UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-Q
———————
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 | |
| For the quarterly period ended: | |
| 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 specified 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/ASecurities registered pursuant to Section 12(b) of the Act:
(Former name, former address and former fiscal year, if changed since last report)
| 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 January 14, 2020,April 19, 2023, 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, 2023 compared with the Three Months Ended November 30, 2018February 28, 2022
RevenueThe narrative comparison of results of operations for the three-month periods ended November 30, 2019February 28, 2023 and 2018 was $67,130 and $17,328, respectively. Cost of revenues for2022 is based on the three-month periods ended November 30, 2019 and 2018 was $24,626 and $4,933, respectively. Gross profit for the three-month periods ended November 30, 2019 and 2018 was $42,504 and $12,395, respectively. Sales revenues increased largely as a result of the acquisition of control over the sales processfollowing table.
| February 28, 2023 | February 28, 2022 | |||||||
| REVENUE | $ | 382,240 | $ | 24,343 | ||||
| COST OF REVENUE | 346,923 | 14,405 | ||||||
| Cost of revenue as a % of total revenue | 91 | % | 59 | % | ||||
| Gross Profit | 35,317 | 9,938 | ||||||
| Gross profit as a % of revenue | 9 | % | 41 | % | ||||
| OPERATING EXPENSES | ||||||||
| Officer and director compensation | 70,000 | 203,785 | ||||||
| General and administrative | 425,915 | 48,771 | ||||||
| Professional fees and contract services | 101,427 | 22,445 | ||||||
| Advertising and promotion | 1,214 | 28,088 | ||||||
| Total operating expenses | 598,556 | 303,089 | ||||||
| Loss from operations | (563,239 | ) | (293,151 | ) | ||||
| Other income (expense) | (951,420 | ) | (34,134 | ) | ||||
| NET LOSS | $ | (1,514,659 | ) | $ | (327,285 | ) | ||
2
Revenues in the current period compared to the prior year. In the three monthsquarter ended May 31, 2019, the Company owned 100% of G4 Products LLC (G4) and was able to control marketing activities to increase sales more efficiently thanFebruary 28, 2023 increased 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 sales increased in the three months ended November 30, 2019 (36.7%) compared to the same period in 2018 (28%) due2022. The increase is largely attributable to the use of independent fulfillment centersan intensified effort to satisfy customer orders.bring our Colorado and California facilities online. In the prior period,quarter ended February 28, 2023, the company fulfilled orders through a controlled subsidiary.Company generated $381,662 in sales of cannabis products.
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 expensesCost of $107,188. The increase was attributable primarily to an impairment expense of $100,000 on intangible assets that was recognized in the current period. Officer and director compensation decreased during the current period to $112,500 from $140,000, and general and administrative expenses decreased $5,308 to $17,076 from $22,384, primarily due to normalizing of operations following the changes that occurredrevenues also increased in the quarter ended August 31, 2019February 28, 2023 when compared with the shiftsame period in 2022. The increase is attributable to fulfillment centers. These decreasesthe costs incurred in our Colorado and California operations. In the three months ended February 28, 2023, we incurred operating costs associated with setting up and documenting our manufacturing processes and producing test batches of products to verify our systems were offset by a $39,996generating expected results at our Colorado and California facilities. During this phase, we did not produce significant quantities of product for resale. The production expenses of the test batches were, however, recorded as manufacturing costs. We expect margins to improve on our cannabis product lines in the coming periods as our manufacturing processes are standardized and our need to run test batches and adjust processes decreases.
Our General and Administrative costs (“G&A”) increased in the quarter ended February 28, 2023, compared with the same period in 2022. The increase in professional feesG&A costs were primarily due to our decision to further develop our cannabis business through acquisition of the Colorado and contract servicesCalifornia facilities and the related costs of setting up geographically disbursed manufacturing operations, in particular rent expense. Our advertising and promotion costs decreased significantly when compared to the same reporting period in the currentprevious year.
Other income (expense) increased period over period due to $128,393 from $88,397.interest expense on additional borrowings and amortization of discount associated with new notes payable.
Net loss increased in the three-month reporting period ending February 28, 2023 compared with the same period in 2022. The increase wasin the result of $20,000 paid for non-recurring professional services relating to due diligence investigations of acquisition candidates, and added costs for legal and accounting relatingnet loss is attributable to the filingfactors identified above.
Nine Months Ended February 28, 2023 compared with the Nine Months Ended February 28, 2022
The narrative comparison of an S-1 Registration Statement inresults of operations for the current period.nine-month periods ended February 28, 2023 and 2022, is based on the following table.
| February 28, 2023 | February 28, 2022 | |||||||
| REVENUE | $ | 560,754 | $ | 147,395 | ||||
| COST OF REVENUE | 465,274 | 50,774 | ||||||
| Cost of revenue as a % of total revenue | 83 | % | 34 | % | ||||
| Gross Profit | 95,480 | 96,621 | ||||||
| Gross profit as a % of revenue | 17 | % | 66 | % | ||||
| OPERATING EXPENSES | ||||||||
| Officer and director compensation | 240,000 | 542,570 | ||||||
| General and administrative | 1,035,829 | 113,644 | ||||||
| Professional fees and contract services | 259,957 | 176,710 | ||||||
| Advertising and promotion | (4,795 | ) | 375,461 | |||||
| Total operating expenses | 1,530,991 | 1,208,385 | ||||||
| Loss from operations | (1,435,511 | ) | (1,111,764 | ) | ||||
| Other income (expense) | (2,516,620 | ) | (645,592 | ) | ||||
| NET LOSS | $ | (3,952,131 | ) | $ | (1,757,356 | ) | ||
3
Net loss from operations forRevenues in the three-monthnine-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, theFebruary 28, 2023 increased revenue is a result of increased marketing efforts and control over the entire sales process in the current period compared to the prior year. Cost of goods sold as a percentage of sales increased in the six-months ended November 30, 2019 (42.0%)when compared to the same period in 2018 (31.3%2022. The increase is largely attributable to an intensified effort to bring our Colorado and California facilities online. In the nine-month period ended February 28, 2023, the Company generated $549,928 in sales of cannabis products.
Cost of revenues increased in the nine-month period ended February 28, 2023 when compared with the same period in 2022. The increase is attributable to the costs incurred in our Colorado and California operations. In the nine-month period ended February 28, 2023, we incurred operating costs associated with setting up and documenting our manufacturing processes and producing test batches of products to verify our systems were generating expected results at our Colorado and California facilities. During this phase, we did not produce significant quantities of product for resale. The production expenses of the test batches were, however, recorded as manufacturing costs. We expect margins to improve on our cannabis product lines in the coming periods as our manufacturing processes are standardized and our need to run test batches and adjust processes decreases.
