Dated January 9, 2020

 

PROSPECTUS

 

2,660,606 shares of common stock

 

 

 

 

MJ HARVEST, INC.

 

This prospectus relates to the resale of Common Shares which were issued by MJ HARVEST, INC., a Nevada corporation (“we” or the “Company”) in previous private placement transactions, by the selling security holders named herein under “Selling Shareholders.” We will not receive any proceeds from the resale of these Common Shares.

 

The Selling Shareholders may offer all or part of the shares for resale from time to time through public or private transactions, at prevailing market prices or privately negotiated prices.

 

Our Common Shares are quoted on OTC Market’s “OTCQB” tier under the ticker symbol “MJHI.”

 

We are an “emerging growth company” under federal securities laws and will be subject to reduced public company reporting requirements. Investing in the common stock involves risks. MJ HARVEST, INC., currently has limited operations, limited income, and limited assets, is in unsound financial condition, and you should not invest unless you can afford to lose your entire investment. See “Risk Factors” beginning on page 6.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is January 9, 2020

 

 
 

YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THESE SHARES OF THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.

 

 

MJ HARVEST, INC.

 

2,660,606 SHARES

January 9, 2020

 

 

TABLE OF CONTENTS  
  Page
Prospectus Summary 3
Corporate Information 4
Summary of the Offering 5
Risk Factors 6
Note About Forward Looking Statements 11
Use of Proceeds 12
Selling Security Holders 13
Plan of Distribution 17
Description of Securities 18
Interests of Experts and Counsel 18
Description of Business 18
Organization Within Last Five Years 21
Description of Property 22
Legal Proceedings 22
Market Price of Common Equity 22
Management’s Discussion and Analysis 23
Disclosures About Market Risk 31
Directors and Executive Officers 31
Executive Compensation 32
Security Ownership 33
Certain Transactions 34
Available Information 35
Experts 35
Index to Financial Statements F-1

 

Until April 8, 2020, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 
 

 

PROSPECTUS SUMMARY

 

You should read the following summary together with the more detailed information and the financial statements appearing elsewhere in this Prospectus. Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” or the “Registrant” refer to MJ HARVEST, INC., a Nevada corporation.

 

MJ HARVEST, INC.

 

The Company acquires, develops and markets products and technologies that benefit customers engaged in agriculture and horticulture. Currently, the Company has acquired the intellecutal property and rights to manufacture and sell 5-gallon and 20-liter debudder bucket lids used in harvesting buds from plants, including hemp and cannabis, and a straight edge debudder for mounting on flat surfaces. The debudder products are branded under the name “Original 420.” The debudder lid products are patent pending.

 

The Company is now reviewing a number of other products, opportunities and technologies that align well with the Original 420 Brand Debudder Lid. Efforts are underway to acquire additional products and technologies, build marketing capabilities and distribution channels for hemp and cannabis industry related products. The Company started ramping sales up late in 2018 and this effort will continue in 2019. In this regard, the Company recently entered into an agreement with several international distributors to distribute the Debudder products in Europe, South America, North America, and Australia. Each distributor selected is a significant wholesaler of agricultural and/or horticultural products and services in their respective markets. We are establishing distributors to serve as regional hubs for sub-distributors and direct to consumer sales with product on hand for rapid shipment.

 

The Company also launched www.ProCannaGro.com, the Company’s website for product distribution and sales in the United States, Europe, Australia and South America. The Company also recently launched www.ProCannaGor.ca for sales and product distribution in Canada. The ProCannaGro websites will serve as the portals for the expanding product offerings envisioned by the Company. The websites, and others to be added later for Mexico and other global regions, will serve as the platform for direct to consumer marketing of the world’s best harvest and cultivation tools worldwide. The Company will fill orders through authorized distributors and local shops where our customers are located.

 

Strategy: The Company’s strategy is twofold. We seek small independent inventors and operators that have interesting and viable products and we acquire a controlling interest in those products. The initial product line (the debudder product) was acquired late in 2017 and is now being sold to an international customer list. Sales are expected to ramp up in calendar year 2019 through the addition of products and services that complement our existing product line. Management expects that we will be able to continue this growth over the next three years as we build our product offerings. No assurances can be provided that the Company will be able to continue adding products and services over this timeline and if additional products and services are not added, our growth may be less than anticipated. Management anticipates that acquisitions, if any, will be structured to provide the Company with a controlling interest in the product or technology acquired while leaving the inventor or operator with a significant financial stake in the success of the product or technology. We anticipate that each acquisition will be structured to be accretive to revenue and earnings on a consolidated basis, but no assurances can be given that any acquisition will deliver the expected results. We also offer distribution to existing independent inventors and operators that already have viable products with early stage traction in our markets, who are looking to expand sales, grow their brand, and/or reach new international markets. Through these distribution arrangements, we are able to build our product portfolio, attract additional customers and build the ProCannaGro brand.

 

Applying this model to a wide range of agricultural products will allow the combined business to achieve economies of scale and efficiencies unavailable to the small inventor/operator. Procannagro.com will enable our customers to obtain access to a wide range of products in a one-stop shopping experience. Additional economies of scale will come from available accounting, human resources, marketing, and sales skill sets that will be highly evolved inside of the MJ Harvest business framework

 

Currently, we do not have the money or funding to achieve the above goals and we will not be able to achieve our goals unless we are successful in obtaining additional funding, likely through sales of our securities, all which may serve to dilute the ownership position of our current and future shareholders.

