UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————FORM 10-Q
FORM 10-Q
———————
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 | |
For the quarterly period ended: | |
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: |
MJ Harvest, Inc.
(Exact name of registrant as specifiedspecifie
d in its charter)
82-3400471 | ||
(State or Other Jurisdiction | (I.R.S. Employer | |
of Incorporation) | Identification No.) |
9205 W. Russell Road, Suite 240, Las Vegas, Nevada 8913989148-1425
(Address of Principal Executive Office) (Zip Code)
(954)519-3115
(954) 519-3115
(Registrant'sRegistrant’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 class | Trading Symbol | Name 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“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"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'sissuer’s Common Stock outstanding as of JanuaryApril 14, 2020,2022 is 20,031,268. .
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Attached after signature page.
Item 2. Management'sManagement’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; inflation, the war in Ukraine, supply chain slowdowns, reoccurring Covid-19 outbreaks, both nationally and internationally, particularly in China, and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “hope,” “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,February 28, 2022 compared with the Three Months Ended November 30, 2018February 28, 2021
RevenueThe narrative comparison of results of operations for the three-month periods ended November 30, 2019February 28, 2022 and 20182021, is based on the following table.
Three Months Ended | ||||||||||||||||
A | B | A-B | % | |||||||||||||
February 28, 2022 | February 28, 2021 | Change | Change | |||||||||||||
REVENUE | $ | 24,343 | $ | 14,377 | $ | 9,966 | 69 | % | ||||||||
COST OF REVENUE | 14,405 | 12,350 | 2,055 | 17 | % | |||||||||||
Cost of revenue as a % of total revenue | 59 | % | 86 | % | -27 | % | ||||||||||
Gross Profit | 9,938 | 2,027 | 7,911 | 390 | % | |||||||||||
Gross profit as a % of revenue | 41 | % | 14 | % | 27 | % | ||||||||||
OPERATING EXPENSES | ||||||||||||||||
Officer and director compensation | 203,785 | 135,000 | 68,785 | 51 | % | |||||||||||
General and administrative | 48,771 | 23,027 | 25,744 | 112 | % | |||||||||||
Professional fees and contract services | 22,445 | 118,231 | (95,786 | ) | -81 | % | ||||||||||
Advertising and promotion | 28,088 | – | 28,088 | n.a. | ||||||||||||
Total operating expenses | 303,089 | 276,258 | 26,831 | 10 | % | |||||||||||
OPERATING LOSS - CONTINUING OPERATIONS | (293,151 | ) | (274,231 | ) | (18,920 | ) | 7 | % |
Revenues increased 69% in the quarter ended February 28, 2022 compared with the same period in 2021. The increase in the current quarter was $67,130 and $17,328, respectively. Cost of revenueslargely due to direct sales efforts by our sales team. Management has remained focused on sales efforts for the three-monthdebudder products while also working to expand our relationship with PPK Investment Group, Inc., a vertically integrated cannabis company selling the Country Cannabis Brand of products, and seeking other acquisitions. We anticipate that we will maintain a marketing focus on the debudder products in the coming periods ended November 30, 2019but also expect to devote substantial attention to our efforts at growing our presence in the cannabis industry through acquisitions. We recently entered into an agreement to acquire a facility and 2018 was $24,626cannabis licenses for an operation in Denver Colorado, and $4,933, respectively. Gross profit forwe expect to close on a an acquisition of a facility and licenses in California in April or May of this year. These acquisitions will have a significant effect on the three-monthdirection of our future operations.
2
As a percentage of sales, cost of sales decreased between periods ended November 30, 2019 and 2018 was $42,504 and $12,395, respectively. Sales revenues increased largely as a result of improved efficiencies in our fulfillment centers. In the acquisitionprior period, we moved our inventory to a new California fulfillment center and the costs of control over the sales processmove impacted results in the three months ended February 28, 2021.
Total operating expenses increased somewhat in the current period primarily due to increased expenditures for officer and director compensation resulting from the addition of a fourth director and payment of comensation to that director. General and administrative expenses increased in the current period compared with a year earlier, primarily driven by travel expenses associated with the Company’s investment in PPK Investment Group, Inc., and other merger and acquisition work performed during the current period. Advertising and promotion also increased as a result of increased expenditures for investor awareness in the current period. These increases were partially offset by a decrease in professional fees. In the current period, costs previously categorized as professional fees were reclassified as officer and director compensation when one of our consultants accepted a position on the Board.
Net loss from continuing operations increased in 2022 compared with 2021 primarily due to increases in advertising and promotion expenses and consulting fees relating to the prior year. InCompany’s investor relations efforts.
Nine Months Ended February 28, 2022 compared with the three monthsNine Months Ended February 28, 2021
The narrative comparison of results of operations for the nine-month periods ended May 31, 2019,February 28, 2022 and 2021, is based on 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 salesfollowing table.
