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 29, 2020

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)

 

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

 

 

 

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 May 15, 2020, is 21,492,874.

 

1

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

Attached after signature page.

 

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

 

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

 

Results of Operations

 

Three Months Ended February 29, 2020, compared with the Three Months Ended February 28, 2019

 

The narrative comparison of results of operations for the three-month periods ended February 29, 2020 compared to the three months ended February 28, 2019, is based on the following table.

 

 

 

A
February 28,
2019

 

 

Three Months Ended
B
February 29,
2020

 

 

B-A


Change

 

REVENUE

 

$

31,584

 

 

$

30,003

 

 

$

(1,581

)

Cost of Sales

 

 

4,197

 

 

 

18,001

 

 

 

13,804

 

Cost of sales % of total sales

 

 

13

%

 

 

60

%

 

 

47

%

Gross Profit

 

 

27,387

 

 

 

12,002

 

 

 

(15,385

)

Gross profit % of sales

 

 

87

%

 

 

40

%

 

 

-47

%

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Officer and director compensation

 

 

85,250

 

 

 

110,000

 

 

 

24,750

 

General and administrative

 

 

53,052

 

 

 

9,166

 

 

 

(43,886

)

Impairment of intangible asset

 

 

—

 

 

 

—

 

 

 

—

 

Professional fees and contract services

 

 

71,831

 

 

 

96,053

 

 

 

24,222

 

Total operating expenses

 

 

210,133

 

 

 

215,219

 

 

 

5,086

 

NET LOSS FROM OPERATIONS

 

 

(182,746

)

 

 

(203,217

)

 

 

(20,471

)

 

2

 

 

Revenue decreased $1,581 and cost of revenues increased $13,804 in 2020 compared 2019. This resulted in a decrease in gross profit of $15,385 in 2020 compared to 2019. Sales were basically static over the two comparable periods. Our fiscal third quarter ending on the last day of February in each year is a slow time for the sale of harvest tools since growers and cultivators are not harvesting at that time.  This factor highlights management’s focus on expanding the product line to include soils, soil additives, and other products that are either less cyclical or counter cyclical to the harvest products the company has historically relied on for sales.

 

Cost of sales as a percentage of total sales increased to 60% in 2020 compared to 13% in 2019. The increase was primarily attributable to the change to fulfillment centers to meet customer orders.  In 2019, we fulfilled our orders through a service contract with the inventor of the harvest tool.  This relationship was ended when the Company acquired the minority interest in G4 Products LLC, and management determined that order fulfillment could best be handled through geographically disbursed third party fulfillment centers in order to reduce shipping and provide a near immediate turnaround on orders.  The company incurs additional costs under this fulfillment center structure, but management believes it is a better fit with the long-range vision of adding products and building a diverse customer base.

 

Total operating expenses remained static in the comparative periods for 2020 and 2019.  Officer and director compensation increased $24,750, and professional fees and contract services increased $24,222 in 2020 compared to 2019. Professional fees and contract services increased in connection with the Company’s filing of an S-1 registration statement with the United States Securities and Exchange Commission (“SEC”) which was declared effective on January 9, 2020. These increases were offset by a reduction in general and administrative expenses of $43,886. Management was able to reduce general and administrative expenses through tightened spending controls and by shifting more of the general and administrative costs to contractors and contracted officers. 

 

Net loss from operations increased by $20,471 to $203,217 in 2020 compared to $182,746 in 2019. This increase is primarily attributable to the added cost of fulfillment centers which reduced margins in 2020 compared to 2019.

 

Nine-months Ended February 29, 2020, compared with the Nine-months Ended February 28, 2019

 

The narrative comparison of results of operations for the nine-months ended February 29, 2020 compared to the nine months ended February 28, 2019, is based on the following table.