Our General and Administrative costs (“G&A”) increased in the nine-month period ended February 28, 2023, compared with the same period in 2022. The increase in G&A costs were primarily due to our decision to further develop our cannabis business through acquisition of the useColorado and California facilities and the related costs of independent fulfillment centers to satisfy customer orders. In the prior period, the company fulfilled orders through a controlled subsidiary. The set-upsetting up geographically disbursed manufacturing operations, in particular rent expense. Our advertising and promotion costs for the fulfillment centers included initial transportation costs to shift inventory from the Company controlled warehouse to the fulfillment centers, which increased cost of sales more in the three months ended August 31, 2019decreased significantly when compared to the three months ended November 30, 2019.same reporting period in the previous year.
Other income (expense) increased period over period due to interest expense on additional borrowings and amortization of discount associated with new notes payable.
Net loss from operations forincreased in the six-monthnine-month reporting period ended November 30, 2019 was $596,764ending February 28, 2023 compared towith the same period in 2022. The increase in the 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 wasis 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.factors identified above.
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 by operating activities for the six-monthnine month period ended November 30, 2019,February 28, 2023, was a negative $167,917.$1,112,973 compared with $329,212 in the same period in 2022. During the period, our total cash decreasedincreased by $1,958.$120,784 to $161,671. The increase in our cash position at February 28, 2023 is largely attributable to borrowings associated with starting up operations in Colorado and California. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $165,959.notes payable.
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. We continue to seek out potential acquisition candidates and distributorships and hopewith a focus on acquiring additional operating companies with scale sufficient to see continuing growth in sales insupport all aspects of the coming periods.Company’s operations, including the public company infrastructure. The Company is currently reliantheavily dependent on funding through advances from related parties, but no assurances can be given that such funding will continue to be available in future periods. Our historic operations have not been sufficient to support the existing infrastructure, much of which is required in order to maintain public company status.
We have maintained active operations as a manufacturer and distributor of the Debudder product line since 2018. We do not consider the Company to be a shell company as that term is defined in the Securities Act of 1933, as amended.
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 a net lossesloss of $596,764 and $375,876, respectively,$3,952,131 for the six-month periodsnine months ended November 30, 2019, and 2018, and had anFebruary 28, 2023, bringing our accumulated deficit of approximately $2,815,483to $15,926,172 as of November 30, 2019.February 28, 2023. 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. There are no assurances we can be successful in our efforts to raise working capital.
4
Off Balance Sheet Arrangements
NoneNone.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”), who also serves as our Chief Finance and Chief FinancialAccounting 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 havehas 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, 2023 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.
WeThe Company and PPK are not a party to any materialplaintiffs in lawsuit against Country Cannabis, LLC of Yale, Oklahoma for trademark infringement for the use of the name “Country Cannabis”. The lawsuit was filed with the Payne County, Oklahoma Courts on February 7, 2022. The Company has motioned the Court for summary judgment in this matter and for legal proceedings, and, tofees. The motion for summary judgement is currently pending before the best of our knowledge, no such legal proceedings have been threatened against us.Court.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
DuringThere were no unregistered sales of equity securities during the three months ended November 30, 2019, the board of 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 to the Company. The shares were valued and issued at $0.25 per share. The issuance 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.three-month period ending February 28, 2023.
Item 3. Defaults Upon Senior Securities.
None.
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 and Principal Financial Officer | |
| 32.1 | 32 | Section 1350 Certification of Principal Executive Officer and 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 | ||
5
SIGNATURES
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 20, 2023 | By: /s/ Patrick Bilton |
| Patrick Bilton, | |
6
MJ Harvest, Inc.
Contents
| FINANCIAL STATEMENTS – | (Unaudited): | |||
| Condensed Consolidated balance sheets | ||||
| Condensed Consolidated statements of operations | F-3 | |||
| Condensed Consolidated statements of changes in stockholders’ equity (deficit) | ||||
| Condensed Consolidated statements of cash flows | F-5 | |||
| Notes to condensed consolidated financial statements | ||||
F-1
EM ENERGY,
MJ HARVEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| February 28, | May 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 161,671 | $ | 40,887 | ||||
| Inventory | 1,060,938 | 197,059 | ||||||
| Prepaids and other current assets | 114,558 | 20,225 | ||||||
| Total current assets | 1,337,167 | 258,171 | ||||||
| Investments in equity securities, at cost | 3,101,666 | 3,091,666 | ||||||
| Equipment, net | 320,122 | 36,636 | ||||||
| Right to use asset | 3,436,946 | 287,716 | ||||||
| Cannabis licenses | 632,066 | — | ||||||
| Finite-lived intangible assets, net | 99,584 | 110,834 | ||||||
| Indefinite-lived intangible assets, net | 6,000 | 6,000 | ||||||
| Total Assets | $ | 8,933,551 | $ | 3,791,023 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 520,113 | $ | 256,577 | ||||
| Accounts payable to related parties | 481,807 | 265,207 | ||||||
| Advances from related parties | 206,388 | — | ||||||
| Accrued interest payable | 292,086 | 13,000 | ||||||
| Accrued rent payable - related party | 510,419 | — | ||||||
| Lease liability - current portion | 643,299 | 46,761 | ||||||
| Put option liablility | 82,415 | — | ||||||
| Satellite note payable, net of discount | 454,673 | — | ||||||
| Diagonal convertible note payable | 103,750 | — | ||||||
| Convertible note payable - related party | 3,674,263 | 107,586 | ||||||
| Total current liabilities | 6,969,213 | 689,131 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Common stock payable | — | 112,857 | ||||||
| Accounts payable - long term | 54,117 | 200,000 | ||||||
| Lease liability - long term | 2,804,601 | 247,366 | ||||||
| Satellite note payable, net of discount - long term | 203,225 | — | ||||||
| Advances from related parties | — | 1,821,482 | ||||||
| Total long-term liabilities | 3,061,943 | 2,381,705 | ||||||
| Total Liabilities | 10,031,156 | 3,070,836 | ||||||
| COMMITMENT AND CONTINGENCIES (Note 12) | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||
| Preferred stock, par value $0.0001, shares authorized, shares issued and outstanding | — | — | ||||||
| Common stock, $0.0001 par value, shares authorized; and shares issued and outstanding, respectively | 4,485 | 3,357 | ||||||
| Additional paid-in capital | 14,824,082 | 12,690,871 | ||||||
| Accumulated deficit | (15,926,172 | ) | (11,974,041 | ) | ||||
| Total stockholders' equity (deficit) | (1,097,605 | ) | 720,187 | |||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 8,933,551 | $ | 3,791,023 | ||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
| November 30, | May 31, | |||||||||
| 2019 | 2019 | |||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash | $ | 11,634 | $ | 13,592 | ||||||
| Accounts receivable | 100 | 9,191 | ||||||||
| Inventory | 44,295 | 56,205 | ||||||||
| Total current assets | 56,029 | 78,988 | ||||||||
| NON-CURRENT ASSETS: | ||||||||||
| Machinery & equipment - net | 18,399 | 20,919 | ||||||||
| Deposits | - | 480 | ||||||||
| Intangible assets - net | 148,334 | 150,000 | ||||||||
| Total non-current assets | 166,733 | 171,399 | ||||||||
| Total Assets | $ | 222,762 | $ | 250,387 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Accounts payable and other liabilities | $ | 15,470 | $ | 15,915 | ||||||
| LONG-TERM LIABILITIES: | ||||||||||
| Common stock payable | 218,500 | 127,125 | ||||||||
| Advances from related parties | 705,663 | 539,704 | ||||||||
| Total long-term liabilities | 924,163 | 666,829 | ||||||||
| Total Liabilities | 939,633 | 682,744 | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 4) | ||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||||
| Preferred stock, par value $0.0001, 5,000,000 shares authorized, | ||||||||||
| no shares issued and outstanding | - | - | ||||||||
| Common stock, $0.0001 par value per share, 50,000,000 shares | ||||||||||
| authorized, 20,007,739 and 18,758,739 issued and | ||||||||||
| outstanding, respectively | 2,001 | 1,876 | ||||||||
| Additional paid-in capital | 2,096,611 | 1,784,486 | ||||||||
| Accumulated deficit | (2,815,483) | (2,218,719) | ||||||||
| Total stockholders' deficit | (716,871) | (432,357) | ||||||||
| Total Liabilities and Stockholders' Deficit | $ | 222,762 | $ | 250,387 | ||||||
F-2
MJ HARVEST, INC.