  3  

 

Corporate Information

 

We were originally incorporated under the name Healthguard International Marketing Corp., in the State of Nevada on August 15, 2002. During 2002, Ryozanpaku International Ltd.’s (A Japanese Gaming Company) board of directors acquired voting control over Healthguard International Marketing Corp and renamed the Company Ryozanpaku International Inc. for the primary purpose of acquiring and developing gaming properties in northern California. The Company never achieved its gaming objectives and was later taken into receivership by the shareholders to gain management control from Ryozanpaku International Ltd.

 

On September 20, 2011, the Company made a complete change of its board of directors along with a change in control of the Company by issuing a new control block of common shares with the approval of the court appointed custodian. On October 24, 2011, the shareholders approved the name change to EM Energy, Inc. (“EM” or the “Company”), along with a 1 for 10 reverse split in the outstanding common stock of the Company and at that time, refocused its operations from gaming towards opportunities in the energy field within the United States and other potential business plans of operation.

 

In late 2017, the Company pivoted its operations from energy to product marketing and sales with a focus on the agricultural industry. The Company acquired a 51% interest in G4 Products LLC on November 17, 2017 and has commenced sales of the Debudder product line marketed under the Original 420 Brand and used in the cannabis harvest process.

 

In September 2018, the Company filed a Notification of Change with FINRA regarding a name change of EM Energy, Inc. to MJ Harvest, Inc. and a corresponding request to change the stock symbol of the Company to MJHI. The Company filed amended and restated articles of incorporation with the Nevada Secretary of State to reflect the change on September 28, 2018.The Notification of Change became effective with FINRA on October 1, 2018 and the stock began trading under the new symbol MJHI in the OTC Pink Market on October 2, 2018. For consistency in reporting, the Company is using the name MJ Harvest, Inc. for all purposes, including the preparation of these financial statements even though the name change did not become effective until after the end of the quarter ended August 31, 2018.

 

These changes were effected in order to make our corporate name and ticker symbol better align with our short-term and long-term business focus, which in the short-term is to build a portfolio of products that are useful to farmers and horticulturists in growing a range of products, including hemp and cannabis. In this process, we hope to position the company to take advantage of the growing popularity of the hemp, CBD, and cannabis space.

 

Our corporate offices are located at 9205 W. Russell Rd., Suite 240, Las Vegas, NV 89139, telephone number 954-519-3115.

 

Our website is located at www.mjharvestincinc.com. Information contained on or accessible through our website is not, and should not be considered, part of, or incorporated by reference into, this prospectus.

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. This election is irrevocable.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

 

  4  

 

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to emerging growth company will have the meaning associated with it in the JOBS Act.

 

SUMMARY OF THE OFFERING

 

Common Shares offered by Selling Security Holders 2,660,606 Common Shares
Common Shares outstanding before offering 20,007,739 Common Shares as of the date hereof.
Common Shares outstanding after offering 20,007,739 Common Shares.
Use of proceeds We will not receive any proceeds from the sale of shares by the
  Selling Security Holders.
OTC Markets Trading Symbol MJHI  
Risk Factors The Common Shares offered hereby involve a high degree of risk
  and should not be purchased by investors who cannot afford the loss
  of their entire investment. See “Risk Factors”.

 

SUMMARY FINANCIAL INFORMATION

 

The tables and information below are derived from the Company's audited consolidated financial statements as of May 31, 2019 and 2018, and the Company’s unaudited consolidated financial statements as of August 31, 2019, and for the three months then ended.

 

Balance Sheet Summary  

August 31, 2019

(unaudited)

  May 31, 2019   May 31, 2018
             
Cash   $ 11,966     $ 13,592     $ 3,277  
Intangible assets     150,000       150,000       328,137  
Total assets     247,900       250,387       361,101  
Total current liabilities     17,143       15,915       15,668  
                         
Total equity (deficit)     (625,406 )     (432,357 )     163,539  

 

 

Statements of Operations Summary   August 31, 2019 (unaudited)  

August 31, 2018

(unaudited)

  May 31, 2019   May 31, 2018
Revenue   $ 20,960     $ 18,386     $ 72,654     $ 1,520  
Total operating expenses     259,815       149,617       1,004,598       733,489  
Net loss from operations     (281,299 )     (137,490       (956,541 )     (732,305 )
Net loss per common share – basic and diluted     (0.01 )     (0.01 )     (0.05 )     (0.05 )

 

  5  

 

RISK FACTORS

 

We have a limited operating history and historical financial information upon which you may evaluate our performance.

 

You should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages of development. We may not successfully address these risks and uncertainties, we may not successfully build our product portfolio, or we may not successfully ramp up sales of the products in our product portfolio. If we fail in any of these endeavors, it could materially harm our business and impair the value of our common stock. Even if we accomplish these objectives, we may not generate the positive cash flows or profits we anticipate in the future. We were incorporated in the State of Nevada on August 15, 2002. From 2003 until 2013, we were owned and controlled by a group of Japanese investors that initially attempted to develop a Japanese gaming opportunity and later allowed the company to become dormant. In 2013, a group of existing shareholders took legal action to oust the Japanese group and reorganized the company as an energy exploration company, with limited results. In 2017, the Company reorganized again, and the Board of Directors adopted the present business plan of building a portfolio of agricultural and horticultural products and to date, has not generated significant sales revenues or operating cash flows. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business and developing new products. These include, but are not limited to, inadequate funding, unforeseen transactional issues in acquiring products, lack of consumer acceptance, competition, additional product development, and inadequate sales and marketing. The failure by us to meet any of these conditions will have a materially adverse effect upon us and may force us to reduce or curtail operations. No assurance can be given that we can or will ever operate profitably.

 

We may not be able to meet our future capital needs.