 

 

 

A
February 28,
2019

 

 

Nine Months Ended
B
February 29,
2020

 

 

B-A


Change

 

REVENUE

 

$

67,298

 

 

$

118,094

 

 

$

50,796

 

Cost of Sales

 

 

15,389

 

 

 

55,071

 

 

 

39,682

 

Cost of sales % of total sales

 

 

23

%

 

 

47

%

 

 

24

%

Gross Profit

 

 

51,909

 

 

 

63,023

 

 

 

11,114

 

Gross Profit % of Sales

 

 

77

%

 

 

53

%

 

 

-24

%

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Officer and director compensation

 

 

285,250

 

 

 

372,500

 

 

 

87,250

 

General and administrative

 

 

78,045

 

 

 

61,099

 

 

 

(16,946

)

Impairment of intangible asset

 

 

—

 

 

 

100,000

 

 

 

100,000

 

Professional fees and contract services

 

 

247,236

 

 

 

329,405

 

 

 

82,169

 

Total operating expenses

 

 

610,531

 

 

 

863,004

 

 

 

252,473

 

NET LOSS FROM OPERATIONS

 

 

(558,622

)

 

 

(799,981

)

 

 

(241,359

)

 

3

 

 

Revenue increased $50,796 and cost of revenues increased $39,682 in 2020 compared 2019. This resulted in an increase in gross profit of $11,114 in 2020 compared to 2019. Sales increased $50,796 in 2020 compared to 2019, primarily as a result of increased directed sales efforts and the establishment of our www.procannagor website. While the increase in sales is seen as a positive factor, management remains focused on expanding the product line to include soils, soil additives, and other products in order to increase sales to a level where the Company can operate profitably.  

 

Cost of sales as a percentage of total sales increased to 47% in 2020 compared to 23% in 2019. The increase was primarily attributable to the change to fulfillment centers to meet customer orders.  In 2019, we fulfilled our orders through a service contract with the inventor of the harvest tool.  This relationship was ended when the Company acquired the minority interest in G4 Products LLC, and management determined that order fulfillment could best be handled through geographically disbursed third party fulfillment centers in order to reduce shipping and provide a near immediate turnaround on orders.  The company incurs additional costs under this fulfillment center structure, but management believes it is a better fit with the long-range vision of adding products and building a diverse customer base.

 

Total operating expenses remained increased by $252,473 to $863,004 in 2020 compared to $610,531 in 2019.  The increase was driven by increases in officer and director compensation - $87,250, professional fees and contract services - $82,169, and impairment of intangible assets -$100,000. These increases were the result of increasing reliance on contractors for all aspects of the business, increases in director fees and officer compensation, and the added effort required to prepare and file a registration statement with the SEC. The increases were partially offset by a decrease of $16,946 in general and administrative costs. Management was able to reduce general and administrative expenses through tightened spending controls and by shifting more of the general and administrative costs to contractors and contracted officers. 

 

Net loss from operations increased by $241,359 to $799,981 in 2020 compared to $558,622 in 2019as a result of the above increases in operating costs and reduction in operating margins as a percentage of sales.

 

Liquidity and Capital Resources

 

Cash flow from operating activities for the nine-month period ended February 29, 2020, was negative $231,220. During the period, our total cash decreased by $10,442. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $220,778.

 

The Company continues to make progress in growing sales of its existing product line, but the business is not yet sufficient to support our current operating structure. We continue to seek out potential acquisition candidates and distributorships and hope to see continuing growth in sales in the coming periods. The Company is currently reliant on funding through advances from related parties, but no assurances can be given that such funding will continue to be available in future periods.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred net losses from operations of $799,981 and $558,622 for the nine-month periods ended February 29, 2020, February 28, 2019, respectively, and had an accumulated deficit of approximately $3,018,700 as of February 29, 2020.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt.  It will be important for the Company to be successful in its efforts to raise capital in this manner if it is going to be able to further its business plan in an aggressive manner.  Raising capital in this manner will cause dilution to current shareholders.

 

COVID-19

 

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

 

4

 

 

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.

 

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

 

Off Balance Sheet Arrangements

 

None


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

 

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

 

Management of the Company believes that these material weaknesses are due 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 29, 2020 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.

 

5

 

 

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. However, the Company filed an 8-K on April 13, 2020 to take advantage of an extension of time to file its quarterly report on Form 10-Q for the nine months ended February 29, 2020 due to the COVID-19 pandemic.  As a condition of the extension of time to file the annual report, the Company agreed to include the following Risk Factor in this Report.

 

The occurrence of the COVID-19 pandemic may negatively affect our operations depending on the severity and longevity of the pandemic.