Nine Months Ended | ||||||||||||||||
A | B | A-B | % | |||||||||||||
February 28, 2022 | February 28, 2021 | Change | Change | |||||||||||||
REVENUE | $ | 147,395 | $ | 87,513 | $ | 59,882 | 68 | % | ||||||||
COST OF REVENUE | 50,774 | 42,484 | 8,290 | 20 | % | |||||||||||
Cost of revenue as a % of total revenue | 34 | % | 49 | % | -14 | % | ||||||||||
Gross Profit | 96,621 | 45,029 | 51,592 | 115 | % | |||||||||||
Gross profit as a % of revenue | 66 | % | 51 | % | -14 | % | ||||||||||
OPERATING EXPENSES | ||||||||||||||||
Officer and director compensation | 542,570 | 400,000 | 142,570 | 36 | % | |||||||||||
General and administrative | 113,644 | 59,410 | 54,234 | 91 | % | |||||||||||
Professional fees and contract services | 176,710 | 358,084 | (181,374 | ) | -51 | % | ||||||||||
Advertising and promotion | 375,461 | – | 375,461 | n.a. | ||||||||||||
Total operating expenses | 1,208,385 | 817,494 | 390,891 | 48 | % | |||||||||||
OPERATING LOSS - CONTINUING OPERATIONS | (1,111,764 | ) | (772,465 | ) | (339,299 | ) | 44 | % |
Revenues increased 68% in the three monthsnine-month period ended November 30, 2019 (36.7%)February 28, 2022 compared towith the same period in 2018 (28%2021. Management refocused sales efforts on the debudder products after discontinuing operations of the soils business acquired from Elevated Ag Solutions, Inc. (“Elevated”) duein early October 2020. The soils division was discontinued in the quarter ended November 30, 2020 and is 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. We also recently entered into an agreement to acquire a facility and cannabis licenses for an operation in Denver Colorado, and we expect to close on a an acquisition of a facility and licenses in California in April or May. Management believes these acquisitions will have a significant effect on the usedirection of independent fulfillment centers to satisfy customer orders. In the prior period, the company fulfilled orders through a controlled subsidiary.our future operations.
3
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 recognizedincreased in the current period.period, primarily due to increased expenditures for advertising and promotion and increases in travel related to an increased focus on acquisitions. In the nine-month period ended February 28, 2022, 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 paid partially in cash and partially 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 MJBIZCON trade show in Las Vegas. Officer and director compensation decreased during the current period to $112,500 from $140,000,increased 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 decreased in 2022 compared with 2021, primarily due to the appointment of one of our contractors as a director in the current period and the associated reclassification of his contract fees 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,“officer and added costs for legaldirector compensation.” General and accounting relating to the filing of an S-1 Registration Statement in the current period.
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-months Ended November 30, 2019, compared with the Six-months Ended November 30, 2018
Revenue for the six-month periods ended November 30, 2019 and 2018 was $88,090 and $35,714, respectively, an increase of 147%. Cost of revenues for the six-month periods ended November 30, 2019 and 2018 was $37,070 and $11,192, respectively. Gross profit for the six-month periods ended November 30, 2019 and 2018 was $51,020 and $24,522, respectively. As with the second quarter discussed above, theadministrative expenses increased revenue is a result of increased marketing efforts and control over the entire sales process in the current period compared towith a year earlier, primarily driven by travel expenses associated with the prior year. Cost of goods sold as a percentage of salesCompany’s investment in PPK Investment Group, Inc.
Net loss from continuing operations increased in the six-months ended November 30, 2019 (42.0%)2022 compared to the same period in 2018 (31.3%)with 2021 primarily due to the useincrease in advertising and promotion expenses.
Non-Operating Expenses.
In the three and nine-month periods ended February 28, 2022, the Company incurred $34,134 and $645,592, respectively, in interest and finance expense relating to notes payable from a funding transaction on March 22, 2021. The nine-month amount included $550,000 in discount on notes payable. The Company had no comparable outstanding debt in the three and nine-month periods ended February 28, 2021. The notes payable were due on March 22, 2022, subsequently extended to March 29, 2022, and paid in full with accrued interest on March 29, 2022. The source of independent fulfillment centersfunds for the repayment of the notes was from a new senior lender. The company expects to satisfy customer orders. enter into a senor convertible debt agreement with the new senior lender in our fiscal fourth quarter.
Discontinued Operations.
In the prior period,year, after operating the company fulfilled orders through a controlled subsidiary. The set-up costssoils division for the fulfillment centers included initial transportation costsfirst four months of the year ended May 31, 2021, management undertook an in-depth assessment of Elevated Ag Solutions, Inc. (“Elevated”) and concluded that the soils division was not as represented at the time of the acquisition in January 2020, was not likely to shift inventoryever 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 the Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. During the nine months ended February 28, 2021, the common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, were cancelled, and the Company paid a $10,000 walk-away fee. In the aggregate, the Company recognized a loss from discontinued operations of $10,000.
Operating results for the three and nine-month periods ended February 28, 2021 from the Company controlled warehouse to the fulfillment centers, which increased cost of sales morediscontinued operations are reflected in the three months ended August 31, 2019 compared to the three months ended November 30, 2019.following table.