EM ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| 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 | ||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| February 28, | February 28, | February 28, | February 28, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE | $ | 382,240 | $ | 24,343 | $ | 560,754 | $ | 147,395 | ||||||||
| COST OF REVENUE | 346,923 | 14,405 | 465,274 | 50,774 | ||||||||||||
| Gross profit | 35,317 | 9,938 | 95,480 | 96,621 | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Officer and director compensation | 70,000 | 203,785 | 240,000 | 542,570 | ||||||||||||
| General and administrative | 425,915 | 48,771 | 1,035,829 | 113,644 | ||||||||||||
| Professional fees | 101,427 | 22,445 | 259,957 | 176,710 | ||||||||||||
| Advertising and promotion | 1,214 | 28,088 | (4,795 | ) | 375,461 | |||||||||||
| Total Operating Expenses | 598,556 | 303,089 | 1,530,991 | 1,208,385 | ||||||||||||
| NET LOSS FROM OPERATIONS | (563,239 | ) | (293,151 | ) | (1,435,511 | ) | (1,111,764 | ) | ||||||||
| NON-OPERATING EXPENSES | ||||||||||||||||
| Fair value of put option | 4,121 | — | 82,415 | — | ||||||||||||
| Interest and financing expense | 947,299 | 34,134 | 2,434,205 | 645,592 | ||||||||||||
| Total non-operating expenses | 951,420 | 34,134 | 2,516,620 | 645,592 | ||||||||||||
| NET LOSS | $ | (1,514,659 | ) | $ | (327,285 | ) | $ | (3,952,131 | ) | $ | (1,757,356 | ) | ||||
| NET LOSS PER COMMON SHARE | ||||||||||||||||
| Basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.06 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||||
| Basic & Diluted | 44,854,737 | 33,063,494 | 43,863,062 | 30,454,015 | ||||||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
F-3
MJ HARVEST, INC.
EM ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
FOR THE THREE MONTHSAND NINE MONTH PERIODS ENDED AUGUST 31, 2019FEBRUARY 28, 2023 AND 20182022
| Three Month | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||
| Shares | Amount | |||||||||||||||||||
| 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 | — | 118,785 | |||||||||||||||
| Net loss | — | — | — | (327,285 | ) | (327,285 | ) | |||||||||||||
| BALANCES, February 28, 2022 | 33,068,942 | $ | 3,307 | $ | 10,989,307 | $ | (10,855,613 | ) | $ | 137,001 | ||||||||||
| BALANCES, November 30, 2022 | 44,854,737 | $ | 4,485 | $ | 14,824,082 | $ | (14,411,513 | ) | $ | 417,054 | ||||||||||
| Net loss | — | — | — | (1,514,659 | ) | (1,514,659 | ) | |||||||||||||
| BALANCES, February 28, 2023 | 44,854,737 | $ | 4,485 | $ | 14,824,082 | $ | (15,926,172 | ) | $ | (1,097,605 | ) | |||||||||
| Nine Month | ||||||||||||||||||||
| 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 | |||||||||||||||
| Stock 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 | 33,068,942 | $ | 3,307 | $ | 10,989,307 | $ | (10,855,613 | ) | $ | 137,001 | ||||||||||
| BALANCES, May 31, 2022 | 33,574,436 | $ | 3,357 | $ | 12,690,871 | $ | (11,974,041 | ) | $ | 720,187 | ||||||||||
| Shares issued for advances from related parties | 9,740,543 | 974 | 1,820,508 | — | 1,821,482 | |||||||||||||||
| Shares issued for accounts payable - long term | 1,069,519 | 107 | 199,893 | — | 200,000 | |||||||||||||||
| Shares issued for common stock payable | 470,239 | 47 | 112,810 | — | 112,857 | |||||||||||||||
| Net loss | — | — | — | (3,952,131 | ) | (3,952,131 | ) | |||||||||||||
| BALANCES, February 28, 2023 | 44,854,737 | $ | 4,485 | $ | 14,824,082 | $ | (15,926,172 | ) | $ | (1,097,605 | ) | |||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
| 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 | ) | |||||||||||
F-4
MJ HARVEST, INC.