 

The COVID-19 pandemic is currently impacting countries, communities, supply chains, and commercial markets. The global financial markets have also been severely impacted. The response to the pandemic has so far been focused on social distancing, travel bans, and quarantines in an effort to slow the spread of the disease. This may limit or restrict the Company’s access to customers, facilities, inventory supplies, personnel, and advisors.  Government agencies and regulatory bodies are also impacted. All of these impacts are being felt by the Company now and they may have a significant and lasting effect on our businesses and on our efforts to expand our business through acquisitions and similar transactions. The impacts may also affect our ability to comply with regulatory requirements, including making timely filings with the Securities and Exchange Commission. Depending on the longevity and severity of the COVID-19 pandemic, our business, customers, and shareholders may experience significant negative impacts.

 

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

 

During the three months ended February 29, 2020, the board of directors issued an aggregate of 961,920 unregistered common shares to three unrelated persons (241,920 shares) and four related parties that were officers and/or directors (720,000 shares) in exchange for services rendered to the Company.  The shares were valued and issued at $0.25 per share.  The issuance of the shares was exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5.  Other Information.

 

None.

 

6

 

 

Item 6.  Exhibits. 

 

The following documents are included as exhibits to this report:

 

(a) Exhibits

 

Exhibit
Number

 

SEC
Reference
Number

 

Title of Document

 

 

 

 

 

3.1*

 

3

 

Articles of Incorporation of MJ Harvest, Inc.

 

 

 

 

 

3.2*

 

3

 

Amended Bylaws of MJ Harvest, Inc.

 

 

 

 

 

10.1*

 

10

 

Independent Contractor Agreement with Patrick Bilton effective January 1, 2019

 

 

 

 

 

10.2*

 

10

 

Independent Contractor Agreement with Brad Herr effective January 1, 2019

 

 

 

 

 

10.3*

 

10

 

Securities Purchase Agreement by and between MJ Harvest, Inc. (fka EM Energy, Inc). and Original Ventures, Inc. dated November 7, 2017

 

 

 

 

 

10.4*

 

10

 

Securities Purchase Agreement by and between MJ Harvest, Inc. and Original Ventures, Inc. dated December 7, 2018

 

 

 

 

 

31.1

 

31

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)

 

 

 

 

 

31.2

 

31

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)

 

 

 

 

 

32.1

 

32

 

Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)

 

 

 

 

 

32.2

 

32

 

Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

 

*

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

 

7

 

 

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:  May 28, 2020

 

 

By: /s/ Patrick Bilton

 

 

Patrick Bilton, Principal Executive Officer 

 

 

 

 

 

By:  /s/ Brad E. Herr

 

 

Brad E. Herr, Chief Financial Officer and Principal Financial Officer

 

 

8

 

 

MJ Harvest, Inc.

 

 

Contents

 

 

 

Page

 

 

FINANCIAL STATEMENTS – Three and Nine Months Ended February 29, 2020 and February 28, 2019 (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

 

 
 

 

MJ HARVEST, INC.

Consolidated Balance Sheets

(unaudited)

 

 

 

 

February 29,

 

 

May 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

ASSETS

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash

 

$

3,150

 

 

$

13,592

 

Accounts receivable

 

 

100

 

 

 

9,191

 

Inventory

 

 

43,073

 

 

 

56,205

 

Total current assets

 

 

46,323

 

 

 

78,988

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS:

 

 

 

 

 

 

 

 

Machinery & equipment - net

 

 

17,139

 

 

 

20,919

 

Deposits

 

 

—

 

 

 

480

 

Intangible assets - net

 

 

144,584

 

 

 

150,000

 

Total non-current assets

 

 

161,723

 

 

 

171,399

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

208,046

 

 

$

250,387

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

27,172

 

 

$

15,915

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

 

Common stock payable

 

 

100,000

 

 

 

127,125

 

Advances from related parties

 

 

760,482

 

 

 

539,704

 

Total long-term liabilities

 

 

860,482

 

 

 

666,829

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

887,654

 

 

 

682,744

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 50,000,000 shares authorized, 20,969,659 and 18,758,739 issued and outstanding, respectively

 

 

2,097

 

 

 

1,876

 

Additional paid-in capital

 

 

2,336,995

 

 

 

1,784,486

 

Accumulated deficit

 

 

(3,018,700

)

 

 

(2,218,719

)