 

To date, we have not generated any significant revenue and we have limited cash liquidity and capital resources. Our future capital requirements will depend on many factors, including the progress and results of our efforts to build our product portfolio, our ability to develop and market products, cash flow from operations, and competing market developments. We will need additional capital in the near future. Any equity financings will result in dilution to our then-existing stockholders. Although we currently do not have any debt financing, any sources of debt financing in the future may result in a high interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we will be required to reduce or curtail operations.

 

If we cannot obtain additional funding, our product development efforts may be reduced or discontinued, and we may not be able to continue operations.

 

We have historically experienced negative cash flows from operations since our inception and we expect the negative cash flows from operations to continue for the foreseeable future. Unless and until we are able to generate revenues, we expect such losses to continue for the foreseeable future. As discussed in our financial statements, there exists substantial doubt regarding our ability to continue as a going concern.

 

Research and development efforts are highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise additional capital to support our future operations through one or more methods, including but not limited to, issuing additional equity or debt.

 

In addition, we may also raise additional capital through additional equity offerings. While we will continue to explore these potential opportunities, there can be no assurances that we will be successful in raising sufficient capital on terms acceptable to us, or at all. Based on our current projections, we believe we have insufficient cash on hand to meet our obligations as they become due based on current assumptions. The uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern.

 

Any disruption and/or instability in economic conditions and capital markets could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.

 

Economic conditions and issues with the financial markets have had, and will continue to have, a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity. The shortage of liquidity and credit combined with the substantial losses in worldwide equity markets could lead to an extended worldwide recession. We may face significant challenges if conditions in the capital markets do not improve. Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future disruptions or how long the current conditions may continue.

  6  

 

 

Tariffs imposed on products imported from China may affect our business.

 

The Company currently purchases its Debudder product line through a Chinese Supplier. The molds for the products were fabricated by the Chinese Supplier and may not be available for transfer to another manufacturer outside of China. The United States currently imposes tariffs on goods imported from China. These tariffs may have a negative impact on our ability to sell the Debudder products to customers located in the United States, but the impact cannot be determined at this time. The Company currently has sufficient inventory to meet demand at current run rates for approximately two years, and no orders have been placed or are expected to be placed for the next six months. We also have inventory at stocking distributors or fulfillment centers in Canada, Mexico, Spain, Australia, and Chile and product sent from China to those locations avoid the tariffs imposed by China. We have evaluated alternative manufacturing centers but have not yet taken any action to change our source of supply. If sales of the Debudder products increases and we place additional orders with our source in China, we may be forced to raise our prices to account for the tariffs and this may impact sales of our products.

 

Our sales in prior periods were highly concentrated in two distributors.

 

In the period ended August 31, 2019, our business in the Debudder product line was concentrated with 70% of our sales going to one distributor.

 

In the event our business remains concentrated in a small number of customers, our business will be subject to additional risk were one or more of those customers to find alternative sources for similar products, or if they were to simply stop selling our products, or if they were to use the concentration as leverage for a price reduction or other concenssions. The Company intends to utilize distributors with diverse customer lists to avoid becoming dependent on a single distributor. No assurances can be given that we will succeed in this effort and reliance on a small group of customers for a large percentage of our sales could adversely affect our results.

 

Our proposed business is at least partially dependent on laws pertaining to the cannabis industry.

 

Continued development of the cannabis industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress for the industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our business.

 

As of the end of January 2019, 33 states and the District of Columbia allow its citizens to use medical marijuana and 10 states have passed legislation legalizing recreational use of marijuana. These state laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The prior administration (President Obama) effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, the Trump administration has indicated the potential for stricter enforcement of the marijuana industry at the federal level, but to date there has been very little in terms of action. There is no guarantee that the Trump administration or future administrations will maintain the low-priority enforcement of federal laws in the marijuana industry that was adopted by the Obama administration. The Trump administration or any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to our business and our shareholders.

 

Further, and while we do not intend to harvest, distribute or sell cannabis, if we sell products, including our DeBudder product line to growers of cannabis, we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our properties could be subject to civil forfeiture proceedings.

  7  

 

 

The cannabis industry faces strong opposition.

 

It is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant revenue. For example, medical cannabis will likely adversely impact the existing market for the current “marijuana pill” sold by mainstream pharmaceutical companies. Further, the medical cannabis industry could face a material threat from the pharmaceutical industry, should cannabis displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical industry could make in halting or impeding the cannabis industry could have a detrimental impact on our proposed business.

 

Cannabis remains illegal under Federal law.

 

Cannabis is a schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of cannabis has been legalized, its production and use remains a violation of federal law. Since federal law criminalizing the use of cannabis preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan.

 

Laws and regulations affecting the medical cannabis industry are constantly changing, which could detrimentally affect our proposed operations.

 

Local, state and federal medical cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

 

If we are unable to recruit and retain qualified personnel, our business could be harmed.

 

Our growth and success is highly depend on our ability to attract and retain qualified personnel. Competition in the industry could cause us difficulty in recruiting or retaining a sufficient number of qualified technical personnel, which could harm our ability to develop new products. Also, the fact cannabis remains illegal at the federal level may dissuade qualified personnel from working in the cannabis industry, thus limiting the pool of qualified individuals to run our business. If we are unable to attract and retain necessary key talents, it would harm our ability to develop competitive product and retain good customers and could adversely affect our business and operating results.

 

Ownership of the Company is highly concentrated in the hands of the officers and directors.

 

The current officers and directors of the Company control 63.77% of the Company’s outstanding common stock. If all shares registered to the officers and directors pursuant to this offering are sold, the officers and directors will then own 57.53% of the Company’s outstanding common stock. As a result, non-controlling shareholders may have little voice in the approval or disapproval of corporate actions requiring shareholder approval including the election of directors.