EM ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| 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 | $ | - | ||
| Nine months ended | ||||||||
| February 28, | February 28, | |||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,952,131 | ) | $ | (1,757,356 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| used in operating activities: | ||||||||
| Depreciation and amortization | 23,364 | 15,030 | ||||||
| Share based compensation | — | 358,116 | ||||||
| Advances to related party for services | 210,000 | 210,000 | ||||||
| Common stock payable for compensation | — | 102,857 | ||||||
| Amortization of note payable discount | 2,153,290 | 550,000 | ||||||
| Fair value of put option | 82,415 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | — | (13,232 | ) | |||||
| Vendor deposits | — | (10,000 | ) | |||||
| Inventory | (863,879 | ) | (63,240 | ) | ||||
| Prepaids and other current assets | (94,333 | ) | — | |||||
| Accounts payable and accrued expenses | 233,396 | 92,014 | ||||||
| Accrued interest payable | 279,086 | — | ||||||
| Accrued rent payable - related party | 510,419 | — | ||||||
| Payables to related parties - current | 251,283 | — | ||||||
| Payables to related parties - long term | 54,117 | 186,599 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (1,112,973 | ) | (329,212 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisition of investment in equity securities | (10,000 | ) | — | |||||
| Acquisition of equipment | (24,714 | ) | — | |||||
| NET CASH USED IN INVESTING ACTIVITIES | (34,714 | ) | — | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Diagonal convertible notes payable | 103,750 | — | ||||||
| Proceeds from SMC convertible notes payable - related party | 1,460,000 | — | ||||||
| Proceeds from advances by related parties | 44,388 | 213,500 | ||||||
| Payments on advances from related parties | (48,000 | ) | — | |||||
| Principal payments on Satellite note payable | (291,667 | ) | — | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,268,471 | 213,500 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 120,784 | (115,712 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 40,887 | 123,319 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 161,671 | $ | 7,607 | ||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Shares issued for common stock payable | $ | 112,857 | $ | 100,000 | ||||
| Shares issued for investments | — | 2,091,666 | ||||||
| Shares issued for advances from related parties | 1,821,482 | — | ||||||
| Shares issued for accounts payable - long term | 200,000 | — | ||||||
| Right to use asset acquired with lease liability | 3,505,897 | — | ||||||
| License agreement acquired with Satellite note payable | 632,066 | — | ||||||
| Equipment acquired with Satellite note payable | 270,886 | — | ||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
F-5
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 debudderDebudder product line marketed under the Original 420 Brand as the Debudder Bucket Lid and Edge.Edge (“Debudder”). 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 ofo
f 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 ended 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 year ended May 31, 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.
On July 18, 2022, the Company acquired manufacturing equipment and two cannabis licenses for a cannabis manufacturing and distribution business in Cathedral City, California, CCCA. CCCA 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 California facility pursuant to a license agreement with the current owner of the facility.
Basis of Presentation and Consolidation
The Company’s fiscal year-endyear end is May 31. TheOur unaudited financial statements have been prepared by the Company in accordance with generally accepted 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, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2020.2023.
For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended May 31, 2022, 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/CCCA. All subsidiaries were wholly owned subsidiary in 2018 and the Statements of Operations for the three and six-month periods ended November 30, 2018 include the net loss of the non-controlling interest in G4, represented by the non-controlling interest’s proportionate share of its ownership in G4.presented. All intercompany transactions have been eliminated.
Going Concern
The Company has an accumulated deficit as of $2,815,483 which, among other factors, raises substantial doubt about the Company's ability to continue as a going concern.February 28, 2023 of $15,926,172 and negative working capital of $5,632,046. 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 These factors raise substantial doubt about 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 serveCompany’s ability to continue 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 acquisition candidates or business opportunities. going concern.
F-6
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. There can be no assurance that we will be successful to procure necessary financing. 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, amortizationfair value of acquired assets, 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, and2023, including interim periods within those fiscal years.years and with early adoption permitted. The Company adoptedimplemented the new standardupdate early on June 1, 2019 and the2022 with no impact of this update had no material effect onto its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The update is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company will adopt the update as of June 1, 2023 and does not expect a significant impact to our consolidated financial statements and relatedor disclosures.
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
Revenueswholesale cannabis products, and agricultural tools and implements, soils, and soil additives used primarily in growing and harvesting hemp and marijuana. Shipments terms are FOB origination, and revenue is recognized when controlthe product is delivered to the shipper by our fulfillment centers or, in the case of drop shipments of distributed products, when the promised goods or servicesproducts are transferredshipped from the manufacturer. At the time the products are delivered to a customer,the shipper, no other performance obligations remain. Revenue is recognized in an amount that reflects the consideration that the Company expects to receiveis received in exchange for those goods or services. the products shipped.
The Company recognizes revenue fromaccounts for shipping and handling activities as a fulfillment cost and include fees received for shipping and handling as part of the sale of products and services in accordance with ASC 606,”Revenue Recognition”. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
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.
F-7
Inventory
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, if so, records an impairment loss. Upon sale of an equity security, the realized gain or loss is recognized in earnings.
Accounting for Acquisitions
Business acquisitions are recorded at cost. Maintenance, repairs, and minor replacements are expensed as incurred. Gains or losses on disposition or retirement of property and equipment are recognized in operating expenses. Depreciation is computed using the straight-lineacquisition method overof accounting and, accordingly, the estimated useful lives ofpurchase price is allocated to the molds which is five years.
Accounting for Acquisitions
We recognize and measure identifiable assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. After the purchase price has been allocated, goodwill is recorded to the extent the total consideration paid for the acquisition, including the acquisition date fair value of contingent consideration, if any, exceeds the sum of the fair values of the separately identifiable acquired assets and assumed liabilities. Acquisition costs for business combinations are expensed when incurred.
Acquisitions not meeting the accounting criteria to be accounted for as a business combination are accounted for as an asset acquisition. An asset acquisition is recorded at its purchase price, inclusive of acquisition costs, which is allocated among the acquired assets and assumed liabilities based upon their relative fair values at the date of acquisition.
The operating results of an acquisition are included in acquired entities in accordance with ASC 805, Business Combinations. the consolidated statements of operations from the date of acquisition.
The allocation of the purchase consideration for acquisitions can require extensive use of accounting estimates and judgments to allocate the purchase consideration to the assets acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets and liabilitiesJudgment is recorded as goodwill.required in determining which valuation technique should be applied. Critical estimates in valuing certain identifiable assets include but are not limited to market comparables, expected long-term revenues; future expected operating expenses; cost of capital; assumed attrition rates; and discount rates.
Intangible Assets
We account forIntangible asset amounts are initially recognized at the acquisition date at the fair values of the intangible assets in accordance with ASC 350“Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires thatacquired.
Finite-lived intangible assets withare 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 no 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 lives belife. Indefinite-lived intangible assets are not amortized but tested for impairment annually or on an interim basis if events or circumstances indicate that themore frequently when indicators of impairment exist.
F-8
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.
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.