Total stockholders’ deficit

 

 

(679,608

)

 

 

(432,357

)

Total Liabilities and Stockholders’ Deficit

 

$

208,046

 

 

$

250,387

 

 

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

 

FS-2

 

 

MJ HARVEST, INC

Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

February 29,
2020

 

 

February 28,
2019

 

 

February 29,
2020

 

 

February 28,
2019

 

                                 

REVENUE

 

$

30,003

 

 

$

31,584

 

 

$

118,094

 

 

$

67,298

 

Cost of sales

 

 

18,001

 

 

 

4,197

 

 

 

55,071

 

 

 

15,389

 

Gross profit

 

 

12,002

 

 

 

27,387

 

 

 

63,023

 

 

 

51,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Officer and director compensation

 

 

110,000

 

 

 

85,250

 

 

 

372,500

 

 

 

285,250

 

General and administrative

 

 

9,166

 

 

 

53,052

 

 

 

61,099

 

 

 

78,045

 

Impairment of intangible assets

 

 

—

 

 

 

—

 

 

 

100,000

 

 

 

—

 

Professional fees and contract services

 

 

96,053

 

 

 

71,831

 

 

 

329,405

 

 

 

247,236

 

Total operating expenses

 

 

215,219

 

 

 

210,133

 

 

 

863,004

 

 

 

610,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM OPERATIONS

 

 

(203,217

)

 

 

(182,746

)

 

 

(799,981

)

 

 

(558,622

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interest

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5,730

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO MJ HARVEST, INC.

 

$

(203,217

)

 

$

(182,746

)

 

$

(799,981

)

 

$

(564,352

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER COMMON SHARE - Basic and diluted

 

$

(0.01

)

 

$

(0.01

)

 

$

(0.04

)

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted

 

 

20,192,611

 

 

 

18,148,772

 

 

 

19,500,353

 

 

 

17,849,442

 

 

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

 

FS-3

 

 

MJ HARVEST, INC

Consolidated Statements of Changes in Stockholders’ Deficit

(unaudited)   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE NINE AND THREE MONTH PERIODS ENDED FEBRUARY 29, 2020 AND FEBRUARY 28, 2019

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Non-controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total

 

NINE MONTH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, May 31, 2018

 

17,598,739

 

 

$

1,760

 

 

$

1,418,227

 

 

$

(1,256,448

)

 

$

140,645

 

 

$

304,184

 

Shares issued for compensation

 

1,080,000

 

 

 

108

 

 

 

269,892

 

 

 

—

 

 

 

—

 

 

 

270,000

 

Acquisition of minority interest

 

80,000

 

 

 

8

 

 

 

96,367

 

 

 

—

 

 

 

(146,375

)

 

 

(50,000

)

Net loss for the nine months ended February 28, 2019

 

—

 

 

 

—

 

 

 

—

 

 

 

(564,352

)

 

 

5,730

 

 

 

(558,622

)

BALANCES, February 28, 2019

 

18,758,739

 

 

$

1,876

 

 

$

1,784,486

 

 

$

(1,820,800

)

 

$

—

 

 

$

(34,438

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 for the nine months ended February 29, 2020

 

—

 

 

 

—

 

 

 

—

 

 

 

(799,981

)

 

 

—

 

 

 

(799,981

)

BALANCES, February 29, 2020

 

20,969,659

 

 

$

2,097

 

 

$

2,336,995

 

 

$

(3,018,700

)

 

$

—

 

 

$

(679,608

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES, November 30, 2018

 

17,867,739

 

 

 

1,787

 

 

 

1,485,450

 

 

 

(1,638,054

)

 

 

146,375

 

 

 

(4,442

)

Shares issued for compensation

 

373,000

 

 

 

37

 

 

 

93,213

 

 

 

—

 

 

 

—

 

 

 

93,250

 

Shares issued for common stock payable

 

438,000

 

 

 

44

 

 

 

109,456

 

 

 

—

 

 

 

—

 

 

 

109,500

 

Acquisition of minority interest

 

80,000

 

 

 

8

 

 

 

96,367

 

 

 

—

 

 

 

(146,375

)

 

 

(50,000

)

Net loss for the three months ended February 28, 2019

 

—

 

 

 

—

 

 

 

—

 