 

Our officers and directors have other business activities that may conflict with the activities of the Company.

 

The officers and directors of the Company are engaged in activities outside of the business of the Company. Such outside business activities could create conflicts of interest between the Company and the director(s) and/or another business in which the director(s) has an interest. The Company has notified each board member and officer of their fiduciary duty to the Company. Each officer and director have confirmed that they will keep the Board informed of their outside activities and will notify the Board of the existence of a conflict before taking action to pursue the activity giving rise to the conflict. The Board has also drafted a Code of Conduct. The Code of Conduct is expected to be adopted prior to registering the Company’s shares under the Exchange Act.

 

  8  

 

Messrs. Bilton and Herr spend approximately one-third of their time on the business of the Company. Messrs. Cornwall and Tobias spend approximately eight hours per month preparing for and attending directors’ meetings, and performing such other work as required. As the Company’s business demands increase, it is expected that the time commitment from Messrs. Bilton and Herr will increase accordingly.

 

We may be unable to adequately protect our proprietary rights.

 

Our ability to compete partly depends on the superiority, uniqueness and value of our intellectual property. To protect our proprietary rights, we will rely on a combination of patent, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:

 

● Our applications for patents relating to our business may not be granted and, if granted, may be challenged or invalidated;

 

● Issued patents may not provide us with any competitive advantages;

 

● Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;

 

● Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we develop;

 

● Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products; or

 

● The fact cannabis is illegal at the federal level may impact our ability to secure patents from the United States Patent and Trademark Office, and other intellectual property protections may not be available to us.

 

We may become involved in lawsuits to protect or enforce our patents that would be expensive and time consuming.

 

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties. In addition, we may become subject to interference or opposition proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions. The defense of intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities. An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being issued.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this kind of litigation, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. This disclosure could have a material adverse effect on our business and our financial results.

 

The Selling Shareholders may sell their shares of common stock in the open market, which may cause our stock price to decline.

 

The Selling Shareholders may sell the shares of common stock being registered in this offering in the public market. That means that up to 2,660,606 shares of common stock, the number of shares being registered in this offering, may be sold in the public market. Such sales will likely cause our stock price to decline.

 

Sale of our common stock by the Selling Shareholders could encourage short sales by third parties, which could contribute to the further decline of our stock price.

 

The significant downward pressure on the price of our common stock caused by the sale of material amounts of common stock could encourage short sales by third parties. Such an event could place further downward pressure on the price of our common stock.

 

  9  

 

Our common stock has been thinly traded and we cannot predict the extent to which a trading market will develop.

 

Our common stock is traded on the OTC Markets’ “Pink Current Information” tier. Our common stock is thinly traded compared to larger more widely known companies. Thinly traded common stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for our common stock will develop or be sustained after this offering.

 

We plan to register our shares of Common Stock under the Securities Exchange Act of 1934, as amended.

 

The Company intends to register its shares of Common Stock under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. If the Company is not successful in completing the Exchange Act Registration, the Company would be subject to ongoing reporting under Section 15(d) of the Exchange Act and Section 15(d) reporting obligations may be automatically suspended in the event the company files a Form 15 in a fiscal year beginning after May 31, 2020 provided the Company then has less than 300 shareholders or less than 500 shareholders and less than $10 million in assets for the prior three years, in which case, current information may no longer be available to shareholders. In addition, the ability of shareholders to sell the Company’s securities in the public markets may be more limited if the Company does not continue to file reports under the Exchange Act reporting requirements. While management has every intention of registering our shares under the Exchange Act, no assurances can be given that such registration process will be completed.

 

We are an “emerging growth company” and “smaller reporting company” within the meaning of the Securities Act and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our securities less attractive to investors.

 

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A common stock held by non-affiliates exceeds $700 million as of any November 30 before that time, in which case we would no longer be an emerging growth company as of the following May 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Additionally, we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates exceeds $250 million as of the prior November 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our shares held by non-affiliates exceeds $700 million as of the prior November 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

  10  

 

Our Bylaws provide for an exclusive forum for certain litigation.

 

Our Bylaws provide that the exclusive jurisdiction for derivative actions and certain other litigation will be the state and federal courts of Clark County Nevada. The Board of Directors have specifically resolved that this forum provision will not apply to actions brought under the Securities Act or the Exchange Act and have attached an amendment to the Bylaws to this effect. Exclusive jurisdiction in the courts of Clark County, Nevada on other matters that may be brought by shareholders may have the effect of increasing the cost of such litigation to be borne by the plaintiff, and the laws of Nevada may be more favorable to the Company than if the litigation was brought in another forum.

 

Because we are subject to the “penny stock” rules, the level of trading activity in our stock may be reduced.

 

Our common stock is traded on the OTC Markets’ “Pink Current Information” tier. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks, like shares of our common stock, generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this prospectus may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:

 

• our expectations around the performance of our business or businesses;

 

• our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business;

 

• our potential ability to obtain additional financing to pursue our business plan;

 

• our pool of prospective target products and business acquisition candidates;

 

• the ability of our officers and directors to develop a profitable business in accordance with our business plan;

 

• our public securities’ potential liquidity and trading;

 

• the lack of a market for our securities; or

 

• our financial performance following this offering.

  11  

 

 

The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section of this prospectus entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

USE OF PROCEEDS

 

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Shareholders. We will not receive any proceeds from the sale of shares of common stock in this offering.

 

  12  

 

SELLING SHAREHOLDERS

 

The Selling Shareholders may offer from time to time up to an aggregate of 2,614,413 shares of our Common Stock.