Net Earnings (Loss)Loss Per Share
Basic earnings (loss)loss per share is calculated by dividing net income (loss)loss by the weighted average number of common shares outstanding for the period. Diluted earnings (loss)loss per share is calculated by dividing net income (loss)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. DuringFor the periodsnine months ended November 30, 2019February 28, 2023 and 2018, the Company had no2022, potentially dilutive common stock equivalents outstanding.not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:
| 2023 | 2022 | |||||||
| Stock purchase warrants | 3,000,000 | 3,000,000 | ||||||
| Convertible notes | 27,233,279 | — | ||||||
| 30,233,279 | 3,000,000 | |||||||
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 – EQUIPMENT
Equipment consisted of the following at February 28, 2023 and May 31, 2022:
Schedule of equipment
| February 28 | May 31, | |||||||
| 2023 | 2022 | |||||||
| Equipment - production molds | $ | 49,823 | $ | 25,109 | ||||
| Manufacturing equipment | 301,723 | 30,837 | ||||||
| Less: Accumulated amortization | (31,424 | ) | (19,310 | ) | ||||
| Net Equipment | $ | 320,122 | $ | 36,636 | ||||
Depreciation expense for the three and nine months ended February 28, 2023 and 2022 was $4,038 (2022: $1,260) and $12,114 (2022: $3,780), respectively.
During the nine month period ended February 28, 2023, the Company acquired manufacturing equipment with a value of $270,886 for its California operations. The acquisition was acquired with a note payable with Satellite Dip, LLC. (“Satellite”). See Note 4. At February 28, 2023, the equipment has not yet been placed in service and no depreciation has been recognized for the equipment.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets consist of both finite and indefinite lived assets. At February 28, 2023 and May 31, 2022, intangibles assets are:
Schedule of Finite-Lived Intangible Assets
| February 28 | May 31, | |||||||
| Intangibles | 2023 | 2022 | ||||||
| Finite lived intangibles | ||||||||
| Patents | $ | 250,000 | $ | 250,000 | ||||
| Less: impairment of patents | (100,000 | ) | (100,000 | ) | ||||
| 150,000 | 150,000 | |||||||
| Less: accumulated amortization | (50,416 | ) | (39,166 | ) | ||||
| Patents, net | 99,584 | 110,834 | ||||||
| Total finite lived intangibles | 99,584 | 110,834 | ||||||
| Indefinite lived intangibles | ||||||||
| Domain names | 6,000 | 6,000 | ||||||
| Total intangibles | $ | 105,584 | $ | 116,834 | ||||
F-9
Amortization expense for both the three and nine months ended February 28, 2023 and 2022 was $3,750 and $11,250, 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.
See Note 10 regarding acquisition of cannabis licenses during the nine months ending February 28, 2023.
NOTE 4 – INVESTMENTS
At February 28, 2023 and May 31, 2022, investments are:
Schedule of investments
| February 28 | May 31, | |||||||
| Investments | 2023 | 2022 | ||||||
| PPK Investment Group, Inc. | $ | 2,791,666 | $ | 2,791,666 | ||||
| Satellite Dip, LLC | 10,000 | — | ||||||
| WDSY, LLC | 200,000 | 200,000 | ||||||
| BLIP Holdings, LLC | 100,000 | 100,000 | ||||||
| Total investments | $ | 3,101,666 | $ | 3,091,666 | ||||
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, accrued interest of $5,707 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 the Company’s restricted common stock. The total fair value of shares issued 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.
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, which was $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 services is$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.
F-10
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 a $0.25 per share. The put option may be exercised after nine months from the date of each investment. No more reliable measurementthan 5% of the total shares held by PPK can be put back to the Company in any calendar quarter. Prior to the nine month period ended February 28, 2023, the trading price of the Company’s stock was above the $0.25 put price thus no value was assigned to the option. At February 28, 2023, the trading price was $0.03 per share and the put option had value of $82,414. The amount was recognized as a fair value thanof put option expense in the equity instruments issued.condensed consolidated statement of operations and a corresponding liability on the condensed consolidated balance sheet. The put option continues so long a PPK holds shares of MJHI that it received as part of MJHI’s investment in PPK.
NOTE 2 –ACQUISITIONS OF G4The 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 combination of cash and shares of the Company’s common stock.
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, 2023. |
| ● | 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 uses in its operations. The real estate is currently under lease to PPK by an affiliated company owned by Clinton Pyatt, the President of PPK.
At February 28, 2023 and May 31, 2022, the Company has a payable due to PPK of $481,807 and $230,524, respectively. The balance is included in payable to related parties on the condensed consolidated balance sheets.
WDSY and BLIP
On November 17, 2017,October 8, 2021, the Company entered into two brand development agreements with WDSY, LLC (“WDSY”) and Blip Holdings, LLC (“BLIP”) for expansion of the WEEDSY and BLVK brands, respectively, into Oklahoma and South Dakota. Under the agreements, PPK will manufacture and distribute these brands in Oklahoma and South Dakota and will pay the respective companies 10% royalties on all net sales of the branded products in those territories.
On October 8, 2021, the Company acquired a controlling 51%10% interest in G4 Products,WDSY in exchange for 377,358 shares of the Company’s common stock and a 10% interest in BLIP in exchange for 188,679 shares of the Company’s common stock. The shares to be issued were valued at the closing price of the common stock, $0.53 per share, on October 8, 2021.
F-11
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, 2023, 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, 2023. Brand royalties are due by the Company for sales of WDSY. See Note 8.
Satellites Dip, LLC
On June 7, 2022, the Company purchased 1% membership units of Satellites Dip, LLC (“G4”Satellites”), for $10,000. The Company has a newly formed Nevadanote payable to Satellites for the purchase of a license and equipment. See Note 5.
The Company evaluated its investment as of February 28, 2023 and identified no indicators of possible impairment on their carrying values.
NOTE 5 – NOTES PAYABLE
SMC Convertible Note Payable
On May 11, 2022, the Company entered into an agreement with SMC Cathedral City Holdings, LLC, a Delaware limited liability company that owned a provisional patent on a device used in stripping buds from plants(“SMC-CCH”) for the sale of Secured Convertible Promissory Note (the Product) from Original Ventures, Inc. (“Original Ventures”“Note”). On December 7, 2018,Steve MacDonald, president of SMC-CCH, is a shareholder and related party of the Company acquiredCompany. The Note provides for an original issue discount of 35%, bears interest at the remaining 49%rate of 12%, and is due at maturity which is twelve months from the issue date of the Note or May 10, 2023. The Note is secured by all assets of the Company.
Any principal amount or interest in G4 from Original Ventures.on the Note that is not paid when due will bear interest at the lesser of 16% or the maximum amount permitted by law.
AtThe principal amount of the Note and interest may be converted at any time following the issue date into fully paid and nonassessable shares of the Company’s common stock at a conversion price of $0.20 per share. The number of shares issuable upon conversion is limited to 4.99% of the outstanding shares at the time of conversion, unless waived by SMC-CCH upon 61 days prior written notice.