Three Month Period Ended February 28, 2021 | Nine-Month Period Ended February 28, 2021 | |||||||
Revenue | $ | – | $ | 75,217 | ||||
Cost of revenue | – | (66,243 | ) | |||||
Amortization | – | (13,125 | ) | |||||
Gross profit | – | (4,151 | ) | |||||
Loss on discontinued operations | – | 10,000 | ||||||
$ | – | $ | (14,151 | ) |
4
Net loss from operations for the 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, 2019 and 2018, the increase was attributable primarily to an impairment expense of $100,000 on intangible assets that was recognized in the current period. In addition, for the six months ended November 30, 2019, the company incurred higher operating costs due to added personnel, increased patent counsel and professional fees, and higher officer and director compensation. The additional operating costs were incurred as the Company ramped up its review 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.
Total operating expenses were $647,784 for the six-month period ended November 30, 2019 and $400,398 for the six-month period ended November 30, 2018, resulting 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.
Liquidity and Capital Resources
Cash flow fromused in operating activities for the six-monthnine-month period ended November 30, 2019,February 28, 2022 was a negative $167,917.$329,212 compared with $175,329 in the comparable period in 2021. During the period, our total cash decreased by $1,958.$115,712. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $165,959.$213,500.
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 $1,237,969, based on current assets of $122,238 and current liabilities of $1,360,207. 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.
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$327,285 and $375,876, respectively,$1,757,356 for the six-monththree and nine-month periods ended November 30, 2019, and 2018,February 28, 2022, respectively, and had an accumulated deficit of approximately $2,815,483$10,855,613 as of November 30, 2019.February 28, 2022. In addition, we have notes payable aggregating $900,000 plus accrued interest that are 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
We are now in the third year of the COVID-19 pandemic. While the impact of the pandemic is lessening, new COVID variants are causing continued concern and the pandemic is not over. To date, the disruption from COVID-19 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 third fiscal quarter ended February 28, 2022.
The effects of the continued outbreak of COVID-19 and related government responses may include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity in our industry. These effects could have a variety of adverse impacts to the Company, including an inability to adequately staff and operate our facilities. To date, there have been no material adverse impacts to the Company’s operations due to COVID-19.
The economic disruptions caused by COVID-19 could also adversely impact 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
5
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.
Changes in Internal Control over Financial Reporting
There have been no changes during the quarter ended November 30, 2019February 28, 2022 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.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,February 28, 2022, the boardCompany issued 281,506 shares of common stock without registration under the Securities Act. Of these, 63,710 shares ($25,510) were issued to two contractors and 217,796 shares ($103,785) were issued to four officers and directors issued 896,000 unregistered common shares to six unrelated persons and four related parties that were officers and/or directors in exchange for services rendered toservices. 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.
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 | |
31.1 | 31 | Section 302 Certification of Principal Executive Officer | |
31.2 | 31 | Section 302 Certification of Principal Financial Officer | |
32.1 | 32 | Section 1350 Certification of Principal Executive Officer | |
32.2 | 32 | 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: April 19, 2022 | By: /s/ Patrick Bilton |
Patrick Bilton, | |
Date: April 19, 2022 | By: /s/ Brad E. Herr |
Brad E. Herr, Chief Financial Officer | |
7
MJ Harvest, Inc.
Contents
Contents
Page | |||
FINANCIAL STATEMENTS –(Unaudited): | |||
Condensed consolidated balance sheets | 2 | ||
Notes to the condensed consolidated financial statements |
MJ HARVEST, INC.
EM ENERGY, INC.Condensed Consolidated Balance Sheets
(unaudited)
CONSOLIDATED BALANCE SHEETS
February 28, | May 31, | |||||||
ASSETS | 2022 | 2021 | ||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 7,607 | $ | 123,319 | ||||
Accounts receivable | 13,232 | – | ||||||
Inventory | 91,399 | 28,159 | ||||||
Deposits | 10,000 | – | ||||||
Total current assets | 122,238 | 151,478 | ||||||
NON-CURRENT ASSETS: | ||||||||
Investments in equity securities, at cost | 3,091,666 | 1,000,000 | ||||||
Fixed assets, net | 7,059 | 10,839 | ||||||
Finite-lived intangible assets, net | 114,584 | 125,834 | ||||||
Indefinite-lived intangible assets, net | 6,000 | 6,000 | ||||||
Total non-current assets | 3,219,309 | 1,142,673 | ||||||
Total Assets | $ | 3,341,547 | $ | 1,294,151 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and other current liabilities | $ | 195,829 | $ | 103,815 | ||||
Accounts payable to related party | 264,378 | 77,779 | ||||||
Notes payable, net of discount | 900,000 | 350,000 | ||||||
Total Current Liabilities | 1,360,207 | 531,594 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Common stock payable | 102,857 | 100,000 | ||||||
Advances from related parties | 1,741,482 | 1,317,982 | ||||||
Total long-term liabilities | 1,844,339 | 1,417,982 | ||||||
Total Liabilities | 3,204,546 | 1,949,576 | ||||||
Commitments and Contingencies ( Notes 4 and 5) | ||||||||
STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
Preferred stock, par value $0.0001, shares authorized, shares issued and outstanding | – | – | ||||||
Common stock, $ | par value per share, shares authorized, and issued and outstanding, respectively3,307 | 2,530 | ||||||
Additional paid-in capital | 10,989,307 | 8,440,302 | ||||||
Accumulated deficit | (10,855,613 | ) | (9,098,257 | ) | ||||
Total stockholders’ equity (deficit) | 137,001 | (655,425 | ) | |||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 3,341,547 | $ | 1,294,151 |
The accompanying notes are an integral part of these condensed 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 |
FS-2
MJ HARVEST, INC
EM ENERGY, INC.