 

 

(182,746

)

 

 

—

 

 

 

(182,746

)

BALANCES, February 28, 2019

 

18,758,739

 

 

$

1,876

 

 

$

1,784,486

 

 

$

(1,820,800

)

 

$

—

 

 

$

(34,438

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 for the three months ended February 29, 2020

 

—

 

 

 

—

 

 

 

—

 

 

 

(203,217

)

 

 

—

 

 

 

(203,217

)

BALANCES, February 29, 2020

 

20,969,659

 

 

$

2,097

 

 

$

2,336,995

 

 

$

(3,018,700

)

 

$

—

 

 

$

(679,608

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

FS-4

 

 

MJ HARVEST, INC.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

Nine months ended

 

 

 

February 29,

 

 

February 28,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(799,981

)

 

$

(558,622

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,196

 

 

 

2,930

 

Share based compensation

 

 

425,605

 

 

 

270,000

 

Common stock payable for compensation

 

 

—

 

 

 

40,250

 

Impairment of intangible assets

 

 

100,000

 

 

 

—

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

9,091

 

 

 

(25,390

)

Deposits

 

 

480

 

 

 

—

 

Inventory

 

 

13,132

 

 

 

(33,915

)

Accounts payable and other current liabilities

 

 

11,257

 

 

 

(7,512

)

NET CASH (USED IN) OPERATING ACTIVITIES

 

 

(231,220

)

 

 

(312,259

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Cash used in acquisiton of G4

 

 

—

 

 

 

(50,000

)

Purchases of machinery and equipment

 

 

—

 

 

 

(19,209

)

NET CASH (USED IN) INVESTING ACTIVITIES

 

 

—

 

 

 

(69,209

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from advances by related parties

 

 

220,778

 

 

 

391,605

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

220,778

 

 

 

391,605

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(10,442

)

 

 

10,137

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

13,592

 

 

 

3,277

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS END OF PERIOD

 

$

3,150

 

 

$

13,414

 

 

 

 

 

 

 

 

 

 

Non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Stock issued for acquisiton of G4

 

$

—

 

 

$

20,000

 

Shares issued for common stock payable

 

$

127,125

 

 

$

—

 

Shares payable for intangible assets - patents

 

$

100,000

 

 

$

—

 

 

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

 

FS-5

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

The Company develops, acquires, and distributes agricultural and horticultural tools, implements, and supplies for sale primarily to growers and operators in the hemp and cannabis space.  In 2017, the Company acquired a 51% interest in G4 Products LLC, which owns the intellectual property for a manual debudder product line marketed as the Debudder Bucket Lid and Debudder Edge.  The Company also organized AgroExports LLC to serve as the international distribution arm for sales of agricultural and horticultural tools and implements and created www.procannagro.com for online sales of its products.

 

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

 

On December 7, 2018, the Company acquired the remaining 49% of G4 Products LLC, making it a wholly owned subsidiary.  On April 10, 2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online payments in Canada. Sales in Canada are currently serviced through a fulfillment center in Toronto. Domestic and other international sales are serviced through our fulfillment center in California.

 

On March 8, 2020, the Company closed on the acquisition of several domain names and entered into distribution agreements for a wide range of soil, soil additive products, and other products. The Company intends to operate the new web site, www.weedfarmsupply.com in the coming periods in conjunction with the Company’s existing website, www.procannagro.com.

 

Basis of Presentation and Consolidation

 

The Company’s fiscal year-end is May 31. The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and nine-month periods ended February 29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2020.

 

For further information refer to the financial statements and footnotes thereto in the Form S-1 filed with the SEC on October 2, 2019 and declared effective on January 9, 2020.

 

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries AgroExports LLC (“Agro”), G4 Products LLC (“G4”), and AgroExports.CA ULC. G4 was a 51% owned subsidiary until December 7, 2018 and the Statements of Operations for the nine-month period ended February 28, 2019 includes the net loss of the non-controlling interest in G4 for the first two quarters of the fiscal year.  All intercompany transactions have been eliminated. 

 

FS-6

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Going Concern

 

The Company has an accumulated deficit of $3,018,700 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.

 

On December 7, 2018, the Company acquired the 49% minority interest of G4 and G4 became a wholly owned subsidiary at that time. 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 year ended 2019, the Company began generating operating revenue but the level of revenue from the current product line has not been sufficient to support profitable operations to date. 