So long as any balance due on the second acquisitionNote remains outstanding, the Company has agreed to apply 50% of proceeds from issuance of debt or equity securities, conversion of outstanding warrants, issuance of securities pursuant to an equity line of credit, or the sale of assets, to reduce the outstanding balance of the interest in G4,Note.
During the assets of G4 consisted primarily ofyear ended May 31, 2022, the Company received a provisional U.S. Patent application and certain other international patent applications. Twoportion of the patents were approvedproceeds with a principal balance of $1,963,439 and issuedoriginal interest discount of $692,439 for net proceeds of $1,271,000. On the date of receipt of the proceeds, the trading price of the Company’s common stock exceeded the conversion price of the Note and the Company recognized a beneficial conversion feature of $1,498,757 as additional paid in capital. Of this amount, $1,271,000 was additional discount on October 8, 2019.the note payable and $227,566 was recognized as financing costs in the year ended May 31, 2022.
The acquisition agreementDuring the nine months ended February 28, 2023, the Company borrowed additional funds under the note that had a principal balance of $2,255,406 and original interest discount of $795,406 for net proceeds of $1,460,000.
At February 28, 2023, the outstanding principal balance is $4,218,845 and unamortized discount is $544,582 for a net balance of $3,674,263. During the three and nine months ended February 28, 2023, the Company recognized $112,696 and $279,086 respectively in interest expense on the note and recognized $816,012 and $2,106,678 respectively, for the initial purchaseamortization of 51%the note discount. At February 28, 2023 and May 31, 2022, the accrued interest payable balance on the note is $291,996 and $12,910, respectively, which is included in accrued interest payable on the condensed consolidated balance sheet.
F-12
At May 31, 2022, the Company has a balance owing to Steve MacDonald $50,000 for advances was included in payables to related parties – long term on the condensed consolidated balance sheets. The balance was satisfied with shares of G4the Company’s common stock during the nine months ended February 28, 2023. See Note 7. At February 28, 2023, the Company has a balance owing to a company controlled by Mr. MacDonald of $510,419 for unpaid rent. This amount is included in accrued rent payable – related party on the condensed consolidated balance sheets.
Diagonal Convertible Note Payable
On June 17, 2022, the Company entered into an agreement with 1800 Diagonal Lending, LLC (“Diagonal”) whereby the Company issued convertible note to Diagonal with a principal amount of $103,750. The note bears interest at 10% and has a term of one year when payment of principal and interest is due. After 180 days, the note is convertible into shares of the Company’s common stock the number of which determined by dividing the principal balance outstanding by 65% of the trading price of the Company’s stock on the date of the conversion.
Satellites Note Payable
On July 13, 2022, the Company entered into an unsecured promissory note with Satellites that had a stated principal balance of $1,000,000 in exchange for the follow-on acquisitionCompany acquiring a license agreement and equipment from Satellites. See Note 10. The note is non-interest bearing and has a term of 24 months. Monthly payments of $41,657 are due starting August 1, 2022. Because the note is non-interest bearing, the Company recorded a discount on the note of $97,048 using a discount rate of 10%. The discount is being amortized over the term of the remaining 49% interest in G4 included certain earnout provisions that are described in Note 4 – Commitmentsnote. Amortization of the discount was $18,232 and Contingencies.$46,614, respectively, during the three and nine month periods ended February 28, 2023.
NOTE 36 – RELATED PARTY TRANSACTIONS
In addition to related party transactions described in Notes 4 and 5, the Company had the following related party activity:
Payables to Related Parties:
During three and nine month period ended February 28, 2023, the Company recognized expense of $23,709 (2022: $23,709) and $65,000 (2022: $65,000), respectively, for services performed by a company owned by the former chief financial officer (CFO). At November 30, 2019, and May 31, 2019,2022, the Company had a balance due to the former CFO’s company of $197,683. During the nine month period ended February 28, 2023, the Company paid $150,000 in the form of shares of its common stock to reduce the amount of the accounts payable due to the CFO, See Note 7. During the nine month period ended February 28, 2023, the remaining amount due was converted to a note payable. The note bears interest at 5% and matures on July 31, 2024. The balance of the note payable at February 28, 2023 is $54,117 and is included in payable to related party – long term on the condensed consolidated balance sheet.
At February 28, 2023, the Company has a $162,000 note payable to the president of the Company for accrued compensation. The note bears interest at 6% and was due on January 1, 2023. The amount is included in payable to related party on the condensed consolidated balance sheets. During the three and nine month periods ended February 28, 2023 and 2022, the Company recognized officer compensation expense of $-0- (2022: $70,000) and $170,000 (2022: $210,000), respectively.
At February 28, 2023, the Company has a balance due to Cannabis Sativa, Inc., with whom the Company plans to merge, of $44,388 (see Note 10). The amount is included in advances from related parties on the condensed consolidated balance sheets. The money was advanced from Cannabis Sativa, Inc. to cover operating expenses.
Advances from Related Parties:
At May 31, 2022, the Company had advances from, and costs of services provided by, related parties totaling $705,663 and $539,704, respectively.$1,821,482. These amounts arewere classified as long-term liabilities as it is anticipated they will beand were settled with shares of the Company’s common stock. Thesestock in July 2022. See Note 7. During the three and nine months ended February 28, 2023, the Company’s chief executive officer earned $70,000 and $240,000, respectively, in compensation which was reflected as an increase in advances due to him. During the nine months ended February 28, 2023, the Company paid $48,000 on the advance.
F-13
During the nine month period ended February 28, 2022, the Company had the following activity in its related party advances balance:
Schedule of related party transactions
| Related Party Advances at | Additions During the Nine Months Ended February 28, 2022 | Related Party Advances at | ||||||||||||||
| May 31, 2021 | Advances | Services | February 28, 2022 | |||||||||||||
| Related Parties | ||||||||||||||||
| Patrick Bilton, CEO and Director | ||||||||||||||||
| Cash Advances | $ | 928,414 | $ | 211,500 | $ | — | $ | 1,139,914 | ||||||||
| Payable for services | 280,000 | — | 210,000 | 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 | $ | 213,500 | $ | 210,000 | $ | 1,741,482 | ||||||||
NOTE 7 – SHARE CAPITAL
In the nine month period ended February 28, 2023, shares were issued for stock payable, conversion of advances from related parties and conversion of accounts payable in the amounts consistedset forth in the following table.