STATEMENTS OF OPERATIONSCondensed Consolidated Statements of Operations
(unaudited)
(unaudited)
Three months ended | Nine months ended | |||||||||||||||
February 28, | February 28, | February 28, | February 28, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUE | $ | 24,343 | $ | 14,377 | $ | 147,395 | $ | 87,513 | ||||||||
COST OF REVENUE | 14,405 | 12,350 | 50,774 | 42,484 | ||||||||||||
Gross profit | 9,938 | 2,027 | 96,621 | 45,029 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Officer and director compensation | 203,785 | 135,000 | 542,570 | 400,000 | ||||||||||||
General and administrative | 48,771 | 23,027 | 113,644 | 59,410 | ||||||||||||
Professional fees and contract services | 22,445 | 118,231 | 176,710 | 358,084 | ||||||||||||
Advertising and promotion | 28,088 | – | 375,461 | – | ||||||||||||
Total operating expenses | 303,089 | 276,258 | 1,208,385 | 817,494 | ||||||||||||
OPERATING LOSS FROM CONTINUING OPERATIONS | (293,151 | ) | (274,231 | ) | (1,111,764 | ) | (772,465 | ) | ||||||||
NON-OPERATING EXPENSES | ||||||||||||||||
Interest and financing expense | 34,134 | – | 645,592 | – | ||||||||||||
NET LOSS FROM CONTINUING OPERATIONS | (327,285 | ) | (274,231 | ) | (1,757,356 | ) | (772,465 | ) | ||||||||
LOSS FROM DISCONTINUED OPERATIONS | ||||||||||||||||
Operating loss on discontinued operations | – | – | – | (4,151 | ) | |||||||||||
Loss on discontinued operations | – | – | – | (10,000 | ) | |||||||||||
NET LOSS FROM DISCONTINUED OPERATIONS | – | – | – | (14,151 | ) | |||||||||||
NET LOSS | $ | (327,285 | ) | $ | (274,231 | ) | $ | (1,757,356 | ) | $ | (786,616 | ) | ||||
NET LOSS PER COMMON SHARE - BASIC AND DILUTED | ||||||||||||||||
From continuing operations | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.03 | ) | ||||
From discontinued operations | NA | NA | NA | – | ||||||||||||
Total | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.03 | ) | ||||
WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||||||||||
SHARES OUTSTANDING - Basic and diluted | 33,063,494 | 23,245,546 | 30,454,015 | 23,077,816 |
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 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
EM ENERGY, INC.FS-3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED AUGUST 31, 2019 AND 2018
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 | ) |
EM ENERGY, INC.MJ HARVEST, INC
STATEMENTS OF CASH FLOWSCondensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(unaudited)
(unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2022 AND 2021
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 | $ | - |
Additional | Common | |||||||||||||||||||||||
Common Stock | Paid-In | Stock Subject to | Accumulated | |||||||||||||||||||||
Three Month | Shares | Amount | Capital | Cancellation | Deficit | Total | ||||||||||||||||||
BALANCES, November 30, 2020 | 23,347,731 | $ | 2,335 | $ | 3,885,859 | $ | – | $ | (4,694,779 | ) | $ | (806,585 | ) | |||||||||||
Shares issued for services | 200,000 | 20 | 59,980 | – | – | 60,000 | ||||||||||||||||||
Shares issued for common stock payable | 167,345 | 17 | 58,554 | – | – | 58,571 | ||||||||||||||||||
Shares subject to cancellation due to discontinued operations | – | – | – | (336,875 | ) | – | (336,875 | ) | ||||||||||||||||
Net loss | – | – | – | – | (274,231 | ) | (274,231 | ) | ||||||||||||||||
BALANCES, February 28, 2021 | 23,715,076 | 2,372 | 4,004,393 | (336,875 | ) | (4,969,010 | ) | (1,299,120 | ) | |||||||||||||||
BALANCES, November 30, 2021 | 32,787,446 | 3,279 | 10,860,040 | – | (10,528,328 | ) | 334,991 | |||||||||||||||||
Shares issued for services | 26,200 | 3 | 10,507 | – | – | 10,510 | ||||||||||||||||||
Shares issued for common stock payable | 255,296 | 25 | 118,760 | – | – | 118,875 | ||||||||||||||||||
Net loss | – | – | – | – | (327,285 | ) | (327,285 | ) | ||||||||||||||||
BALANCES, February 28, 2022 | 33,068,952 | 3,307 | 10,989,307 | – | (10,855,613 | ) | 137,001 | |||||||||||||||||
Nine Month | ||||||||||||||||||||||||
BALANCES, May 31, 2020 | 22,892,874 | 2,289 | 3,763,374 | – | (4,182,394 | ) | (416,731 | ) | ||||||||||||||||
Shares issued for services | 822,202 | 83 | 241,019 | – | – | 241,102 | ||||||||||||||||||
Shares subject to cancellation due to discontinued operations | – | – | – | (336,875 | ) | – | (336,875 | ) | ||||||||||||||||
Net loss | – | – | – | – | (786,616 | ) | (786,616 | ) | ||||||||||||||||
BALANCES, February 28, 2021 | 23,715,076 | 2,372 | 4,004,393 | (336,875 | ) | (4,969,010 | ) | (1,299,120 | ) | |||||||||||||||
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 | 828,571 | 83 | 358,033 | – | – | 358,116 | ||||||||||||||||||
Shares issued for investments | 6,538,259 | 654 | 2,091,012 | – | – | 2,091,666 | ||||||||||||||||||
Net loss | – | – | – | – | (1,757,356 | ) | (1,757,356 | ) | ||||||||||||||||
BALANCES, February 28, 2022 | 33,068,952 | $ | 3,307 | $ | 10,989,307 | $ | – | $ | (10,855,613 | ) | $ | 137,001 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
FS-4
MJ HARVEST, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended | ||||||||
February 28, | February 28, | |||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (1,757,356 | ) | $ | (786,616 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Depreciation and amortization | 15,030 | 28,155 | ||||||