 

On March 8, 2020, the Company closed on the acquisition of several domain names, including www.weedfarmsupply.com, and entered into distribution agreements for a wide range of soil and soil additive products. With this acquisition, the Company will add the soil products to its www.procannagro,com website and will assume operations of the new web site, www.weedfarmsupply.com. The Company expects to further expand its product lines and build its distribution business.

 

Additional acquisitions and business opportunities are under consideration, but the Company has not reached agreement with any other acquisition candidates or business opportunities.  Management intends to finance operating costs over the next twelve months with advances from directors 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

 

Leases: In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases longer than one year. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted the new standard on June 1, 2019 and as of February 29, 2020, the Company had no leases and the update did not have a material effect on the financial statements.

 

 

FS-7

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Nonemployee compensation: In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted the new standard on June 1, 2019 and the impact of this update had no material effect on its consolidated financial statements and related 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 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

 

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

 

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

 

Financial Instruments

 

The carrying amounts of cash and advances from related parties reported on the balance sheets approximate their fair value as of February 29, 2020 and May 31, 2019. 

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less when acquired to be cash equivalents.

 

FS-8

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Revenue Recognition

 

The Company recognizes revenue from the sale of products in accordance with ASC 606, “Revenue Recognition”. Revenues are recognized when control of the promised goods are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. This occurs when a product order has been received and the Product has shipped to the customer.  The consideration recognized as revenue is the purchase price received or to be received from the customer. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

●

identify the contract with a customer;

●

identify the performance obligations in the contract, which consist of delivery of the Product ordered and this occurs when the Product is shipped to the customer;

●

determine the transaction price;

●

allocate the transaction price to performance obligations in the contract; and

●

recognize revenue as the performance obligation is satisfied.

 

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. 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. Allowances for obsolete inventory are recognized when the inventory is determined to be unsalable through the normal course of business. Inventory consists of our debudder products in 5-gallon bucket lid, 20 litter bucket lid and edge models.

 

Machinery & Equipment

 

Machinery and equipment consists of molds used in the manufacturing process and are recorded at cost. Maintenance, repairs, and minor replacements are expensed as incurred.  Gains or losses on disposition or retirement of property and equipment are recognized in operating expenses.  Depreciation is computed using the straight-line method over the estimated useful lives of the molds which is five years.

 

Accounting for Acquisitions

 

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

 

Intangible Assets

 

We account for intangible assets in accordance with Accounting Standards Codification 350 “Intangibles-Goodwill and Other” (“ASC 350”).

 

FS-9

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined based on the estimated fair value of the consideration paid. The carrying amounts of our definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount. Our indefinite-lived intangible assets are tested for impairment annually, or more frequently when impairment indicators exist.

 

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense is included as a component of cost of sales. For the three and nine-months ended February 29, 2020, the Company recognized $3,750 and $5,416, respectively, in amortization expense for its intangible assets. The Company’s intangible assets consist of patents which issued on October 8, 2019. The patents expire on varying dates and the Company is amortizing these intangible assets over 180 months commencing in October 2019.

 

Income taxes

 

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

 

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 29, 2020 and February 28, 2019, the Company had no common stock equivalents outstanding.

 

Share-Based Payments

 

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

 

FS-10

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

NOTE 2 – BUSINESS ACQUISITIONS

 

G4 Products LLC. On November 17, 2017, the Company acquired a controlling 51% interest in G4 Products, LLC (“G4”), a newly formed  Nevada limited liability company that owned a provisional patent on a device used in stripping buds from plants (the Product) from Original Ventures, Inc. (“Original Ventures”). On December 7, 2018, the Company acquired the remaining 49% interest in G4 from Original Ventures. The initial acquisition of 51% was valued at $328,137, and the subsequent acquisition of the remaining 49% was valued at $70,000.

 

At the time of the second acquisition of the interest in G4, the assets of G4 consisted primarily of a provisional U.S. Patent application and certain other international patent applications. Several of the patents have now been approved and issued.  

 

The acquisition agreement for the initial purchase of 51% of G4 and for the follow-on acquisition of the remaining 49% interest in G4 included certain earn-out provisions that are described in Note 5 – Commitments and Contingencies.