Schedule of conversion accounts payable
| Value of Shares Issued for: | ||||||||||||||||||||
| Nine Months Ended February 28, 2023 | Total Shares Issued | Stock Payable | Conversion of Advances | Conversion of Accounts Payable | Total Value | |||||||||||||||
| Related Parties | ||||||||||||||||||||
| David Tobias, Director | 477,779 | $ | 10,000 | $ | 81,553 | $ | — | $ | 91,553 | |||||||||||
| Jerry Cornwell, Director | 155, 158 | — | 29,015 | — | 29,015 | |||||||||||||||
| Patrick Bilton, CEO | 9,149,272 | — | 1,710,914 | — | 1,710,914 | |||||||||||||||
| Brad Herr, CFO | 864,638 | 15,000 | — | 150,000 | 165,000 | |||||||||||||||
| Jason Roth, Director | 41,667 | 10,000 | — | — | 10,000 | |||||||||||||||
| Rich Turasky, Director | 41,667 | 10,000 | — | — | 10,000 | |||||||||||||||
| Randy Lanier, Director | 220,238 | 52,857 | — | — | 52,857 | |||||||||||||||
| Total for related parties | 10,950,419 | 97,857 | 1,821,482 | 150,000 | 2,069,339 | |||||||||||||||
| Unrelated Parties | 329,882 | 15,000 | — | 50,000 | 65,000 | |||||||||||||||
| Aggregate Totals February 28, 2023 | 11,280,301 | $ | 112,857 | $ | 1,821,482 | $ | 200,000 | $ | 2,134,339 | |||||||||||
Prior to the nine months ended February 28, 2023, the Company paid its directors and certain consultants in shares of the following:Company’s common stock for payment of services rendered. Effective June 1, 2022, the Company determined that it would no longer pay in shares of the Company’s common stock in anticipation of its potential merger with Cannabis Sativa, Inc. (see Note 10).
In the nine-month period ended February 28, 2022, shares were issued for services and investment in the amounts set forth in the following table.
Schedule of aggregate common stock payable
| Value of Shares Issued for: | ||||||||||||||||||||
| Nine Months Ended February 28, 2022 | Total Shares Issued | Stock Payable | Services | Investments | 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 | |||||||||||
F-14
· As
NOTE 8 – REVENUE
The Company’s product revenue is generated though sales of November 30, 2019Wholesale Cannabis Products and sales of its Debudder products which are produced by third parties and distributed by the Company.
The following table shows total revenue for the three and nine-month periods ended February 28, 2023 and 2022:
Schedule of revenues
| Three months ended February 28, | Nine months ended February 28, | |||||||
| Wholesale Cannabis Product Revenue | 2023 | 2023 | ||||||
| Colorado | $ | 45,564 | $ | 131,809 | ||||
| California | 336,098 | 418,119 | ||||||
| 381,662 | 549,928 | |||||||
| Debudder Revenue | 578 | 1,467 | ||||||
| Other | — | 9,359 | ||||||
| Total | $ | 382,240 | $ | 560,754 | ||||
All revenue for the same periods in 2022 was from Debudder sales. All sales were domestic in the three and nine month periods ended February 28, 2023. All Debudder sales were domestic except for $94 and $23,946 in the three and nine month periods ended February 28, 2022.
For Wholesale Cannabis Products, we have Brand agreements that requires the Company to pay brand royalties on sales of that brand. For the three and nine-month periods ended February 28, 2023, total brand royalties paid were $4,983 and $20,332, respectively, and are included in cost of revenue on the condensed statement of operations.
During the nine month period ended February 28, 2023, sales of the Debudder product line were substantially reduced due to the focus of the Company turning to getting the Colorado and California Cannabis facilities up and running.
During the three and nine month periods ended February 28, 2023, all debudder revenue were multiple customers for individual use. During the three and nine month periods ended February 28, 2022, 98% and 97%, respectively, of debudder revenue was from four separate customers. Accounts receivable from cannabis revenue was $69,104 and $-0-, at February 28, 2023 and May 31, 2019,2022, respectively and is included in prepaid and other current assets in the Company owed Mr. Jerry Cornwell, a director, $15,696.condensed consolidated balance sheets at February 28, 2023.
· As
NOTE 9 – INVENTORY
Schedule of November 30, 2019inventory
| Inventory consists of the following: | ||||||||
February 28, 2023 | May 31, 2022 | |||||||
| Debudder products | $ | 110,013 | $ | 24,794 | ||||
| Raw material - biomass | 67,927 | 21,868 | ||||||
| Raw material - distillate | 101,189 | 76,916 | ||||||
| Finished goods | 781,809 | 73,481 | ||||||
| Total | $ | 1,060,938 | $ | 197,059 | ||||
F-15
At February 28, 2023 and May 31, 2019,2022, raw material – biomass, as listed above, is on consignment from a third-party company with which the Company owed David Tobias,has a majority shareholderlicense agreement. Under the agreement, the Company obtains the biomass from the third party from which it produces the cannabis products. The Company is required to split the revenue over the reduced purchase price for inventory 50/50 with the third party. The Company absorbs all losses from sale of the products. To date, the Company’s revenue for this product has not been greater than the reduced purchase price, therefore the Company nor the third- party has not earned any split revenue under this arrangement.
NOTE 10 – ACQUISITIONS AND PROPOSED MERGER
Acquisition of License Agreements and director, $75,553.Equipment
· As
On July 18, 2022, the Company acquired manufacturing equipment and two cannabis licenses for a cannabis manufacturing and distribution business located in Cathedral City, California. The Company paid $1,000,000 for the acquisition by issuance of November 30, 2019 and May 31, 2019, Patrick Bilton,an unsecured non-interest bearing note with Satellites payable in 24 monthly installments. The Company is currently operating the California facility under a directormanagement services agreement pending transfer of the licenses into the Company’s name. The purchase price was $902,952 which consisted of a note payable with a $1,000,000 principal balance discounted $97,048. The purchase price was allocated to the equipment for $270,886 and the Company’s Chief Executive Officer, was owed $566,959 and $401,000, respectively,licenses for advances$632,066 based on their relative fair value. Once payments have been made to reach 35% of the amount due, the Company for operating capitalcan file with the CA DCC to start the process of transferring the license.
Merger with Cannabis Sativa, Inc.
On August 8, 2022, the Company entered into an Agreement of Merger and an additional $47,455 at November 30, 2019 and May 31, 2019, for expenses paidPlan of Reorganization dated August 8, 2022 with Cannabis Sativa, Inc. (“CBDS”), to be effective on behalfthe first business day following approval 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 behalfmerger by the shareholders 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,CBDS. The merger agreement provides for the merger of the Company hadwith and into CBDS, with CBDS as the surviving entity. Under the agreement, the Company’s shareholders will receive 2.7 shares of CBDS 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 consistedfor each one share of the following:
· The Company hadCompany’s common stock payableheld immediately prior to Mr. Cornwellthe merger. Following the merger, the shareholders of $5,000 and -0- at November 30, 2019 and May 31, 2019, respectively, for services as a director.