Share based compensation | 358,116 | 241,102 | ||||||
Advances from related party for services | 210,000 | 210,000 | ||||||
Common stock payable for compensation | 102,857 | 58,571 | ||||||
Amortization of note payable discount | 550,000 | – | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (13,232 | ) | 14,716 | |||||
Vendor deposits | (10,000 | ) | 20,000 | |||||
Inventory | (63,240 | ) | 4,634 | |||||
Payable for discontinued operations | – | 2,000 | ||||||
Accounts payable and other current liabilities | 92,014 | 32,109 | ||||||
Accounts payable to related parties | 186,599 | – | ||||||
NET CASH (USED IN) OPERATING ACTIVITIES | (329,212 | ) | (175,329 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from advances by related parties | 213,500 | 144,000 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 213,500 | 144,000 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (115,712 | ) | (31,329 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 123,319 | 32,343 | ||||||
CASH AND CASH EQUIVALENTS END OF PERIOD | $ | 7,607 | $ | 1,014 | ||||
Non-cash financing and investing activities: | ||||||||
Shares issued for common stock payable | $ | 100,000 | $ | – | ||||
Shares issued for investments | $ | 2,091,666 | $ | – | ||||
Shares to be cancelled on discontinued operations (Note 9) | $ | – | $ | 336,875 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
FS-5
MJ HARVEST, INC.
NOTES TO THE CONDENSED 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 a 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.
In the quarter ending February 28, 2022, the Company began operations in Colorado under a wholly-owned Colorado corporation, Country Cannabis, Inc. (“CCCO”). CCCO is in the process of acquiring cannabis licenses for the manufacture and distribution of products containing THC and/or THC derivatives. Pending transfer of the licenses, the Company is operating the Colorado facility pursuant to a license agreement with the current owner of the facility.
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 presentationstatement of the interim financial statements have been included. Operating results for the three and six-monthnine-month periods ended November 30, 2019February 28, 2022 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”),Agro Canada, and AgroExports.CA ULC. G4 was a 51%CCCO. 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.
FS-6
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Going Concern
The Company has an accumulated deficit as of $2,815,483February 28, 2022 of $10,855,613 and negative working capital of $1,237,969. Included in current liabilities are notes payable aggregating $900,000 which among otherwere paid in March 2022. See Subsequent events note 11. 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.
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. 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.
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, August 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU Accounting Standards Update (“ASU”) No.2016-02 Leases (Topic 842). The update modifies the classification criteria 2020-06 Debt with Conversion and requires lessees to recognize the assetsOther Options (Subtopic 470-20) and liabilities on the balance sheetDerivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for most leases longer than one year.Convertible Instruments and Contracts in an Entity’s Own Equity. The update is effectiveto address issues identified as a result of the complexity associated with applying generally accepted accounting principles for fiscal years beginning after December 15, 2018, certain financial instruments with early adoption permitted. The Company adopted the new standard on June 1, 2019characteristics of liabilities 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, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goods 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.
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.
FS-7
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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:
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.
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. Depreciation is computed usingearnings.
Intangible Assets
Intangible asset amounts are initially recognized at the straight-line method overacquisition date at the estimated useful lives of the molds which is five years.
Accounting for Acquisitions
We recognize and measure identifiable 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 identifiableintangible assets and liabilitiesacquired.
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 recorded as goodwill. Critical estimates in valuing certain identifiableno foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows of the Company, an intangible asset is determined to have an indefinite life. Indefinite-lived intangible 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.
FS-8
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 and nine month periods ended November 30, 2019February 28, 2022, 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 2018,nine-month periods ended February 28, 2021, the Company had no common stock equivalents outstanding.
