125
Gross profit—(4,151)
Loss on discontinued operations—10,000
$—$(14,151)

NOTE 11 – IMPACT OF COVID-19

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and 51%, respectively, of salesthe Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in those periods.the United States and Worldwide. As of November 30, 2019,2021 and through the date of filing of this Form 10-Q, the disruption did not materially impact the Company’s financial statements.

The effects of the continued outbreak of COVID-19 and related government responses could include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate. As of November 30, 2021 there were no accounts receivable from this customer.material adverse impacts to the Company’s operations due to COVID-19.

 

InThe economic disruptions caused by COVID-19 could also adversely impact the threeimpairment risks for certain long-lived assets. Management evaluated these impairment considerations and six-month periodsdetermined that no such impairments occurred as of May 31, 2021 or through the date of filing this Form 10-Q.

NOTE 12 – SUBSEQUENT EVENTS

On December 1, 2021, the Company issued 167,796 shares of common stock valued at $83,785 to non-related parties and 87,500 shares of common stock valued at $$35,000 to officers and directors for stock payable at November 30, 2021 relating to services rendered in the quarter ended November 30, 2018, all sales2021. The shares were valued based on the closing price of $17,328 and $35,714, respectively,the Company’s common stock on the OTCQB Market on dates the shares were through one distributor in domestic markets. When the Company acquired the remainder of G4 in December 2018, the Company ended the distributor relationship with this distributor and began servicing all domestic sales, including salesauthorized to distributors, internally.

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be issued.

 

FS-17