 

NOTE 3 - INTANGIBLE ASSETS

 

G4 Products LLC. Included in the acquisition of G4, the Company obtained patent rights on a device used in stripping buds from plants.  The patent rights had carrying values of $144,584 and $150,000 as of the nine-months ended February 29, 2020 and the year ended May 31, 2019, respectively. 

 

For the year ended May 31, 2019, the Company performed a year-end impairment analysis of the carrying value of the patent rights. The analysis considered   cost of the acquisition of the remaining non-controlling interest if G4 during the year ended May 31, 2019 and the lower than expected revenues generated from sales of its products during the year.  The analysis included an evaluation of expected future revenues and earnings from the intangible assets. Management determined that a reasonable fair value for the intangible assets was $150,000 at May 31, 2019, and as a result the Company recorded an impairment loss of $178,137 for the year ended May 31, 2019.

 

During the nine-months ended February 29, 2020, the Company acquired an additional $100,000 of intangible assets as a result of an earn-out provision due upon issuance of patents. The patents were issued on October 8, 2019 and represent the same intangible assets that were impaired at May 31, 2019.  As a result, management determined that an immediate impairment equivalent to the earn-out due on issuance of the patents ($100,000) was warranted.

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

At February 29, 2020 and May 31, 2019, the Company had advances from related parties totaling $760,482 and $539,704, respectively. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock. These amounts consisted of the following:

 

●

As of February 29, 2020 and May 31, 2019, the Company owed Mr. Jerry Cornwell, a director, $16,515 and $15,696, respectively.

●

As of February 29, 2020 and May 31, 2019, the Company owed David Tobias, a majority shareholder and director, $80,553 and $75,553, respectively.

 

 

FS-11

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

●

As of February 29, 2020 and May 31, 2019, Patrick Bilton, a director and the Company’s Chief Executive Officer, was owed $615,959 and $401,000, respectively, for advances to the Company for operating capital and an additional $47,455 at February 29, 2020 and May 31, 2019, for reimbursement of expenses paid on behalf of the Company.  Collectively, Mr. Bilton is owed $663,414 and $448,455, respectively, as of February 29, 2020 and May 31, 2019.

 

At February 29, 2020 and May 31, 2019, the Company had common stock payable totaling $100,000 and $127,125, respectively. Of these amounts, -0- and $75,000, respectively, were payable to related parties. These related party amounts consisted of the following:

 

●

The Company had common stock payable to Mr. Bilton of -0- and $60,000 at February 29, 2020 and May 31, 2019, respectively, for services as an officer and director.

●

The Company had common stock payable to Nexit, Inc, an entity solely owned by Brad Herr, Chief Financial Officer, of -0- and $15,000 at February 29, 2020 and May 31, 2019, respectively, for services as an officer of the Company.

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

G4 Products LLC. The agreement for the acquisition of G4 from Original Ventures includes earn-out provisions that provide for Original Ventures to “earn-out” additional compensation dependent upon product sales.  As of February 29, 2020, and May 31, 2019, no earn-out compensation was owed by G4 to Original Ventures. The earn-out provision is applicable to sales of G4’s products for calendar years 2018-2020. The earn-out compensation due Original Ventures is based upon a calculation of sales of G4’s products less the Company’s original investment in G4. If any earn-out is due to Original Ventures based on sales in calendar year 2020, the earn-out will be paid in common stock of the Company in accordance with the agreement.

 

In addition, an earn-out compensation payment of $100,000, payable in shares of the Company’s common stock, became due to Original Ventures upon the issuance of the non-provisional patent to G4, which occurred on October 8, 2019. This amount is accrued as of February 29, 2020 and is classified as common stock payable. The $100,000 was capitalized as intangible assets at the time of the accrual and immediately impaired based on the impairment analysis performed in the fiscal year ended May 31, 2019.