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 February 28, 2022 and May 31, 2021:
Schedule of fixed assets | ||||||||
February 28, | May 31, | |||||||
Equipment | 2022 | 2021 | ||||||
Equipment - production molds | $ | 25,109 | $ | 25,109 | ||||
Less: Accumulated amortization | (18,050 | ) | (14,270 | ) | ||||
Net Equipment | $ | 7,059 | $ | 10,839 |
Depreciation expense for the three and nine-month periods ended February 28, 2022 were $ 1,260 and $3,780, respectively. Depreciation expense for the three and nine-month periods ended February 28, 2021 were $1,260 and $3,780, respectively.
FS-9
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets consist of both finite and indefinite lived assets. At February 28, 2022 and May 31, 2021, intangibles assets are:
Schedule of intangible assets | ||||||||
February 28, | May 31, | |||||||
Intangibles | 2022 | 2021 | ||||||
Finite lived intangibles | ||||||||
Patents | $ | 250,000 | $ | 250,000 | ||||
Less: impairment of patents | (100,000 | ) | (100,000 | ) | ||||
150,000 | 150,000 | |||||||
Less: accumulated amortization | (35,416 | ) | (24,166 | ) | ||||
Patents, net | 114,584 | 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 | 114,584 | 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 | $ | 120,584 | $ | 131,834 |
Amortization expense for the three and nine-month periods ended February 28, 2022 were $3,750 and $11,250, respectively and for the three and nine-month periods ended February 28, 2021, were $3,750 and $24,375, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 4 – INVESTMENTS
At February 28, 2022 and May 31, 2021, investments are:
Schedule of investments | ||||||||
February 28 | May 31, | |||||||
Investments | 2022 | 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 February 28, 2022 and servicesMay 31, 2021 as the Company’s common stock was trading above $0.25 on both dates. The put option continues so long as PPK holds shares of MJHI that it received as part of MJHI’s investment in PPK.
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.
FS-11
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. No liability has been accrued for this potential obligation as the Company has assessed the probability of an obligation being incurred to be remote as of February 28, 2022. |
NOTE 2 –ACQUISITIONS OF G4
• | The Company also entered into an employment agreement with Ralph Clinton Pyatt III (“Clinton Pyatt”), President of PPK, to continue his role as Chief Executive Officer and President of PPK business for a three year term effective May 22, 2021. |
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 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 November 17, 2017,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 lookback 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, or sooner if the agreements are terminated before the second anniversaries. At February 28, 2022, 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. No liability has been accrued for this potential obligation as the Company has assessed the probability of an obligation being incurred to be remote as of February 28, 2022.
The acquisition agreementCompany evaluated its investment in PPK, WDSY and BLIP as of February 28, 2022 and identified no indicators of possible impairment on their carrying values.
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 initial purchase of 51%an aggregate of G4$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 follow-on acquisitiondollar amounts and fees which are double for SDT compared to AJB. The terms of the remaining 49%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, 2021 through September 22, 2021 and bore 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 due March 21, 2022. The Notes are secured by all assets of the Company.
FS-12
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Interest on the notes is payable in G4 included certain earnout provisionsmonthly 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 $33,750 and $ 81,800 in interest was recognized as an expense on the notes in the three and nine-month periods ended February 28, 2022. At February 28, 2022, $11,250 of the accrued interest was outstanding and was paid in March 2022.
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 describedexercisable 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 Note 4full 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. Financing fees of $2,906,000 was recognized as expense on March 22, 2021. 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 nine-month periods ended February 28, 2022, the Company recognized $-0- and $550,000 respectively, of amortization expense as interest and finance expense.
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.
FS-13
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6 – Commitments and Contingencies.
NOTE 3 – RELATED PARTY TRANSACTIONS
At November 30, 2019,February 28, 2022 and May 31 2019,2021, the Company had advances from and costs of services provided by related parties totaling $705,663$1,741,482 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:
· As of November 30, 2019 and May 31, 2019, the Company owed Mr. Jerry Cornwell,
Schedule of related party transactions | ||||||||||||||||||||||||
Related Party Advances at | Additions During the Six Months Ended November 30, 2021 | Additions During the Three Months Ended February 28, 2022 | Related Party Advances at | |||||||||||||||||||||
May 31, 2021 | Advances | Services | Advances | Services | February 28, 2022 | |||||||||||||||||||
Related Parties | ||||||||||||||||||||||||
Patrick Bilton, CEO and Director | ||||||||||||||||||||||||
Cash Advances | $ | 928,414 | $ | 151,500 | $ | – | $ | 60,000 | $ | – | $ | 1,139,914 | ||||||||||||
Payable for services | 280,000 | 140,000 | – | 70,000 | 490,000 | |||||||||||||||||||
David Tobias, Director | 80,553 | 2,000 | – | – | – | 82,553 | ||||||||||||||||||
Jerry Cornwell, Director | 29,015 | – | – | – | – | 29,015 | ||||||||||||||||||
Total for related parties | $ | 1,317,982 | $ | 153,500 | $ | 140,000 | $ | 60,000 | $ | 70,000 | $ | 1,741,482 |
Related Party Advances at | Additions During the Six Months Ended November 30, 2020 | Additions During the Three Months Ended February 28, 2021 | Related Party Advances at | |||||||||||||||||||||
May 31, 2020 | Advances | Services | Advances | Services | February 28, 2021 | |||||||||||||||||||
Related Parties | ||||||||||||||||||||||||
Patrick Bilton, CEO and Director | ||||||||||||||||||||||||
Cash Advances | $ | 726,414 | $ | 120,000 | $ | – | $ | 18,000 | $ | - | $ | 864,414 | ||||||||||||
Payable for services | – | – | 140,000 | – | 70,000 | $ | 210,000 | |||||||||||||||||
David Tobias, Director | 80,553 | – | – | – | – | 80,553 | ||||||||||||||||||
Jerry Cornwell, Director | 23,015 | 6,000 | – | – | – | 29,015 | ||||||||||||||||||
Total for related parties | $ | 829,982 | $ | 126,000 | $ | 140,000 | $ | 18,000 | $ | 70,000 | $ | 1,183,982 |
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 $15,000 was owed $183,010and $15,000,$77,779 at February 28, 2022 and May 31, 2021, respectively, for services as an officer ofservices. These amounts are included in accounts payable to related party. The Company also owed PPK $81,368 and $-0- respectively at February 28, 2022 and 2021, for start-up payments on the Company.Colorado operations.
