Exhibit 3.1
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: February 28, 2021 | |
| or | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934
| |
For the transition period from: _____________ to _____________
Commission File Number: 333-234048 | |
MJ Harvest, Inc.
(Exact name of registrant as specified in its charter)
| NEVADA | 82-3400471 | |
| (State or Other Jurisdiction | (I.R.S. Employer | |
| of Incorporation) | Identification No.) |
9205 W. Russell Road, Suite 240, Las Vegas, Nevada 89139
(Address of Principal Executive Office) (Zip Code)
(954) 519-3115
(Registrant's telephone number, including area code)
———————
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered. |
| None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
The number of shares of the issuer's Common Stock outstanding as of April 1, 2020, is 23,715,076.
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements. Attached after signature page.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a differences include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
As used herein, the terms “Company”, “MJHI”, “we”, “us” and “our” refer to MJ Harvest, Inc., a Nevada corporation.
Results of Operations
Three Months Ended February 28, 2021 compared with the Three Months Ended February 29, 2020
The narrative comparison of results of operations for the three-month periods ended February 28, 2021 and February 29, 2020 is based on the following table.
| A | B | C | ||||
| Three Months Ended | February 28, 2021 | February 29, 2020 | A-B Change | C/B Change % | ||
| REVENUE | $ 14,377 | $ 30,003 | $ (15,626) | (52)% | ||
| COST OF REVENUE | 12,350 | 18,001 | (5,651) | (31)% | ||
| Cost of revenue as a % of total revenue | 86% | 60% | ||||
| Gross Profit | 2,027 | 12,002 | (9,975) | (83)% | ||
| Gross profit as a % of revenue | 14% | 40% | ||||
| OPERATING EXPENSES | ||||||
| Officer and director compensation | 135,000 | 110,000 | 25,000 | 23% | ||
| General and administrative | 23,027 | 9,166 | 13,861 | 151% | ||
| Impairment of intangible assets | - | - | - | |||
| Professional fees and contract services | 118,231 | 96,053 | 22,178 | 23% | ||
| Total operating expenses | 276,258 | 215,219 | 61,039 | 28% | ||
| NET LOSS FROM CONTINUING OPERATIONS | (274,231) | (203,217) | (71,014) | 35% |
Revenues decreased, primarily as a result of the limited focus on the debudder product marketing effort. In the quarter ended August 31, 2020, management expended considerable time and effort on the soils division which was acquired at the end of our last fiscal year (the “Elevated Acquisition”). We experienced unanticipated difficulties in obtaining adequate and timely sales and product purchase records from the field operator, and these difficulties diverted management attention from the debudder product marketing effort. The lack of attention to marketing in the first quarter was reflected in the decrease in sales in the second and third quarters. This third quarter carryover effect is expected to lessen over time as management rebuilds the inertia of the debudder marketing focus. We anticipate that the marketing focus on the debudder products will increase now that the soils division has been discontinued.
The three-month period ended February 28, 2021 does not include any revenues or cost of sales from the Elevated Acquisition. The soils division created out of the Elevated Acquisition was discontinued during the three months ended November 30, 2020.
Total operating expenses increased in the current period. No impairment expense was recognized in the current quarter compared to an impairment expense of $100,000 in the same period a year earlier. Officer and director compensation increased due to increased director fees in 2021 compared with 2020. General and administrative expenses were consistent between the periods. Professional fees and contract services increased in 2021 compared with 2020 due to expanded marketing efforts relating to the brand building and improving investor awareness of the Company, while also seeking to expand our business through acquisition of opportunities and the attendant due diligence costs associated with business evaluations.
Net loss from continuing operations decreased in 2021 compared with 2020 primarily due to the reduction of impairment of intangible assets between periods.
2
Nine Months Ended February 28, 2021 compared with the Nine Months Ended February 29, 2020
The narrative comparison of results of operations for the nine-month periods ended February 28, 2021 and February 29, 2020 is based on the following table.
| A | B | C | ||||
| Nine Months Ended | February 28, 2021 | February 29, 2020 | A-B Change | C/B Change % | ||
| REVENUE | $ 87,513 | $ 118,094 | $ (30,581) | (26)% | ||
| COST OF REVENUE | 42,484 | 55,071 | (12,587) | (23)% | ||
| Cost of revenue as a % of total revenue | 49% | 47% | ||||
| Gross Profit | 45,029 | 63,023 | (17,994) | (29)% | ||
| Gross profit as a % of revenue | 51% | 53% | ||||
| OPERATING EXPENSES | ||||||
| Officer and director compensation | 400,000 | 372,500 | 27,500 | 7% | ||
| General and administrative | 59,410 | 61,099 | (1,689) | (3)% | ||
| Impairment of intangible assets | - | 100,000 | (100,000) | (100)% | ||
| Professional fees and contract services | 358,084 | 329,405 | 28,679 | 9% | ||
| Total operating expenses | 817,494 | 863,004 | $ (45,510) | (5)% | ||
| NET LOSS FROM CONTINUING OPERATIONS | (772,465) | (799,981) | 27,516 | (3)% |
Revenues from debudder sales in the nine months ended February 28, 2021 decreased when compared to the same period in 2020. The decrease is largely attributable to the carryover impact of management’s focus in the quarter ended August 31, 2020 on establishing and building the soils division acquired from Elevated, which was subsequently discontinued. The efforts focused on the soils division diverted management’s attention from sales of the debudder products in the first fiscal quarter ended August 31, 2020, and the resulting loss of momentum impacted the second and third quarters as well.
Other operating expenses were consistent between periods, with the exception of impairment of intangible assets which decreased in the current nine-month period.
Net loss from operations decreased in the nine months of 2021 compared with 2020. The decrease in the loss from operations reflects an offset of increases in officer and director compensation and professional fees and contract services against a decrease in impairment of intangible assets in the nine months of 2021 compared with 2020.
3
Discontinued Operations.