· Thethe Company also hadwill hold approximately 72% of the total outstanding shares of common stock payableof the surviving company, and the shareholders of CBDS will hold approximately 28% of the total outstanding common shares of the surviving company. Presently, the merger is still proceeding and is scheduled to Mr. Tobiasclose Q3 2023 of $5,000the calendar year, subject to shareholder approval.
NOTE 11 – LEASES
Colorado Lease: On January 1, 2022, the Company signed a lease for its office and -0-facilities located in Denver, Colorado for a five year term. Monthly lease payments start at November 30, 2019$6,000 and May 31, 2019, respectively, for services asescalate to $7,293 in year five. Upon signing the lease, the Company recognized a director.
· The Company also had common stock payable to Mr. Biltonlease liability and a right of $65,000 and $60,000 at November 30, 2019 and May 31, 2019, respectively, for services asuse asset of $308,127 based on the two-year payment stream discounted using an officer and director.
·estimated incremental borrowing rate of 10.0%. At February 28, 2023, the remaining lease term is 3.8 years. As of November 30, 2019 and May 31, 2019, the Company had common stock payable to Nexit, Inc, an entity solely owned by Brad Herr, Chief Financial Officer, of $15,000 and $15,000, respectively, for servicesFebruary 28, 2023, total future lease payments are as an officer of the Company.follows:
Future lease payments
| For the year ended May 31, | ||||
| Remaining 2023 | $ | 18,900 | ||
| 2024 | 77,175 | |||
| 2025 | 81,033 | |||
| 2026 | 85,085 | |||
| 2027 | 51,051 | |||
| Total | 313,244 | |||
| Less imputed interest | (53,216 | ) | ||
| Net lease liability | 260,028 | |||
| Current portion | (53,232 | ) | ||
| Long-term portion | $ | 206,796 | ||
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For the three and nine months ended February 28, 2023, rent expense of $19,715 and $59,144, respectively was recognized for this lease. For the three and nine months ended February 28, 2022, rent expense of $19,715 and $19,715, respectively was recognized for the lease.
California Lease: On July 14, 2022, the Company signed a lease for its office and facilities located in Cathedral City, California for a five year term. Monthly lease payments are $72,917. Upon signing the lease, the Company recognized a lease liability and a right of use asset of $3,505,897 based on the five-year payment stream discounted using an estimated incremental borrowing rate of 10.0%. At February 28, 2023, the remaining lease term is 4.33 years. As of February 28, 2023, total future lease payments are as follows:
Future lease payments
| Remaining 2023 | $ | 218,751 | ||
| 2024 | 875,004 | |||
| 2025 | 875,004 | |||
| 2026 | 875,004 | |||
| 2027 and thereafter | 1,020,838 | |||
| Total | 3,864,601 | |||
| Less imputed interest | (676,729 | ) | ||
| Net lease liability | 3,187,872 | |||
| Current portion | (590,067 | ) | ||
| Long-term portion | $ | 2,597,805 |
For the three and nine months ended February 28, 2023, $218,751 and $656,253, respectively was recognized as rent expense for this lease. The lessor of the property is SMC Cathedral City Holdings, LLC, a company with which the Company has a convertible note payable due (See Note 5). This lease has not been paid to date as required by the lease agreement and the balance owed of $510,419 is included in accrued rent payable – related party on the condensed consolidated balance sheet.
NOTE 412 – COMMITMENTS AND CONTINGENCIES
See Notes 4 and 11 for commitments related to royalties, earn-out provisions, and leases.
The agreementCompany and PPK are plaintiffs in lawsuit against Country Cannabis, LLC of Yale, Oklahoma for trademark infringement for the acquisitionuse of G4 from Original Ventures includes earn-out provisions that providethe name “Country Cannabis”. The lawsuit was filed with the Payne County, Oklahoma Courts on February 7, 2022. The Company has motioned the Court for Original Ventures to “earn-out” additional compensation dependent upon product sales.summary judgment in this matter and for legal fees. The motion for summary judgement is currently pending before the Court. 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 earnoutFebruary 28, 2023, management believes it 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 performedsuccessful in the fiscal year ended May 31, 2019.
NOTE 5 – SHARE CAPITAL
The authorized capital of the Company consists of 50,000,000 common shares with a par value of $0.0001 per share, and 5,000,000 preferred shares with a par value of $0.0001 per share.
As of November 30, 2019 and May 31, 2018, there were 20,007,739 and 18,758,739, respectively, of shares of common stock outstanding and there were no preferred shares issued and outstanding.
In the three and six-month periods ended November 30, 2019, shares of common stock were issuedmatter however is unable to related and non-related parties for services performed. The following table breaks out the issuances by type of transaction and by related and unrelated parties:
| Three months ended | Six months ended | |||||||||||||||
| Issued to: | November 30, 2019 | November 30, 2019 | ||||||||||||||
| Related parties | Shares | Amount | Shares | Amount | ||||||||||||
| Patrick Bilton | 366,667 | $ | 91,666 | 540,000 | $ | 135,000 | ||||||||||
| Brad Herr | 80,000 | 20,000 | 120,000 | 30,000 | ||||||||||||
| Jerry Cornwell | 46,666 | 11,667 | 60,000 | 15,000 | ||||||||||||
| David Tobias | 46,666 | 11,667 | 60,000 | 15,000 | ||||||||||||
| Unrelated parties | 356,001 | 89,000 | 469,000 | 117,250 | ||||||||||||
| Total issued | 896,000 | $ | 224,000 | 1,249,000 | $ | 312,250 | ||||||||||
Common stock Payable
The Company had an aggregate of $218,500 of common stock payable as of November 30, 2019. Of this amount, $100,000 relates toestimate amounts, due to Original Ventures, Inc upon issuance of patents, and $118,500 was for services renderedif any, they could receive 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.final judgment.
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.
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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
The Company’s product revenue is currently generated exclusively though sales of its debudder products. The Company’s customers, to which trade credit terms are extended, consist of foreign and domestic companies.
For the three and six-month periods ended November 30, 2019, domestic sales were $65,430 and $86,390, respectively, and international sales were $1,700 and $1,700, respectively. International sales accounted for 3% and 2% of total sales in the three and six-month periods ended November 30, 2019, respectively.
For the three and six-month periods ended November 30, 2018, domestic sales were $17,328 and $35,714, respectively, and no sales were made to international customers.
Shipments to one customer during the three and six-month periods ended November 30, 2019 totaled $30,226 and $45,013, respectively, or 45% and 51%, respectively, of sales in those periods. As of November 30, 2019, there were no accounts receivable from this customer.
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.