FS-14
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 47 – 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-monthnine-month periods ended November 30, 2019,February 28, 2022 and 2021, shares of common stock were issued to relatedfor stock payable, services and non-related parties for services performed. Theinvestments in the amounts set forth in the following table breaks out the issuances by type of transaction and by related and unrelated parties: table.
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
Schedule of common stock issued | ||||||||||||||||||||
Value of Shares Issued for: | ||||||||||||||||||||
Three Months Ended February 28, 2022 | Total Shares Issued | Stock Payable | Services | Investment and Other | Total Value | |||||||||||||||
Related Parties | ||||||||||||||||||||
David Tobias, Director | 25,000 | $ | 10,000 | $ | – | $ | – | $ | 10,000 | |||||||||||
Jerry Cornwell, Director | 25,000 | 10,000 | – | – | 10,000 | |||||||||||||||
Brad Herr, CFO | 37,500 | 15,000 | – | – | 15,000 | |||||||||||||||
Randy Lanier, Director | 130,296 | 68,785 | – | – | 68,785 | |||||||||||||||
Total for related parties | 217,796 | 103,785 | – | – | 103,785 | |||||||||||||||
Unrelated Parties | 63,710 | 15,000 | 10,510 | – | 25,510 | |||||||||||||||
Aggregate Totals February 28, 2022 | 281,506 | $ | 118,785 | $ | 10,510 | $ | – | $ | 129,295 | |||||||||||
Three Months Ended February 28, 2021 | ||||||||||||||||||||
Related Parties | ||||||||||||||||||||
David Tobias, Director | 28,571 | $ | 10,000 | $ | – | $ | – | $ | 10,000 | |||||||||||
Jerry Cornwell, Director | 28,571 | 10,000 | – | – | 10,000 | |||||||||||||||
Brad Herr, CFO | 42,857 | 15,000 | – | – | 15,000 | |||||||||||||||
Randy Lanier, Director | – | – | – | – | – | |||||||||||||||
Total for related parties | 99,999 | 35,000 | – | – | 35,000 | |||||||||||||||
Unrelated Parties | 267,346 | 23,571 | 60,000 | – | 83,571 | |||||||||||||||
Aggregate Totals February 28, 2021 | 367,345 | $ | 58,571 | $ | 60,000 | $ | – | $ | 118,571 |
Nine Months
Value of Shares Issued for: | ||||||||||||||||||||
Nine Months Ended February 28, 2022 | Total Shares Issued | Stock Payable | Services | Investment and Other | Total Value | |||||||||||||||
Related Parties | ||||||||||||||||||||
David Tobias, Director | 54,377 | $ | – | $ | 20,000 | $ | – | $ | 20,000 | |||||||||||
Jerry Cornwell, Director | 54,377 | – | 20,000 | – | 20,000 | |||||||||||||||
Brad Herr, CFO | 81,566 | – | 30,000 | – | 30,000 | |||||||||||||||
Randy Lanier, Director | 155,475 | – | 77,356 | – | 77,356 | |||||||||||||||
Total for related parties | 345,795 | – | 147,356 | – | 147,356 | |||||||||||||||
Unrelated Parties | 7,421,035 | 100,000 | 210,760 | 2,091,666 | 2,402,426 | |||||||||||||||
Aggregate Totals February 28, 2022 | 7,766,830 | $ | 100,000 | $ | 358,116 | $ | 2,091,666 | $ | 2,549,782 | |||||||||||
Nine Months Ended February 28, 2021 | ||||||||||||||||||||
Related Parties | ||||||||||||||||||||
David Tobias, Director | 78,571 | $ | – | $ | 20,000 | $ | – | $ | 20,000 | |||||||||||
Jerry Cornwell, Director | 78,571 | – | 20,000 | – | 20,000 | |||||||||||||||
Brad Herr, CFO | 117,857 | – | 30,000 | – | 30,000 | |||||||||||||||
Randy Lanier, Director | – | – | – | – | – | |||||||||||||||
Total for related parties | 274,999 | – | 70,000 | – | 70,000 | |||||||||||||||
Unrelated Parties | 547,203 | – | 171,102 | – | 171,102 | |||||||||||||||
Totals | 822,202 | $ | – | $ | 241,102 | $ | – | $ | 241,102 |
FS-15
MJ HARVEST, INC.