After operating the soils division for the three months ended August 31, 2020, management undertook an in-depth assessment of the business and concluded that the soils division was not as represented at the time of the acquisition, was not likely to ever operate profitably without significant revisions to operating methods and changes in personnel and was likely to create significant business questions and concerns should it be continued. Accordingly, management elected to discontinue the business acquired from Elevated. Upon discontinuation of the Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. Common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, will be cancelled, and the Company agreed to pay a $10,000 walk-away fee. The $10,000 walk-away fee is payable in five installments of $2,000 each with the final payment due in early March 2021. Cancellation of the shares will be recorded once the final installment of the walk-away fee is paid. The final payment was made on March 5, 2021. In the aggregate, the Company recognized a loss from discontinued operations of $10,000 in the nine-month period ended February 28, 2021.
Operating results for the three and nine-month periods from the discontinued operations are reflected in the following table.
| OPERATING RESULTS | Three Months | Nine Months | ||||||
| Ended | Ended | |||||||
| February 28, 2021 | February 28, 2021 | |||||||
| Revenue | $ | — | $ | 75,217 | ||||
| Cost of revenue | — | 66,243 | ||||||
| Amortization | — | 13,125 | ||||||
| Gross profit | — | (4,151 | ) | |||||
| Loss on discontinued operations | — | 10,000 | ||||||
| $ | — | $ | (14,151 | ) | ||||
Liquidity and Capital Resources
Cash flow used in operating activities for the nine-month period ended February 28, 2021 was $175,329 compared with $231,220 in the comparable period 2020. During the period, our total cash decreased by $31,329. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $144,000.
Our historic operations have not been sufficient to support the existing infrastructure, much of which is required in order to maintain public company status. Subsequent to February, 28, 2021, we entered into a debt funding transaction and made a loan to an operating cannabis company as described in more detail below. The debt funding transaction and the loan are steps in the targeted acquisition of the operating company doing business as Country Cannabis, and we expect that the eventual acquisition of Country Cannabis will improve our ability to support the infrastructure costs of maintaining our public company status. We also continue to seek out potential acquisition candidates with a focus on acquiring additional operating companies with scale sufficient to support all aspects of the Company’s operations, including the public company infrastructure. The Company is currently heavily 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.
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 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. We incurred net losses of $786,616 and $799,981 for the nine-month periods ended February 28, 2021 and 2019, respectively, and had an accumulated deficit of $4,969,010 as of February 28, 2021. 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 succeed in its efforts to raise capital in this manner to further its business plan in an aggressive manner. Raising additional capital may cause dilution to current shareholders.
On March 22, 2021, the Company, as the borrower, entered into agreements with AJB Capital Investments LLC and SDT Holdings LLC for the sale of an aggregate of $900,000 in Promissory Notes (the “Notes”), $300,000 from AJB and $600,000 for SDT. The terms of the Notes are the same except for the dollar amounts and fees which are double for SDT compared to AJB. The terms of the Notes are described below in the aggregate.
The Notes provide for an original issue discount of 10% or $90,000, payment of legal fees of $22,500, and payment of $10,500 for due diligence fees, resulting in net proceeds to the Company of $777,000. The Company also agreed to pay a commitment fee of $750,000 payable by issuance of 1,200,000 shares of restricted common stock and 3,000,000 warrants that are exercisable at $0.38 per share with a three-year term expiring on March 21, 2024. The Notes bear interest at the rate of 12% if paid on or before September 21, 2021. MJHI has the right to extend the Notes for an additional six months at an interest rate of 15%, in which case the Notes would be due March 21, 2022. The Notes are secured by all assets of the Company.
4
In addition, the notes require a financing fee of $54,000 which is payable in installments of $9,000 each month with the first payment due on April 1, 2021.
In the event of default, the remaining principal amount of the Notes plus all accrued interest and other fees due under the terms of the Notes may be converted at the sole election of the Note holders into restricted common stock of the Company at a 90% of the market price for the Company’s shares at the time of conversion.
On March 24, 2021, the Company, as lender, finalized a convertible note agreement with PPK Investment Group, Inc. (“PPK”) in the amount of $620,000. The convertible note bears interest at 6% per annum and is due on September 1, 2021. The conversion feature of the Note provides that the Company may convert the Note to acquire a 6.2% interest in PPK if allowed by Oklahoma State laws governing ownership of cannabis licenses. If converted, the interest accrued from the loan date of March 24, 2021 through the date of conversion will be forgiven.
Upon conversion, the Company will also have the right to acquire an additional 3.8% interest in PPK (10% in total) for payment of $380,000 by issuance of restricted common stock of the Company priced at $0.25 per share or 1,520,000 shares.
In the event of conversion of the Convertible Note into an investment in PPK, a Securities Purchase Agreement signed concurrently with the Convertible Note will also become effective. The Securities Purchase 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. The acquisition price would be paid on the same terms as the initial acquisition of the 10% interest, 62% in cash and 38% in shares of the Company’s common stock with the stock priced at $0.25 per share. Total value of 100% acquisition of PPK is $10,000,000.
The Securities Purchase Agreement, if activated by conversion of the convertible note, includes an earnout which could result in payment of additional consideration to PPK if the valuation at the end of a 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).
The Securities Purchase Agreement, if activated by conversion of the convertible note, also contains the agreement with Ralph Clinton Pyatt III (“Clinton Pyatt”), President of PPK, to continue his role as Chief Executive Officer and President of the Country Cannabis business for a period of at least three years. The Company also has an option to acquire the real estate that PPK utilizes in its operations. The real estate is currently under lease to PPK by an affiliated Company owned by Clinton Pyatt.
5
COVID-19
In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and worldwide. To date, the disruption has not materially impacted the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the current period.
The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate our facilities. To date, there have been no material adverse impacts to the Registrants’ operations due to COVID-19.
The economic disruptions caused by COVID-19 may adversely impact the impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.
Off Balance Sheet Arrangements
None
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined 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 February 28, 2021 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.
6
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended February 28, 2021, the board of directors authorized issuance of an aggregate of 367,345 shares of unregistered common stock to three non-related parties (267,346 shares) and three related parties that were officers and/or directors (99,999 shares). The shares were issued for common stock payable at December 1, 2020 (167,345 shares) and for services rendered to the Company in the period (200,000 shares). The shares to be issued are valued at the closing price of the common stock in the OTCQB market on the date the shares became issuable. The shares, when issued were exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(a)(2) of the Act since the recipients of the shares are persons closely associated with the Company and the issuance of the shares will not involve any public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
7
Item 6. Exhibits.