 

Except as otherwise provided, the following table sets forth certain information with respect to the beneficial ownership of our common stock including the names of the Selling Shareholders, the number of shares of our Common Stock owned beneficially by the Selling Shareholders as of December 2, 2019, the number of shares of Common Stock being offered by each selling stockholder hereby, and the number and percentage of shares of Common Stock that will be owned by each selling stockholder following the completion of this offering. Total outstanding shares for purposes of computing the percentages in the table was 20,007,739.

 

SELLING SHAREHOLDER TABLE 

 

Shareholder Note Shares of Common Shares of Common Shares of Common Percent of
    Stock Owned Prior Stock to be Offered Stock to be owned Common Stock
    to the Offering for the Selling by the Selling to be Owned
      Shareholder's Shareholder After by the Selling
      Account the Offering Shareholder
          After the
          Offering
4 POINT LAKE LLC 1 11,820 11,820 - 0.00%
AJZ ASSOCIATES LLC 2 1,540 1,540 - 0.00%
MICHAEL AJZENMAN   100,000 30,000 70,000 0.35%
ROBIN AMES   330 330 - 0.00%
MONTE ANDERSON   4 4 - 0.00%
GEOFFREY BAILE   150 150 - 0.00%
COLIN BASTON   210 210 - 0.00%
ALFRED BEESLEY   600 600 - 0.00%
RAYMOND E BEHM   23 23 - 0.00%
BURDETTE J BERNTSON   100 100 - 0.00%
CRYSTAL G BERNTSON   100 100 - 0.00%
JIM BERRY   2 2 - 0.00%
PATRICK BILTON 3 2,706,400 270,640 2,435,760 12.17%
SALON LLC 3 500,000 30,000 470,000 2.35%
SAMANTHA BILTON 3 50,000 30,000 20,000 0.10%
SAWYER BILTON 3 50,000 30,000 20,000 0.10%
SHAWNA BILTON 3 50,000 30,000 20,000 0.10%
TONY BRANDLIN   20,000 20,000 - 0.00%
JOHN E BRENNAN   180,000 30,000 150,000 0.75%
NICK BUNICK   16 16 - 0.00%
ALAN BUTCHER   1,000 1,000 - 0.00%
CADUCEUS PARTNERS LLC 4 20,635 20,635 - 0.00%
CAN-AM ROOFING (1993) LTD 5 12,288 12,288 - 0.00%
JOANNE D CASE   100 100 - 0.00%
ROY CONSTABLE   100 100 - 0.00%
JERRY CORNWELL 6 3,530,244 353,024 3,177,220 15.88%
RONALD CROKE   130 130 - 0.00%
ROBERT G CROMPTON   47 47 - 0.00%
JUDY DASILVA   94,000 30,000 64,000 0.32%
JANET DAVIES   200 200 - 0.00%
RICHARD DAVIS   150,000 30,000 120,000 0.60%
ROBERT J DAVIS   1 1 - 0.00%
TERRY DUNNE   200,000 30,000 170,000 0.85%

 

  13  

 

EMERALD ROYALTY, INC 7 55,000 30,000 25,000 0.12%
EMPEROR GOLD CORP 8 6 6 - 0.00%
RICK FILLMAN   50,000 30,000 20,000 0.10%
THOMAS E FISH   51 51 - 0.00%
ROBERT FREDERICKSON   1 1 - 0.00%
STEVENS FRINK   4 4 - 0.00%
RONALD E FURROW   250,000 30,000 220,000 1.10%
STAN GABELEIN   4 4 - 0.00%
GARCOR REALTY 9 4 4 - 0.00%
LOIS L GARDINER   2 2 - 0.00%
LESTER E GOETZKE   100 100 - 0.00%
P E GOODWIN   18 18 - 0.00%
TOM VAN HALM   19 19 - 0.00%
MICHAEL HAMM   1 1 - 0.00%
JOHN HATFIELD   14 14 - 0.00%
ROGER HAWKEN   130 130 - 0.00%
JAMES HILL   400 400 - 0.00%
MARCOS JOHNSON   15,548 15,548 - 0.00%
ERICKA J JOHNSTON   35,000 30,000 5,000 0.02%
ALAN JONES   150 150 - 0.00%
HARMESH JUTLE   100 100 - 0.00%
JAMES H KEIM   6 6 - 0.00%
ROBERT O KNUTSON   41 41 - 0.00%
FRANK A LANG   105 105 - 0.00%
KARL LARSON   50,000 30,000 20,000 0.10%
BREANNE LEITHMANN   81,000 30,000 51,000 0.25%
PETER LIND   3 3 - 0.00%
LARRY L LINDSTROM   6 6 - 0.00%
ROBERT M LINSMAYER   5 5 - 0.00%
LANDON LONG   30,000 30,000 - 0.00%
LR EXECUTIVE & BUSINESS 10 352,000 35,200 316,800 1.61%
COACHING CONSULTING, INC.          
M2K, LLC 11 750,000 75,000 675,000 3.37%
MARKET SOLUTIONS LLC 12 184,000 30,000 154,000 0.77%
STUART MARSHALL   420 420 - 0.00%
DARYL MATTHEWS   50,000 30,000 20,000 0.10%
JONATHAN M MCGEE   1,150,000 115,000 1,035,000 5.17%
WILLIAM F MCNAGNY   1 1 - 0.00%
JACK G MCNALL   3 3 - 0.00%
BRAD J MCNAUGHT   100 100 - 0.00%
KAREN G MCNAUGHT   100 100 - 0.00%
RICHARD MORRIS   2,100 2,100 - 0.00%
NEXIT INC 13 300,000 30,000 270,000 1.35%
ORIGINAL VENTURES INC 14 564,452 56,445 508,007 2.61%
JOANNE PATTERSON   100 100 - 0.00%