Common
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In addition to the above share issuances for the periods presented, the Company had the following stock Payablepayable obligations in the periods ended February 28, 2022 and May 31, 2021.
Schedule Of Stock Payable Obligation | ||||||||
February 28, | May 31, | |||||||
2022 | 2021 | |||||||
Related Parties | ||||||||
David Tobias, Director | $ | 10,000 | $ | - | ||||
Jerry Cornwell, Director | 10,000 | - | ||||||
Brad Herr, CFO | 15,000 | - | ||||||
Randy Lanier, Director | 52,857 | - | ||||||
Total for related parties | 87,857 | - | ||||||
Unrelated Parties | 15,000 | 100,000 | ||||||
Aggregate Totals February 28, 2022 | $ | 102,857 | $ | 100,000 |
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:
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.
NOTE 7 – IMPAIRMENT OF INTANGIBLE ASSETS
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 FROM CONTINUING OPERATIONS
The Company’sCompany 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-monthnine-month periods ended November 30, 2019, domesticFebruary 28, 2022 and 2021, along with customer concentration information for each period.
Schedule of revenues | ||||||||
Three months ended February 28, | ||||||||
2022 | 2021 | |||||||
Debudder product revenues | $ | 24,343 | $ | 14,377 | ||||
Customer concentrations | ||||||||
Debudder sales | ||||||||
Customer A | $ | – | $ | 13,675 | ||||
Customer D | 22,230 | – | ||||||
Totals | $ | 22,230 | $ | 13,675 | ||||
% of total revenues | 91 | % | 95 | % |
Nine months ended February 28, | ||||||||
2022 | 2021 | |||||||
Debudder product revenues | $ | 147,395 | $ | 87,513 | ||||
Customer concentrations | ||||||||
Debudder sales | ||||||||
Customer A | $ | 37,900 | $ | 13,675 | ||||
Customer B | 23,760 | – | ||||||
Customer C | 14,680 | 34,285 | ||||||
Customer D | 64,550 | 26,130 | ||||||
Totals | $ | 140,890 | $ | 74,090 | ||||
% of total revenues | 96 | % | 85 | % |
FS-16
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
All sales were $65,430 and $86,390, respectively, anddomestic except international sales were $1,700of $94 and $1,700, respectively. International sales accounted for 3% and 2% of total sales$23,946 in the three and six-monthnine-month periods ended November 30, 2019,February 28, 2022, respectively.
For All sales were domestic except international sales of $91 and $4,112 in the three and six-monthnine-month periods ended November 30, 2018, domestic salesFebruary 28, 2021, respectively.
As of February 28, 2022 and May 31, 2021, there were $17,328$13,232 and $35,714,nil 0, respectively, of accounts receivable from the one of the Company’s primary customers.
NOTE 9 – 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 no sales were madepaid a $10,000 walk-away fee to international customers.the prior owners.
Shipments to one customer duringDiscontinued operations operating results for the three and six-monthnine-month periods ended November 30, 2019 totaled $30,226February 28, 2021 are reflected in the following tables. There were no operating results from discontinued operations to report in the three and $45,013, respectively, or 45%nine-month periods ended February 28, 2022.
Schedule of discontinued operations | ||||||||
Three Month Period | Nine-Month Period Ended February 28, 2021 | |||||||
Revenue | $ | – | $ | 75,217 | ||||
Cost of revenue | – | 66,243 | ||||||
Amortization | – | 13,125 | ||||||
Gross profit | – | (4,151 | ) | |||||
Loss on discontinued operations | – | 10,000 | ||||||
Net Loss From Discontinued Operations | $ | – | $ | (14,151 | ) |
NOTE 10 – 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 February 28, 2022 there were no accounts receivablematerial adverse impacts to the Company’s operations due to COVID-19.
FS-17
MJ HARVEST, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets. Management evaluated these impairment considerations and determined that no such impairments occurred as of May 31, 2021 or through the date of filing this Form 10-Q.
NOTE 11 – SUBSEQUENT EVENTS
In April 2022, the Company issued 37,258 shares of common stock valued at $15,000 to one non-related party and 218,226 shares of common stock valued at $87,857 to officers and directors for stock payable at February 28, 2022 relating to services rendered in the quarter ended February 28, 2022. The shares were valued based on the closing price of the Company’s common stock on the OTCQB Market on dates the shares were authorized to be issued.
On March 29, 2022, the Company paid off notes payable in the amount of $900,000 plus accrued interest then owing in the amount of $22,145. The notes payable are now satisfied in full. Funds for the payment of the notes payable were derived from this customer.a new senior debt financing in the amount of $971,000.
In April 2022, the Company issued 250,000 shares of common stock with an aggregate value of $100,000 to two new Board members as consideration for acceptance of their board positions.
In the three and six-month periods ended November 30, 2018, all sales of $17,328 and $35,714, respectively, 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 sales to distributors, internally. FS-18