The following documents are included as exhibits to this report:
(a) Exhibits
Exhibit Number |
SEC Reference Number |
Title of Document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MJ Harvest, Inc.
Date: April 19, 2021
| By: /s/ Patrick Bilton |
| Patrick Bilton, Chief Executive Officer (Principal Executive Officer) |
| By: /s/ Brad E. Herr |
| Brad E. Herr, Chief Financial Officer (Principal Financial Officer) |
8
MJ Harvest, Inc.
Contents
Page FINANCIAL
STATEMENTS – (Unaudited): Consolidated
balance sheets 2 Consolidated
statements of operations 3 Consolidated
statements of changes in stockholders’ deficit 4 Consolidated
statements of cash flows 5 Notes
to consolidated financial statements 6
- 14
9
MJ HARVEST, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| February 28, | May 31, | |||||||||
| 2021 | 2020 | |||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash and cash equivalents | $ | 1,014 | $ | 32,343 | ||||||
| Accounts receivable | 4,500 | 19,216 | ||||||||
| Vendor deposits | - | 20,000 | ||||||||
| Inventory | 28,206 | 32,840 | ||||||||
| Total current assets | 33,720 | 104,399 | ||||||||
| NON-CURRENT ASSETS: | ||||||||||
| Fixed assets, net | 12,099 | 15,879 | ||||||||
| Finite-lived intangible assets, net | 129,584 | 465,834 | ||||||||
| Indefinite-lived intangible assets, net | - | 25,000 | ||||||||
| Total non-current assets | 141,683 | 506,713 | ||||||||
| Total Assets | $ | 175,403 | $ | 611,112 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||
| CURRENT LIABILITIES: | ||||||||||
| Accounts payable and other current liabilities | $ | 129,970 | $ | 97,861 | ||||||
| Payable for discontinued operations (Note 3) | 2,000 | - | ||||||||
| Total Current Liabilities | 131,970 | 97,861 | ||||||||
| LONG-TERM LIABILITIES: | ||||||||||
| Common stock payable | 158,571 | 100,000 | ||||||||
| Payable to related parties for services | 210,000 | - | ||||||||
| Advances from related parties | 973,982 | 829,982 | ||||||||
| Total long-term liabilities | 1,342,553 | 929,982 | ||||||||
| Total Liabilities | 1,474,523 | 1,027,843 | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 5) | ||||||||||
| STOCKHOLDERS’ 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, 100,000,000 shares | ||||||||||
| authorized, 23,715,076 and 22,892,874 issued and | ||||||||||
| outstanding, respectively | 2,372 | 2,289 | ||||||||
| Common stock subject to cancellation on discontinued | ||||||||||
| operations (1,300,000 shares) (Note 3) | (336,875) | - | ||||||||
| Additional paid-in capital | 4,004,393 | 3,763,374 | ||||||||
| Accumulated deficit | (4,969,010) | (4,182,394) | ||||||||
| Total stockholders' deficit | (1,299,120) | (416,731) | ||||||||
| Total Liabilities and Stockholders' Deficit | $ | 175,403 | $ | 611,112 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
FS-2
MJ HARVEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended | Nine months ended | |||||||||||
| February 28, | February 29, | February 28, | February 29, | |||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| REVENUE | $ | 14,377 | $ | 30,003 | $ | 87,513 | $ | 118,094 | ||||
| COST OF REVENUE | 12,350 | 18,001 | 42,484 | 55,071 | ||||||||
| Gross profit | 2,027 | 12,002 | 45,029 | 63,023 | ||||||||
| OPERATING EXPENSES: | ||||||||||||
| Officer and director compensation | 135,000 | 110,000 | 400,000 | 372,500 | ||||||||
| General and administrative | 23,027 | 9,166 | 59,410 | 61,099 | ||||||||
| Impairment of intangible assets | - | - | - | 100,000 | ||||||||
| Professional fees and contract services | 118,231 | 96,053 | 358,084 | 329,405 | ||||||||
| Total operating expenses | 276,258 | 215,219 | 817,494 | 863,004 | ||||||||
| NET LOSS FROM CONTINUING OPERATIONS | (274,231) | (203,217) | (772,465) | (799,981) | ||||||||
| LOSS FROM DISCONTINUED OPERATIONS | ||||||||||||
| Operating loss on discontinued operations | - | - | (4,151) | - | ||||||||
| Loss on discontinued operations | - | - | (10,000) | - | ||||||||
| NET LOSS FROM DISCONTINUED OPERATIONS | - | - | (14,151) | - | ||||||||
| NET LOSS | $ | (274,231) | $ | (203,217) | $ | (786,616) | $ | (799,981) | ||||
| NET LOSS PER COMMON SHARE - Basic and diluted | ||||||||||||
| From continuing operations | $ | (0.01) | $ | (0.01) | $ | (0.03) | $ | (0.04) | ||||
| From discontinued operations | - | - | (0.00) | - | ||||||||
| Total | $ | (0.01) | $ | (0.01) | $ | (0.03) | $ | (0.04) | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||||||
| SHARES OUTSTANDING - Basic and diluted | 23,245,546 | 20,192,611 | 23,077,816 | 19,500,353 | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
FS-3
MJ HARVEST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(unaudited)
FOR THE THREE AND NINE MONTH PERIODS ENDED February 28, 2021 AND February 29, 2020
| Additional | Common Stock | |||||||||||||||||||||||
| Common Stock | Paid-In | Subject to | Accumulated | |||||||||||||||||||||
| Three Month | Shares | Amount | Capital | Cancellation | Deficit | Total | ||||||||||||||||||
| BALANCES, November 30, 2019 | 20,007,739 | $ | 2,001 | $ | 2,096,611 | $ | — | $ | (2,815,483 | ) | $ | (716,871 | ) | |||||||||||
| Shares issued for compensation | 487,920 | 49 | 121,931 | — | — | 121,980 | ||||||||||||||||||
| Shares issued for common stock payable | 474,000 | 47 | 118,453 | — | — | 118,500 | ||||||||||||||||||
| Net loss | — | — | — | — | (203,217 | ) | (203,217 | ) | ||||||||||||||||
| BALANCES, February 29, 2020 | 20,969,659 | 2,097 | 2,336,995 | — | (3,018,700 | ) | (679,608 | ) | ||||||||||||||||
| BALANCES, November 30, 2020 | 23,347,731 | 2,335 | 3,885,859 | — | (4,694,779 | ) | (806,585 | ) | ||||||||||||||||
| Shares issued for compensation | 200,000 | 20 | 59,980 | — | — | 60,000 | ||||||||||||||||||
| Shares issued for common stock payable | 167,345 | 17 | 58,554 | — | — | 58,571 | ||||||||||||||||||
| Shares subject to cancellation due to discontinued operations | — | — | — | (336,875 | ) | — | (336,875 | ) | ||||||||||||||||
| Net loss | — | — | — | — | (274,231 | ) | (274,231 | ) | ||||||||||||||||