 

  14  

 

JENNIFER PHELPS   100 100 - 0.00%
MARK PILCHER   180 180 - 0.00%
PUFCREATIVE 15 140,000 30,000 110,000 0.55%
R.A. MACTIRE & COMPANY 16 60,000 30,000 30,000 0.15%
NICK RAINIER   80,000 30,000 50,000 0.25%
ROBERT W RALEIGH JR   52,000 30,000 22,000 0.11%
BECKY S RICHARDSON   209 209 - 0.00%
STEPHEN ROAKE   29,256 29,256 - 0.00%
HARMESH ROOPRAI   100 100 - 0.00%
CARL SANKO   250,000 25,000 225,000 1.12%
PATRICK E SATY   7 7 - 0.00%
JAMES R SCHELTEMA   280,000 30,000 250,000 1.25%
GERALD W SIMONSON   100 100 - 0.00%
GORDON SMITH   675 675 - 0.00%
RONALD M STARK   30,000 30,000 - 0.00%
GLENN STELTING   33,000 30,000 3,000 0.01%
GORDON STELTING   100,000 30,000 70,000 0.35%
STEVEN WOHLWEND AND ASSOC. 17 1,480 1,480 - 0.00%
DAVID TOBIAS 18 6,222,399 622,239 5,600,160 28.03%
DIANE TOBIASSEN   33,000 30,000 3,000 0.01%
TP ACQUISITIONS, LLC 19 870,000 87,000 783,000 3.91%
TRUST FBO RYAN M. BRENNAN   50,000 30,000 20,000 0.10%
TRUST FBO SARAH BRENNAN   50,000 30,000 20,000 0.10%
BETTY TWEEDDALE   1 1 - 0.00%
VALERIE GOLD RESOURCES LTD 20 6 6 - 0.00%
LOUIS R VASSO   4 4 - 0.00%
LEE JAMES & HELEN C WAGNER   75,000 30,000 45,000 0.22%
ELONE U & E WALTER WEED JTTEN   1 1 - 0.00%
CHARLES WHEELER   1 1 - 0.00%

 

 

1. 4 Point Lake LLC is owned by Dean Kalivas

 

2. AJZ Associates, LLC is owned by Michael Ajzenman

 

3. Patrick Bilton, CEO and a Director of the Company, is the sole owner of Salon, Inc. Samantha, Sawyer, and Shawna Bilton are Patrick’s adult children.

 

4. Of the aggregate shares listed as owned by Jerry Cornwell, 2,446,261 shares are registered in the name of XXX Enterprises LLC, a limited liability company solely owned by Mr. Cornwell. Mr. Cornwell is a Director of the Company.

 

5. Caduceius Partners LLC is owned by Jim Wagner.

 

6. Can-Am Roofing (1993) Ltd., is owned by Brian Bickerton.

 

7. Emerald Royalty, Inc. is owned by R.A. MacTire which is owned by Randy Barsotti.

 

8. Emperor Gold Corp. is owned by the Estate of Frank Lang.

 

9. Garcor Realty is owned by the Estate of James Garland.

 

  15  

 

10. LR Executive & Business Coaching and Consulting, Inc. is wholly owned by Lorena Rosario. Ms. Rosario provides consulting service to the Company.

 

11. M2K LLC is owned by Ann M. Miller.

 

12. Market Solutions, Inc. is wholly owned by Lou Viveros. Mr. Viveros has provided consulting services to the Company in the past.

 

13. The shares registered to Nexit Inc. are controlled by its sole owner, Brad Herr, the Chief Financial Officer of the Company.

 

14. Original Ventures, Inc. is controlled by Wade Atteberry. Mr. Atteberry is the inventor of the Debudder product which was acquired by the Company through the acquisition of G4 Products LLC.

 

15. R.A. MacTire & Company is owned by Randy Barsotti.

 

16. Steven Wohlwend & Associates is owned by Steven Wohlwend.

 

17. David Tobias is a Director of the Company.

 

18. TP Acquisitions LLC is owned by Stephen MacDonald.

 

19. Valerie Gold Resources Ltd. is owned by the Estate of Frank Lang.

 

None of the Selling Shareholders has, or within the past three years has had, any position, office or material relationship with us or any of our predecessors or affiliates, except as follows:

 

· Patrick Bilton is our Chief Executive Officer, Secretary and a Director of the Company.

 

· Jerry Cornwell is a Director of the Company.

 

· Nexit, Inc., is solely owned by Brad E. Herr, our Chief Financial Officer.

 

· David Tobias is a Director of the Company.

 

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PLAN OF DISTRIBUTION

 

We are not offering any of the Selling Shareholders’ securities. The Selling Shareholders may offer all or part of the shares for sale from time to time at prevailing market prices or privately negotiated prices. We will not receive any of the proceeds from any sale by the Selling Shareholders. The Selling Shareholders may sell or distribute their shares in transactions through underwriters, brokers, dealers or agents from time to time or through privately negotiated transactions, including in distributions to shareholders or partners or other persons affiliated with the Selling Shareholders. If a Selling Shareholder enters into an agreement after the date of this prospectus to sell their shares to a broker-dealer as a principal and that broker-dealer is acting as an underwriter, we will file a post-effective amendment to the registration statement containing this prospectus identifying the broker-dealer and disclosing required information on the plan of distribution. Additionally, prior to any involvement of any broker-dealer in the offering, such broker-dealer must seek and obtain clearance of the underwriting compensation and arrangements from the Financial Industry Regulatory Agency.