 

NOTE 6 – SHARE CAPITAL

 

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

 

FS-12

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

In the three and nine-month periods ended February 29, 2020 and February 28, 2019, shares of common stock were issued to related and non-related parties in consideration of services performed or assets acquired.  The following table breaks out the issuances by type of transaction and by related and unrelated parties:

 

 

 

Three months ended

 

 

Nine months ended

 

Issued to:

 

February 29, 2020

 

 

February 29, 2020

 

Related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patrick Bilton

 

 

520,000

 

 

$

130,000

 

 

 

1,060,000

 

$

265,000

 

Brad Herr

 

 

120,000

 

 

 

30,000

 

 

 

240,000

 

$

60,000

 

Jerry Cornwell

 

 

40,000

 

 

 

10,000

 

 

 

100,000

 

$

25,000

 

David Tobias

 

 

40,000

 

 

 

10,000

 

 

 

100,000

 

$

25,000

 

Total related parties

 

 

720,000

 

 

$

180,000

 

 

 

1,500,000

 

$

375,000

 

Unrelated parties

 

 

241,920

 

 

$

60,480

 

 

 

710,920

 

$

177,730

 

Total issued

 

 

961,920

 

 

$

240,480

 

 

 

2,210,920

 

$

552,730

 

 

 

 

Three months ended

 

 

Nine months ended

 

Issued to:

 

February 28, 2019

 

 

February 28, 2019

 

Related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patrick Bilton

 

 

560,000

 

 

$

140,000

 

 

 

560,000

 

 

$

140,000

 

Brad Herr

 

 

60,000

 

 

 

15,000

 

 

 

120,000

 

 

 

30,000

 

Total related parties

 

 

620,000

 

 

$

155,000

 

 

 

680,000

 

 

$

170,000

 

Unrelated parties

 

 

271,000

 

 

 

67,750

 

 

 

480,000

 

 

 

120,000

 

Total issued

 

 

891,000

 

 

$

222,750

 

 

 

1,160,000

 

 

$

290,000

 

 

Common stock payable

 

The Company had an aggregate of $100,000 of common stock payable as of February 29, 2020 which is due to Original Ventures, Inc for issuance of patents. This common stock payable will result in the issuance of 400,000 shares of common stock.

 

The Company had an aggregate of $127,125 of common stock payable as of May 31, 2019 that resulted in the issuance of 508,500 shares of common stock in the nine-months ended February 28, 2019. Of the total, $75,000 (300,000 shares) were issued to related parties.  See Note 3.

 

Shares issued to non-related parties in the three and nine-month periods ended February 29, 2020 and February 28, 2019 were issued for services performed or assets acquired during the periods. Share based compensation expense is recognized on non-employee awards or asset acquisitions on the dates granted and based upon management’s estimate of fair value of the securities issued. The Company estimated the fair value of the common stock to be $0.25 per share at the times of issuance.

 

NOTE 7 – REVENUE

 

The Company’s product revenue has been generated exclusively though sales of its debudder products. The Company’s customers, to which trade credit terms are extended, consist of foreign and domestic companies.  

 

For the three and nine-month periods ended February 29, 2020, total sales were $30,003 and $118,094, respectively. International sales accounted for -0- and $1,700 during the three and nine-month periods ended February 29, 2020, respectively. 

 

FS-13

 

 

MJ HARVEST, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Shipments to one customer during the three and nine-month periods ended February 29, 2020 totaled $8,397 and $44,197, respectively, during those periods.  As of February 29, 2020, there were no accounts receivable from this customer.

 

For the three and nine-month periods ended February 28, 2019, total sales were $31,584 and $67,298, respectively. International sales were $19,781 and $19,781, respectively. 

 

In the three and nine-month periods ended February 28, 2019, domestic sales of $4,430 and $39,066, respectively, were through one distributor. When the Company acquired the remainder of G4 in December 2018, the Company ended the distributor relationship with this distributor and began servicing all domestic sales, including sales to distributors, internally.

 

NOTE 8 – SUBSEQUENT EVENTS

 

Weed Farm Supply. On March 8, 2020, the Company acquired distribution rights and several domain names, including www.weedfarmsupply.com, and became a distributor of a number of products and product lines primarily used in the cultivation of hemp and marijuana which were previously supported by Elevated Ag Solutions, Inc. (“Elevated”). The Company now operates the www.weedfarmsupply.com website through its wholly owned subsidiary, Agro Exports LLC.  The domain names and distribution rights were acquired from Elevated for 1,400,000 shares of common stock. The acquisition from Elevated includes certain earn-out and stock price adjustment provisions

 

FS-14

 

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