| BALANCES, February 28, 2021 | 23,715,076 | 2,372 | 4,004,393 | (336,875 | ) | (4,969,010 | ) | (1,299,120 | ) | |||||||||||||||
| Nine Month | ||||||||||||||||||||||||
| BALANCES, May 31, 2019 | 18,758,739 | 1,876 | 1,784,486 | — | (2,218,719 | ) | (432,357 | ) | ||||||||||||||||
| Shares issued for compensation | 1,702,420 | 170 | 425,435 | — | — | 425,605 | ||||||||||||||||||
| Shares issued for common stock payable | 508,500 | 51 | 127,074 | — | — | 127,125 | ||||||||||||||||||
| Net loss | — | — | — | — | (799,981 | ) | (799,981 | ) | ||||||||||||||||
| BALANCES, February 29, 2020 | 20,969,659 | 2,097 | 2,336,995 | — | (3,018,700 | ) | (679,608 | ) | ||||||||||||||||
| BALANCES May 31, 2020 | 22,892,874 | 2,289 | 3,763,374 | — | (4,182,394 | ) | (416,731 | ) | ||||||||||||||||
| Shares issued for compensation | 822,202 | 83 | 241,019 | — | — | 241,102 | ||||||||||||||||||
| Shares subject to cancellation due to discontinued operations | — | — | — | (336,875 | ) | — | (336,875 | ) | ||||||||||||||||
| Net loss | — | — | — | — | (786,616 | ) | (786,616 | ) | ||||||||||||||||
| BALANCES, February 28, 2021 | 23,715,076 | $ | 2,372 | $ | 4,004,393 | $ | (336,875 | ) | $ | (4,969,010 | ) | $ | (1,299,120 | ) | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
FS-4
MJ HARVEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine months ended | ||||||
| February 28, | February 29, | |||||
| 2021 | 2020 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net loss | $ | (786,616) | $ | (799,981) | ||
| Adjustments to reconcile net loss to net cash | ||||||
| used in operating activities: | ||||||
| Depreciation and amortization | 28,155 | 9,196 | ||||
| Share based compensation | 241,102 | 425,605 | ||||
| Common stock payable for compensation | 58,571 | - | ||||
| Impairment of intangible asset | - | 100,000 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 14,716 | 9,091 | ||||
| Vendor deposits | 20,000 | 480 | ||||
| Inventory | 4,634 | 13,132 | ||||
| Payable for discontinued operations | 2,000 | - | ||||
| Accounts payable and other current liabilities | 32,109 | 11,257 | ||||
| Payable to related party for services | 210,000 | - | ||||
| NET CASH (USED IN) OPERATING ACTIVITIES | (175,329) | (231,220) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Proceeds from advances by related parties | 144,000 | 220,778 | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 144,000 | 220,778 | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (31,329) | (10,442) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 32,343 | 13,592 | ||||
| CASH AND CASH EQUIVALENTS END OF PERIOD | $ | 1,014 | $ | 3,150 | ||
| Non-cash financing and investing activities: | ||||||
| Shares issued for common stock payable | $ | - | $ | 127,125 | ||
| Shares payable for intangible assets | $ | - | $ | 100,000 | ||
| Shares to be cancelled on discontinued operations (Note 3) | $ | 336,875 | $ | - | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
FS-5
NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
MJ Harvest, Inc. (the “Company” or “MJHI”), develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis retail industry. In 2017, the Company acquired a 51% interest in G4 Products LLC, (“G4”) which owns the intellectual property for a manual debudder product line marketed under the Original 420 Brand as the Debudder Bucket Lid and Edge. The Company organized AgroExports LLC (“Agro”) to serve as the domestic and international distribution arm for sales of agricultural and horticultural tools and implements and created www.procannagro.com for online sales.
In September 2018, the Company changed its name to MJ Harvest, Inc. The articles of incorporation with the State of Nevada were amended and restated to reflect the name change with an effective date of September 18, 2018, and on December 10, 2020, the articles were again amended and restated to increase the number of authorized common shares from 50,000,000 to 100,000,000, with no effect on the outstanding common shares or the par value of the common stock.
On December 7, 2018, the Company acquired the remaining 49% of G4, 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 Canada. Sales in Canada are currently serviced through a fulfillment center in Toronto.
On April 8, 2020, the Company finalized an acquisition from Elevated Ag Solutions, Inc. (“Elevated”) of several domain names, a non-compete agreement, and customer relationships and began selling a broad range of products, including soils and soil enhancements, through www.weedfarmsupply.com. The Company operated the business through the end of the first quarter, but due to unforeseen difficulties in obtaining adequate transaction details, and lack of performance of the web site, the Company entered into an agreement to unwind the acquisition. No sales were generated from this acquisition in the quarter ended February 28, 2021. See Note 3 – Intangible Assets.
Basis of Presentation and Consolidation
The Company’s fiscal year-end is May 31. The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and 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 only of normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and nine-month periods ended February 28, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2021.
For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended May 31, 2020 in the Form 10-K as filed with the Securities and Exchange Commission.
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries Agro, G4, and Agro Canada. All intercompany transactions have been eliminated.
FS-6
Going Concern
The Company has an accumulated deficit of $4,969,010 which, among other factors, raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
The intangible assets owned by G4, consisting of patents and other intangible assets relating to the Debudder Products, serve as a building block for the Company’s efforts to grow revenues. In the nine months ended February 28, 2021, the Company generated operating revenue from the Debudder Products but the level of revenue from the current product line has not been sufficient to support profitable operations to date.