 

Penny Stock Rules / Section 15(g) of the Exchange Act

 

Our shares may be considered penny stock covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 promulgated thereunder. These Regulations impose additional sales practice requirements on broker/dealers who sell our securities to persons other than established customers and accredited investors who are generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 (including spouse's net worth and may include the fair market value of home furnishings and automobiles, but excluding from the calculation the value any primary residence and the related amount of any indebtedness on primary residence up to the fair market value of the primary residence (any indebtedness that exceeds the fair market value of the primary residence must be deducted from net worth calculation)) or annual income exceeding $200,000 or $300,000 jointly with their spouses.

 

Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny stocks unless the broker/dealer has first provided to the customer a standardized disclosure document.

 

Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny stock transaction unless the broker/dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.

 

Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for a customer unless the broker/dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.

 

Rule 15g-5 requires that a broker/dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the salesperson’s compensation.

 

Rule 15g-6 requires broker/dealers selling penny stocks to provide their customers with monthly account statements.

 

Rule 15g-9 requires broker/dealers to approved the transaction for the customer’s account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination and that it is unlawful to effect the transaction without written authorization for the transaction from the customer.

  17  

 

 

The application of the penny stock rules may affect your ability to resell your shares due to broker-dealer reluctance to undertake the above- described regulatory burdens.

 

DESCRIPTION OF SECURITIES

 

Our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par value $0.0001. As of December 2, 2019, there are 20,007,739 shares of our common stock issued and outstanding, held by approximately 114 shareholders of record. There are no shares of our preferred stock outstanding as of the date of this filing.

 

Common Stock. Each shareholder of our common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our common stock are entitled to receive dividends when and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common stock. Holders of shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.

 

 

Dividend Policy. We have never issued any dividends and do not expect to pay any stock dividend or any cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared on our common stock in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.

 

Preferred Stock. We are authorized to issue 5,000,000 shares of preferred stock, par value $0.0001. We have not issued, nor established any series for, any of our preferred stock. Our preferred stock is “blank check preferred” whereby our Board of Directors may create a series of preferred stock and set the rights and preferences of such preferred stock, without further shareholder approval. The availability or issuance of preferred shares in the future could delay, defer, discourage or prevent a change in control.

 

DESCRIPTION OF BUSINESS

 

General

 

We are a development stage company currently focused on the building a portfolio of best in class products that can benefit farmers and hobbyists in their growing operations. Our first product line consists of the DeBudder Lids and EDGE. The Debudder is used to strip buds off of stems for a variety of plants, including hemp and cannabis. We are also building an international network of distributors that can service our customers with rapid deliveries of products stocked in country. Currently, we are actively seeking additional products to expand our portfolio and are adding international distributors as we find them. Our website is www.mjharvestincinc.com, and we market our products through our branded distribution website at www.procannagro.com.

 

In the short-term, management is focused on adding additional products to our product offerings through distribution agreements, licensing, and acquisition. We are primarily focused on agricultural implements, durable goods, and services that will benefit smaller growers of hemp and cannabis by making their growing operations more efficient. We are actively seeking access to new products through attendance at trade shows and industry events, word-of-mouth, cold calling when we learn of interesting new technologies, and referrals from our distributors and associates in the industry. While our current focus in on agricultural tools, soil additives, growing methods, and optimization techniques, we have also explored the potential for consumer products that are produced by the growers or third-party processors from the crops grown using our tools. We believe that there is an opportunity to build an affinity and level of trust with our customers and then expand that relationship into distribution of consumer products containing CBD (cannabidiol) oil, including balms, salves, oils, tinctures, and similar products. With the uncertainties surrounding the cannabis industry and limitations on products derived from Cannabis or containing THC, our focus will remain on CBD products derived from Hemp until such time as the legal status of cannabis is addressed at the federal level. In the meantime, we believe there are adequate product opportunities outside of the cannabis space that can be evaluated and licensed, acquired or distributed effectively and profitably through our existing web site and distribution network.

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In the long-term, we intend to expand our focus beyond the hemp and cannabis agricultural product marketing niche to include hemp growing operations in Florida, a research laboratory, and an extraction processing operation. The timing for development of these expanded operations will depend on availability of cash flow. Management believes that our customer base for agricultural products will be actively engaged in growing operations and will need services to identify optimum strains of plants to obtain commercially acceptable qualities and yield of CBD oils for the diverse geographic locations in which we intend to sell our products. In addition, once the crops are grown, the Company expects that our customers will also need access to CBD extraction facilities to process the plants into the derivative elements that will be incorporated into the consumer products that the market demands. These needs by our customer base provide an opportunity to grow by providing our customers with more of what they need to generate revenues from their growing activities. If we can build our relationships with our tool and implement customers, and then expand to offer services and research on plants, resistance to insects by regions, which soil additives produce the best yields and other similar science-market based data, our existing customers will provide a ready base of demand for the new services and capabilities. Management believes that this will result in a lower cost of obtaining new customers for the new services and will give us a competitive advantage against companies offering only one or a small number of the capabilities, services and products we will offer.

 

Business Concentration.

 

In the period ended May 31, 2019, our business in the Debudder product line was concentrated with 80% of our sales going to two distributors. One is our subsidiary company AgroExports LLC, and the other is Original Ventures, Inc., a company owned by the inventor of the Debudder product line. We originally created a two-party master distribution structure when Original Ventures held the exclusive rights to distribute the Debudder products in the United States. We subsequently acquired the minority interest of G-4, and at the time of the acquisition of the remaining interest in G-4 from Original Ventures, Inc., we modified the arrangement so that all sales of Debudder Products are through AgroExports. Accordingly, the high concentration of customers described at May 31, 2019 is no longer applicable. At this time, our wholly owned subsidiary G4 holds our inventory and sell at distributor pricing to our wholly owned subsidiary AgroExports. AgroExports then sells the products to our distributors and end-users through our on-line presence. Currently, no single customer accounts for more than 20% of our sales.

