| NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature
of Business MJ
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 retail industry. The Company owns 100% of G4 Products LLC, (“G4”)
which owns intellectual property for a patented manual debudder product line marketed under the Original 420 Brand as the Debudder Bucket
Lid and Edge. The Company also owns 100% of AgroExports LLC (“Agro”) which serves as the domestic and international distribution
arm for sales of agricultural and horticultural tools and implements. The Company operates its sales portal website, www.procannagro.com,
for online sales of its products. In
2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online
payments from sales in Canada. Sales in Canada are currently serviced through a fulfillment center in Toronto. In 2021, the Company formed
Country Cannabis, Inc. (“CCCO”), a wholly owned Colorado subsidiary that operates a cannabis manufacturing facility in Colorado
which became active in the latter half of the year ended May 31, 2022. 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 a third party from whom the Company leases its Colorado processing facility. In
the year ending May 31, 2021, the Company expanded its focus to include a minority investment interest in PPK Investment Group, Inc.
(“PPK”) a vertically integrated cannabis company in Oklahoma that operates as a grower, harvester, processor, manufacturer
and distributor of the Country Cannabis Brand of cannabis products. The 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. These investments represent
a shift in focus from an agricultural implements based business to a broader cannabis industry focus. In
the current year ending May 31, 2022, the Company, through its subsidiary CCCO, expanded its business through acquisition cannabis manufacturing
and distribution licenses in Colorado and currently operates in leased premises in Denver Colorado. The Company also entered into an
agreement to acquire cannabis manufacturing and distribution licenses in California which was finalized in July 2022. With these additional
acquisitions, the Company continues its shift in focus toward manufacture of products containing THC and CBD and toward product distribution
in the states of Colorado and California. Basis
of Presentation and Consolidation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). The Company’s fiscal year-end is May 31. The
consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries Agro, G4, Agro
Canada and CCCO. All intercompany transactions have been eliminated. Subsidiaries are consolidated from the date of acquisition, that
being the date on which the Company has the power to govern financial and operating policies of the entities acquired. The financial
statements of the subsidiaries are reported for the same reporting period as the parent, using consistent accounting policies in all
material respects. Going
Concern The
Company has an accumulated deficit on May 31, 2022 of $ 11,974,041 415,032 Additional
acquisitions and business opportunities are now under consideration. Management intends to finance operating costs over the next twelve
months with cash flows from operations, private placement or public offering of common stock or debt instruments, and when necessary,
advances from directors and officers. The accompanying financial statements do not include any adjustments that might be required should
the Company be unable to continue as a going concern. Use
of Estimates The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Share based compensation for services, impairment of investments
and other long-lived assets, amortization of intangible assets, and income taxes are subject to estimates. Actual results could differ
from those estimates. Reclassifications Certain
reclassifications have been made to conform prior periods’ amounts to the current presentation. These reclassifications have no
effect on the results of operations, stockholders’ equity (deficit) and cash flows as previously reported. New
Accounting Standards In August
2020, the Financial Accounting Standards Board (“FASB") issued ASU No. 2020-06 Debt - Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a
result of the complexity associated with applying generally accepted accounting principles to certain financial instruments with characteristics
of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years and with early adoption permitted. The Company will adopt the update as of July 1, 2022 and does not expect
a significant impact to our consolidated financial statements or disclosures. 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 July 1, 2023 and does
not expect a significant impact to our consolidated financial statements or 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 Measurements GAAP
specifies a hierarchy of valuation techniques 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) and
the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level
1 Level
2 Level
3 At
May 31, 2022 and 2021, the Company did not have any assets or liabilities that were measured at a fair value on a recurring basis. Financial
Instruments The
carrying amounts of cash and cash equivalents, investment in equity securities and advances from related parties approximate their
fair value as of May 31, 2022 and 2021. At May 31, 2021, the principal balance of notes payable also approximates their fair value
due to the short term of the notes. At May 31, 2022, the fair value of the principal balance of the convertible note payable was
approximately $2.4 million based on the number of shares into which the note is convertible multiplied by the trading price of the
Company’s stock on May 31, 2022. Investments Equity
securities are generally measured at fair value. Unrealized gains and losses for equity securities are included in earnings. Investments
in which the Company concludes it does not have the ability to exercise significant influence are accounted for under the cost less impairment
method. Upon sale of an equity security, the realized gain or loss is recognized in earnings. Investments