Additional acquisitions and business opportunities are under consideration, but as of February 28, 2021, the Company has not reached agreement with any other acquisition candidates or business opportunities. Management intends to finance operating costs over the next twelve months with advances from directors, funds borrowed from third-party lenders, and/or a private placement or public offering of common stock. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Share based compensation, impairment of long-lived assets, amortization of intangible assets, and income taxes are subject to estimates. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
New Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update modifies the disclosure requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Adoption of this update as of June 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606 Revenue from Contracts with Customers, which clarifies when transactions between participants in a collaborative arrangement are within the scope of Topic 606. Adoption of this update as of June 1, 2020 did not have a material impact on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
FS-7
Revenue Recognition
The Company recognizes revenue from the sale of products and services in accordance with Accounting Standards Codification (“ASC”) 606,” Revenue Recognition.” At February 28, 2021, the Company operates as one reportable segment.
The Company generates revenue based on sales of products and revenue is recognized when the Company satisfies its performance obligation by shipping products to its customers. The Company’s products consist of agricultural tools and implements, soils, and soil additives used primarily in growing and harvesting hemp and marijuana. Shipments terms are FOB origination, so revenue is recognized when the product is delivered to the shipper by the Company’s 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 consists of purchased products and are stated at the lower of cost or net realizable value, with cost being determined using the average cost method on a first-in first-out basis. Allowances for obsolete inventory are recognized when the inventory is determined to be unsalable through the normal course of business. Inventory consists of the Company’s debudder products in 5-gallon bucket lid and edge models. The soils business has been discontinued and the Company does not maintain and inventory of any soil products.
Intangible Assets
Intangible assets are accounted for in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The Company’s finite-lived intangible assets consist of patents, a non-compete agreement, and customer relationships. The Company’s indefinite-lived intangible assets consist of acquired domain names.
Finite-lived intangible assets are amortized over their useful lives, which are currently ten years for patents, two years for the non-compete agreement, and ten years for customer relationships. 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 acquisition date fair values and intangible asset impairment 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. 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.
Net Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, potentially dilutive common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the periods ended February 28, 2021 and February 29, 2020, the Company had no common stock equivalents outstanding.
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.
FS-8
NOTE 2 – FIXED ASSETS
Fixed assets consisted of the following at February 28, 2021 and May 31, 2020:
| February 28, | May 31, | |||||||
| Property & Equipment | 2021 | 2020 | ||||||
| Equipment - production molds | $ | 25,109 | $ | 25,109 | ||||
| Less: Accumulated amortization | (13,010 | ) | (9,230 | ) | ||||
| Net Equipment | $ | 12,099 | $ | 15,879 | ||||
Depreciation expense for the three and nine-months ended February 28, 2021 were $1,260 and $3,780, respectively and for the three and nine-month periods ended February 29, 2020 were $1,260 and $3,780, respectively.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets consist of both finite and indefinite lived assets. Finite-lived assets include patent rights acquired in the acquisition of G4, a non-compete agreement, and customer relationships acquired in the Elevated transaction. The Company’s sole indefinite lived asset was the five domain names acquired in the Elevated transaction. Both acquisitions are described below. At February 28, 2021 and May 31, 2020, intangibles assets are:
| February 28, | May 31, | |||||||
| Intangibles | 2021 | 2020 | ||||||
| Finite lived intangibles | ||||||||
| Patents | $ | 250,000 | $ | 250,000 | ||||
| Less: Impairment of patents | (100,000 | ) | (100,000 | ) | ||||
| 150,000 | 150,000 | |||||||
| Less: accumulated amortization | (20,416 | ) | (9,166 | ) | ||||
| Patents, net | 129,584 | 140,834 | ||||||
| Non-compete agreement | 157,000 | 157,000 | ||||||
| Less: impairment of non-compete | (107,000 | ) | (107,000 | ) | ||||
| 50,000 | 50,000 | |||||||
| Less: accumulated amortization | (6,900 | ) | — | |||||
| Less: adjustment for discontinued operations | (43,100 | ) | — | |||||
| Non-compete agreement, net | — | 50,000 | ||||||
| Customer relationships | 826,000 | 826,000 | ||||||
| Less: Impairment of relationships | (551,000 | ) | (551,000 | ) | ||||
| 275,000 | 275,000 | |||||||
| Less: accumulated amortization | (6,225 | ) | — | |||||
| Less: adjustment for discontinued operations | (268,775 | ) | ||||||
| Customer relationships, net | — | 275,000 | ||||||
| Total finite lived intangibles | 129,584 | 465,834 | ||||||
| Indefinite lived intangibles | ||||||||
| Domain names | 25,000 | 25,000 | ||||||
| Less: adjustment for discontinued operations | (25,000 | ) | — | |||||
| Total domain names | — | 25,000 | ||||||
| Total intangibles | $ | 129,584 | $ | 490,834 | ||||
| Amortization of intangibles for each of the next five years is: | |||
| 2021 | $ 15,000 | ||
| 2022 | $ 15,000 | ||
| 2023 | $ 15,000 | ||
| 2024 | $ 15,000 | ||
| 2025 | $ 15,000 |
FS-9
Amortization expense for the three and nine-months ended February 28, 2021 was $3,750 and $24,375, respectively . The patents are amortized over their useful lives of ten years. The intangible non-compete agreement and customer relationships were being amortized over their estimated useful lives of two years and ten years, respectively, commencing June 1, 2020.
After the Company acquired the assets from Elevated in the fourth quarter of the fiscal year ended May 31, 2020, the Company began a soils division for the quarter ended August 31, 2020. During that period, the Company noted unanticipated difficulties in obtaining accurate transaction data on a timely basis, and management also estimated that the business was not properly positioned to become profitable within a reasonable time frame. Accordingly, management elected to discontinue operations of the soils division during the three months ended November 30, 2020. The Company entered into negotiations with the seller of the assets (Elevated), to unwind the acquisition and return the acquired assets to the seller. On October 30, 2020, a settlement agreement was signed that provided for a return of all acquired assets to Elevated, cancellation of employment and non-compete agreements, return of 1,300,000 shares of the Company’s common stock paid to Elevated in the acquisition, and an agreement by the Company to pay $10,000 to Elevated in $2,000 per month installments over five months. The cancellation of the common stock issued by the Company will become final upon payment of the full $10,000. For purposes of these financial statements, the Company has recorded the return of the assets, a balance payable of $10,000 net of $8,000 in payments made through February 28, 2021. The stock will be cancelled after the final payment is made, which will occur in fiscal fourth quarter ending May 31, 2021. As of February 28, 2021, the Company owed $2,000 on the settlement payment and this amount was paid in full on March 5, 2021.
Results of Elevated operations for the three and nine-month periods ended February 28, 2021 are shown as discontinued operations on the consolidated statement of operations. The results from discontinued operations are as follows:
| OPERATING RESULTS | Three Months | Nine Months | ||||||
| Ended | Ended | |||||||
| February 28, 2021 | February 28, 2021 | |||||||
| Revenue | $ | — | $ | 75,217 | ||||
| Cost of revenue | — | 66,243 | ||||||
| Amortization | — | 13,125 | ||||||
| Gross profit (loss) | — | (4,151 | ) | |||||
| Loss on discontinued operations | — | (10,000 | ) | |||||
| $ | — | $ | (14,151 | ) | ||||
NOTE 4 – RELATED PARTY TRANSACTIONS
At February 28, 2021 and May 31, 2020, the Company had advances from related parties and balances payable to related parties for services. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock. During the three and nine-month periods ended February 28, 2021, the related party transactions included the following:
FS-10
| RELATED PARTY TRANSACTIONS | ||||||||||||||||||||
| Related Party Advances at | Additions During the Nine Months Ended February 28, 2021 | Related Party Advances at | Payable to Related Parties for Services at | |||||||||||||||||
| May 31, 2020 | Advances | Services | February 28, 2021 | February 28, 2021 | ||||||||||||||||
| Related Parties | ||||||||||||||||||||
| Patrick Bilton, CEO and Director | ||||||||||||||||||||
| Cash advances | $ | 726,414 | $ | 138,000 | $ | — | $ | 864,414 | $ | — | ||||||||||
| Payable for services | — | 210,000 | 210,000 | |||||||||||||||||
| David Tobias, Director | 80,553 | — | — | 80,553 | — | |||||||||||||||
| Jerry Cornwell, Director | 23,015 | 6,000 | — | 29,015 | — | |||||||||||||||
| Totals | $ | 829,982 | $ | 144,000 | $ | 210,000 | $ | 973,982 | $ | 210,000 | ||||||||||
| Related Party Advances at | Additions During the Nine Months Ended February 29, 2020 | Related Party Advances at | Payable to Related Parties for Services at | |||||||||||||||||
| May 31, 2019 | Advances | Services | February 29, 2020 | February 29, 2020 | ||||||||||||||||
| Related Parties | ||||||||||||||||||||
| Patrick Bilton, CEO and Director | $ | 448,455 | $ | 214,959 | $ | — | $ | 663,414 | $ | — | ||||||||||
| David Tobias, Director | 75,553 | 5,000 | — | 80,553 | — | |||||||||||||||
| Jerry Cornwell, Director | 15,696 | 819 | — | 16,515 | — | |||||||||||||||
| Total for related parties | $ | 539,704 | $ | 220,778 | $ | — | $ | 760,482 | $ | — | ||||||||||
FS-11
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The agreement for the acquisition of G4 during the year ended May 31, 2019 included earn-out provisions that provide for the seller to “earn-out” additional compensation dependent upon product sales. The earn-out provisions were applicable to sales of G4’s products for calendar years 2018-2020. The earn-out compensation was based upon a calculation of sales of G4’s products less the Company’s original investment in G4. Sales of the G4 products were not sufficient to warrant an earnout payment and this contingency lapsed on December 31, 2020.
The G4 acquisition agreement also contained provisions for additional consideration of $100,000, payable in shares of the Company’s common stock, when certain patents were issued. On October 8, 2019, the patents were issued by the USPTO to G4 and the Company recorded $100,000 as stock payable. The amount was also added to intangible assets – patents (see Note 3). The shares have not yet been issued at the request of the inventor entitled to the shares, but the Company expects to issue shares to satisfy the stock payable balance during the calendar year ending December 31, 2021.
In connection with the acquisition of the domain names, non-compete and customer relationships referred to as the Elevated acquisition, the Company agreed to certain contingent value shares and certain earnout shares. These agreements were cancelled when the Company and Elevated agreed to unwind the transaction as described in Note 3.