in companies for which the Company has the ability to exercise significant influence but do not control are accounted for under the equity
method. Under
the cost less impairment method, 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 same 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. The Company also considers whether
impairment indicators exist to evaluate whether the investment is impaired and, if so, recognizes an impairment loss if the fair value
exceeds the investment’s carrying amount. Under
the equity method of accounting, the Company’s share of the net earnings or losses of the investee are included in other income
(expense) in the consolidated statements of operations. At the end of each reporting period, the Company considers whether impairment
indicators exist to evaluate whether an equity method investment is impaired and, if so, recognizes an impairment loss if the fair value
exceeds the investment’s carrying amount. Cash
and Cash Equivalents The
Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash
equivalents. Revenue
Recognition The
Company generates revenue based on sales of products and revenue is recognized at a point in time when the Company satisfies its performance
obligation by shipping products to our customers. Shipments terms are generally FOB origination, and revenue is recognized when the product
is delivered to the shipper by our fulfillment centers or, in the case of drop shipments of distributed products, when the products are
shipped from the manufacturer. At the time the products are delivered to the shipper, no other performance obligations remain. Revenue
is recognized in an amount that reflects the consideration that is received in exchange for the products shipped. The
Company accounts for shipping and handling activities as a fulfillment cost and include fees received for shipping and handling as part
of the 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 Company had no warranty costs associated with the
sales of its products in the periods presented in the accompanying consolidated statements of operations and no provision for warranty
expenses has been included. Inventory Inventory
is stated at the lower of cost or net realizable value, with cost being determined using the average cost method. Manufactured products
costs include raw materials, direct labor, quality control testing processing facility overhead costs, and freight. Allowances for obsolete
inventory are recognized when the inventory is determined to be unsalable through the normal course of business. Equipment Equipment
is recorded at historical costs and are depreciated using the straight-line method over estimated useful lives of three to five years.
Maintenance, repairs, and minor replacements are expensed as incurred. Gains or losses on disposition or retirement of fixed assets are
recognized in operating expenses in the period of disposal. Accounting
for Acquisitions Business
acquisitions are recorded using the acquisition method of accounting and, accordingly, the purchase price is allocated to the 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 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. Judgment is 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 Intangible
asset amounts are initially recognized at the acquisition date fair values of intangible assets acquired. Finite-lived
intangible assets are amortized over their useful lives. The carrying amounts of finite-lived intangible assets are evaluated for recoverability
whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount. When
there is 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 life. Indefinite life intangible assets are not amortized but tested
for impairment annually or more frequently when indicators of impairment exist. Determination
of fair values of intangible asset for impairment assessments 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. 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. 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. The
Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company evaluates
its tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions will
more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold
are not recorded as a tax benefit or expense in the current year. No reserve for uncertain tax positions has been recorded. Net
Earnings (Loss) Per Share Basic
earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares
and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any,
are not considered, as their effect would be anti-dilutive. For the years ended May 31, 2022 and 2021, potentially dilutive common stock
equivalents not included in the calculation of diluted earnings per share because they were anti-dilutive are as follows:
Schedule of anti-dilutive shares
2022 2021
Stock
purchase warrants 3,000,000 3,000,000
Convertible
notes 9,817,196 —
12,817,196 3,000,000 Share-Based
Payments All
transactions in which goods or services are received for the issuance of shares of the Company’s common stock are accounted for
based on the fair value of the common stock issued and recognized when the board of directors authorizes the issuance. COVID-19
Coronavirus Pandemic Response and Impact The 2019 novel
strain of coronavirus (“COVID-19”) was characterized as a global pandemic by the World Health Organization on March
11, 2020. We continue to take precautionary measures to mitigate the impact of COVID-19, including implementing operational
plans and practices. As long as they are required, the operational practices implemented could continue to have an adverse impact on
our operating results due to deferred production and revenues or additional costs. We continue to monitor the rapidly evolving situation
and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions
based on their recommendations. The extent of the impact of COVID-19 on our business and financial results will also depend on future
developments, including the duration and spread of the outbreak and the success of the current vaccination programs and the related impact
on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain. |