FS-12
NOTE 6 – SHARE CAPITAL
In the three and nine-month periods ended February 28, 2021 and February 29, 2020, the Company issued shares of stock for various purposes as described in the following tables. In addition, the Company had obligations to issue shares of stock at the end of each period as reflected in the following tables:
| Nine Months Ended February 28, 2021 | ||||||||||||||||||
| Shares issued in the Period for: | Shares Issuable at February 28, 2021 | |||||||||||||||||
| Common Stock Payable | Services & Other | Total | Patent Issuance Bonus Shares | Current Period Services | Total | |||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||
| Related Parties | ||||||||||||||||||
| Patrick Bilton | - | $ - | - | $ - | - | $ - | - | $ - | - | $ - | - | $ - | ||||||
| David Tobias | - | - | 78,571 | 20,000 | 78,571 | 20,000 | - | - | 8,403 | 10,000 | 8,403 | 10,000 | ||||||
| Jerry Cornwell | - | - | 78,571 | 20,000 | 78,571 | 20,000 | - | - | 8,403 | 10,000 | 8,403 | 10,000 | ||||||
| Brad Herr | - | - | 117,857 | 30,000 | 117,857 | 30,000 | - | - | 12,605 | 15,000 | 12,605 | 15,000 | ||||||
| Total for related parties | - | $ - | 274,999 | $ 70,000 | 274,999 | $ 70,000 | - | $ - | 29,411 | $ 35,000 | 29,411 | $ 35,000 | ||||||
| Unrelated Parties | - | $ - | 547,203 | $ 171,102 | 547,203 | $ 171,102 | 400,000 | $ 100,000 | 19,807 | $ 23,571 | 419,807 | $ 123,571 | ||||||
| Aggregate Totals | - | $ - | 822,202 | $ 241,102 | 822,202 | $ 241,102 | 400,000 | $ 100,000 | 49,218 | $ 58,571 | 449,218 | $ 158,571 | ||||||
| Three Months Ended February 28, 2021 | ||||||||||||||||||
| Shares issued in the Period for: | Shares Issuable at February 28, 2021 | |||||||||||||||||
| Common Stock Payable | Services | Total | Patent Issuance Bonus Shares | Current Period Services | Total | |||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||
| Related Parties | ||||||||||||||||||
| Patrick Bilton | - | $ - | - | $ - | - | $ - | - | $ - | - | $ - | - | $ - | ||||||
| David Tobias | 28,571 | 10,000 | - | - | 28,571 | 10,000 | - | - | 8,403 | 10,000 | 8,403 | 10,000 | ||||||
| Jerry Cornwell | 28,571 | 10,000 | - | - | 28,571 | 10,000 | - | - | 8,403 | 10,000 | 8,403 | 10,000 | ||||||
| Brad Herr | 42,857 | 15,000 | - | - | 42,857 | 15,000 | - | - | 12,605 | 15,000 | 12,605 | 15,000 | ||||||
| Total for related parties | 99,999 | $ 35,000 | - | $ - | 99,999 | $ 35,000 | - | $ - | 29,411 | $ 35,000 | 29,411 | $ 35,000 | ||||||
| Unrelated Parties | 67,346 | $ 23,571 | 200,000 | $ 60,000 | 267,346 | $ 83,571 | 400,000 | $ 100,000 | 19,807 | $ 23,571 | 419,807 | $ 123,571 | ||||||
| Aggregate Totals | 167,345 | $ 58,571 | 200,000 | $ 60,000 | 367,345 | $ 118,571 | 400,000 | $ 100,000 | 49,218 | $ 58,571 | 449,218 | $ 158,571 | ||||||
| Nine Months Ended February 29, 2020 | ||||||||||||||||||
| Shares issued in the Period for: | Shares Issuable at February 29, 2020 | |||||||||||||||||
| Common Stock Payable | Services | Total | Patent Issuance Bonus Shares | Current Period Services | Total | |||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||
| Related Parties | ||||||||||||||||||
| Patrick Bilton | 240,000 | $ 60,000 | 820,000 | $ 205,000 | 1,060,000 | $ 265,000 | - | $ - | - | $ - | - | $ - | ||||||
| David Tobias | - | - | 100,000 | 25,000 | 100,000 | 25,000 | - | - | - | - | - | - | ||||||
| Jerry Cornwell | - | - | 100,000 | 25,000 | 100,000 | 25,000 | - | - | - | - | - | - | ||||||
| Brad Herr | 60,000 | 15,000 | 180,000 | 45,000 | 240,000 | 60,000 | - | - | - | - | - | - | ||||||
| Total for related parties | 300,000 | $ 75,000 | 1,200,000 | 300,000 | 1,500,000 | $ 375,000 | - | $ - | - | $ - | - | $ - | ||||||
| Unrelated Parties | 208,500 | $ 52,125 | 502,420 | $ 125,605 | 710,920 | $ 177,730 | 400,000 | $ 100,000 | - | $ - | 400,000 | $ 100,000 | ||||||
| Aggregate Totals | 508,500 | $ 127,125 | 1,702,420 | $ 425,605 | 2,210,920 | $ 552,730 | 400,000 | $ 100,000 | - | $ - | 400,000 | $ 100,000 | ||||||
| Three Months Ended February 29, 2020 | ||||||||||||||||||
| Shares issued in the Period for: | Shares Issuable at February 29, 2020 | |||||||||||||||||
| Common Stock Payable | Services | Total | Patent Issuance Bonus Shares | Current Period Services | Total | |||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||
| Related Parties | ||||||||||||||||||
| Patrick Bilton | 260,000 | $ 65,000 | 260,000 | $ 65,000 | 520,000 | $ 130,000 | - | $ - | - | $ - | - | $ - | ||||||
| David Tobias | 20,000 | 5,000 | 20,000 | 5,000 | 40,000 | 10,000 | - | - | - | - | - | - | ||||||
| Jerry Cornwell | 20,000 | 5,000 | 20,000 | 5,000 | 40,000 | 10,000 | - | - | - | - | - | - | ||||||
| Brad Herr | 60,000 | 15,000 | 60,000 | 15,000 | 120,000 | 30,000 | - | - | - | - | - | - | ||||||
| Total for related parties | 360,000 | $ 90,000 | 360,000 | 90,000 | 720,000 | $ 180,000 | - | $ - | - | $ - | - | $ - | ||||||
| Unrelated Parties | 114,000 | $ 28,500 | 127,920 | $ 31,980 | 241,920 | $ 60,480 | 400,000 | $ 100,000 | - | $ - | 400,000 | $ 100,000 | ||||||
| Aggregate Totals | 474,000 | $ 118,500 | 487,920 | $ 121,980 | 961,920 | $ 240,480 | 400,000 | $ 100,000 | - | $ - | 400,000 | $ 100,000 | ||||||
FS-13
NOTE 7 – REVENUE
Company product revenue is generated though sales of its debudder products and, from April 2020 through August 31, 2020, soil products offered through the Weed Farm Supply division acquired from Elevated. The Weed Farm Supply division was discontinued on September 1, 2020 (see Note 3). Revenue from this division are not included in the tables below.
Three Months
| Three-months ended | ||||||||
| February 28, 2021 | February 29, 2020 | |||||||
| Debudder Products | $ | 14,377 | $ | 30,003 | ||||
| Three-months ended, | ||||||||
| Customer Concentrations | February 28, 2021 | February 29, 2020 | ||||||
| Debudder sales | ||||||||
| Customer A | $ | - | $ | 8,397 | ||||
| Customer B | 13,675 | - | ||||||
| Totals | $ | 13,675 | $ | 8,397 | ||||
| % of Total Revenues | 95 | % | 28 | % | ||||
Nine Months
| Nine-months ended | ||||||||
| February 28, 2021 | February 29, 2020 | |||||||
| Debudder Products | $ | 87,513 | $ | 118,094 | ||||
| Nine-months ended | ||||||||
| Customer Concentrations | February 28, 2021 | February 29, 2020 | ||||||
| Debudder sales | ||||||||
| Customer A | $ | 34,285 | $ | 44,197 | ||||
| Customer C | 26,130 | — | ||||||
| Customer B | 13,675 | — | ||||||
| Totals | $ | 74,090 | $ | 44,197 | ||||
| % of Total Revenues | 85 | % | 37 | % | ||||
FS-14
NOTE 7 – REVENUE, Continued:
All sales were domestic except for $91 and $4,112 in the three and nine-month periods ended February 28, 2021 which were international. There were $0 and $1,700 in international sales in the three and nine-month periods ended February 29, 2020, respectively.
As of February 28, 2021 and February 29, 2020, there were $4,500 and $100, respectively, of accounts receivable from the Company’s primary customers.
Pursuant to the agreement for the acquisition of the Elevated assets (Notes 3 and 5), the Company was obligated to pay Elevated a percentage of monthly gross profit earned on the sale of products included in the Elevated asset acquisition. During the three-month period ended August 31, 2020, a total of $66,242 was recognized as cost of sales under this agreement. During the three-month period ended February 28, 2021, no amounts were earned by Elevated pursuant to this agreement. The Elevated Agreement has subsequently been unwound and no payments are due Elevated under the percentage of gross profit allocation formula contained in the original agreement.
NOTE 8 – SUBSEQUENT EVENTS
Elevated Payments
In connection with unwinding the Elevated acquisition, the Company agreed to pay Elevated $10,000 in five installments of $2,000 each. Payments of $2,000 each were made in November, December, January, and February, leaving a current balance at February 28, 2021 of $2,000. The final payment was made on March 5, 2021 and the amount has been paid in full. The Company will cancel 1,300,000 shares of common stock issued in the asset acquisition in the fourth quarter.
Borrowings Transactions
On March 22, 2021, the Company, as the borrower, entered into agreements with AJB Capital Investments LLC and SDT Holdings LLC for the sale of an aggregate of $900,000 in Promissory Notes (the “Notes”), $300,000 from AJB and $600,000 for SDT. The terms of the Notes are the same except for the dollar amounts and fees which are double for SDT compared to AJB. The terms of the Notes are described below in the aggregate.
The Notes provide for an original issue discount of 10% or $90,000, payment of legal fees of $22,500, and payment of $10,500 for due diligence fees, resulting in net proceeds to the Company of $777,000. The Company also agreed to pay a commitment fee of $750,000 payable by issuance of 1,200,000 shares of restricted common stock and 3,000,000 warrants that are exercisable at $0.38 per share with a three-year term expiring on March 21, 2024. The Notes bear interest at the rate of 12% if paid on or before September 21, 2021. MJHI has the right to extend the Notes for an additional six months at an interest rate of 15%, in which case the Notes would be due March 21, 2022. The Notes are secured by all assets of the Company.
In addition, the notes require a financing fee of $54,000 which is payable in installments of $9,000 each month with the first payment due on April 1, 2021.
In the event of default, the remaining principal amount of the Notes plus all accrued interest and other fees due under the terms of the Notes may be converted at the sole election of the Note holders into restricted common stock of the Company at a 90% of the market price for the Company’s shares at the time of conversion.
FS-15
PPK Transaction
On March 24, 2021, the Company, as the lender, finalized a convertible note agreement with PPK Investment Group, Inc. (“PPK”) in the amount of $620,000. The convertible note bears interest at 6% per annum and is due on September 1, 2021. The conversion feature of the Note provides that the Company may convert the Note to acquire a 6.2% interest in PPK if allowed by Oklahoma State laws governing ownership of cannabis licenses. If converted, the interest accrued from the loan date of March 24, 2021 through the date of conversion will be forgiven.
Upon conversion, the Company will also have the right to acquire an additional 3.8% interest in PPK (10% in total) for payment of $380,000 by issuance of restricted common stock of the Company priced at $0.25 per share or 1,520,000 shares.
In the event of conversion of the Convertible Note into an investment in PPK, a Securities Purchase Agreement signed concurrently with the Convertible Note will also become effective. The Securities Purchase 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. the acquisition price would be paid on the same terms as the initial acquisition of the 10% interest - 62% in cash and 38% in share of the Company’s common stock with the stock priced at $0.25 per share. The total value of 100% acquisition of PPK is $10,000,000.
The Securities Purchase Agreement, if activated by conversion of the convertible note, includes an earnout which could result in payment of additional consideration to PPK if the valuation at the end of a 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).
The Securities Purchase Agreement, if activated by conversion of the convertible note, also contains agreement with Ralph Clinton Pyatt III (“Clinton Pyatt”), President of PPK, to continue his role as Chief Executive Officer and President of the PPK business for a period of at least three years. The Company also has an option to acquire the real estate that PPK utilizes in its operations. The real estate is currently under lease to Country Cannabis by an affiliated Company owned by Clinton Pyatt.
FS-16
Exhibit 3.1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick Bilton, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of MJ Harvest, Inc., (the “Registrant”) for the quarter ended February 28, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) omitted (the Registrant is not yet subject to internal control over financial reporting requirements);
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: | April 19, 2021 | By: | /s/ Patrick Bilton | |
| Principal, CEO (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brad E. Herr, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of MJ Harvest, Inc., (the “Registrant”) for the quarter ended February 28, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) omitted (the Registrant is not yet subject to internal control over financial reporting requirements);
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Date: | April 19, 2021 | By: | /s/ Brad E. Herr | |
| Brad E. Herr, CFO (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MJ Harvest, Inc. (the "Registrant") on Form 10-Q for the quarter ended February 28, 2021, as filed with the Commission on the date hereof (the "Quarterly Report"), I, Patrick Bilton, Principal Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: April 19, 2021
/s/ Patrick Bilton
Patrick Bilton, CEO
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MJ Harvest, Inc. (the "Registrant") on Form 10-Q for the quarter ended February 28, 2021, as filed with the Commission on the date hereof (the "Quarterly Report"), I, Brad E. Herr, Principal Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Dated: April 19, 2021
/s/ Brad E. Herr
Brad E. Herr, CFO
(Principal Financial Officer)
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