 

Competition

 

At this point in our development, we believe our competitors are those companies that are acting as product aggregators and distributors of products similar to ours. To date, the hemp industry (primarily relating to CBD oils) and the cannabis industry, have been fragmented and chaotic with large numbers of small and medium sized companies attempting to develop products and then working to gain a toehold in the burgeoning market for those products. Products are currently offered on Amazon, E-Bay, and company specific web sites and the competition for consumer attention is extreme. A few larger companies have reached critical mass in terms of brand awareness and market reach, but these companies are focused on selling consumer-oriented products which utilize the CBD oils and other elements of the hemp and cannabis crops.

 

The direct competition for distribution of the “picks and shovels” needed by the small growers is significantly less congested. There are some retail offshoots from brick and mortar businesses like hydroponics shops that offer a range of tools and implements similar to the Company’s product offerings, and these businesses are likely to compete directly with the Company’s offerings. To date we are not aware of any large nationally recognized distributors of like products and we are attempting to position ourselves as a player at the national level. There are significant hurdles to accomplishing this objective, most significantly, availability of capital to build and maintain the online information needed for a comprehensive “one-stop-shop” offering. If we are unable to find the necessary capital to build our product lines and our online presence, we are likely to face increasing competition as other players enter the market. This could have a negative impact on our ability to grow our revenues and compete effectively in the future.

 

 

  19  

 

Competitive Advantages

 

We believe our competitive advantage is derived from our ability to pursue opportunities when and where we find them without getting bogged down in the bureaucracy that a larger and more diverse business might face. As a small publicly traded company, we are able to move quickly, rapidly negotiate and document licensing and distribution agreements, and when appropriate, acquisitions. Now that the registration statement containing this prospectus is effective, we expect that a more active trading market will develop for our shares and that will further enhance our ability to offer shares as part of the consideration package we can propose to the companies controlling attractive technologies, products and capabilities. We believe a more active trading market will develop based on the increased pool of available free trading shares, the fact that we will then be a reporting company under Section 15(d) of the Exchange Act, and the fact that our shareholders may be better able to set up accounts at brokerage houses due to the availability of the Prospectus and the information contained therein. No assurances can be given that such an active market will actually develop, or that the price of our shares in the market will be maintained at any specific price level. If no market develops or the price of our shares in the market is not attractive, our ability to raise additional funds at acceptable prices and our ability to utilize stock for future acquisitions may be negatively impacted and our ability to execute our business plan could be affected.

 

Marketing

 

Currently, we market our business primarily through attendance at trade shows and keeping a very close eye on developments in the hemp and cannabis industries. When we identify an interesting prospect, our CEP reaches out personally to the management team of the prospect to see if there is a basis for furthering discussions. Our management team also has a long history in the industry and large networks of contacts that can provide word of mouth connections to other interesting prospects. Collectively, we believe we will be able to capitalize on these various connections to build a dynamic and broad-based business selling agricultural and horticultural tools and implements to our customers in the hemp and cannabis space. In the longer term, we intend to pay close attention to other needs of our customers and to meet those needs at the appropriate time with new offerings of products and services, including sales of hemp plant clones and CBD oil extraction services. If we can help our customers succeed and grow, the market for our products will continue to expand.

 

Manufacturing

 

We are not currently manufacturing any products in our own facilities. We rely on third party manufacturers for our production runs, and currently have relationships with third party companies for the manufacturing our products, primarily with Chinese companies. We are monitoring the China tariff situation closely and will take appropriate steps to find new contract manufacturing capabilities in other countries should the China tariffs cause a significant impact on our business. The molds used to manufacture our products were built by Eco Molding Co., Limited in Guandong, China. We do not currently have any outstanding contracts with Eco Molding for production of our product and have historically operated on the basis of purchase orders. Our last order for product was for 10,000 units of the Debudder Edge product and as of September 26, 2019, Eco Molding was holding 7,956 units pending our shipping instructions. We intend to ship the remaining product held by Eco Molding to the locations where product demand can be filled at lowest cost. When inventory levels reach the reorder point, we intend to place additional purchase orders with Eco Molding.

 

Intellectual Property

 

Currently, we have two design patents, and several foreign patents covering our debudder products. The United States Patent and Trademark Office (“USPTO”) issued our patents on October 8, 2019. Design Patent D862180 covers the original Debudder Bucket Lid, and Design Patent D862281 covers the Debudder Edge. Our business strategy will continue to focus on intellectual property protections when appropriate. As we research additional products to include in our product catalogue, we include an analysis of the level of protection that is available for such product as an element of our decision to pursue licensing or distribution of that product. Our preference is to license or distribute products that have intellectual property protections, either because of patent pending or patented status, or as a result of trade secrets.

 

Government Regulation

 

We do not intend to harvest, distribute or sell plant-based hemp or cannabis products unless or until they are legalized at the state and federal levels. Our current business model involves sales of tools and implements that are used in agricultural and horticultural applications for growing a variety of plants, including cannabis. If we knowingly sell our products to a cannabis grower, we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our properties could be subject to civil forfeiture proceedings.

  20  

 

 

As of August 2019, growing and processing hemp has been legalized at the federal level and at least six states have adopted regulations relating to the hemp industry, and at least 47 states have enacted legislation to establish industrial hemp cultivation and production programs. Thirty-three states and the District of Columbia allow its citizens to use medical marijuana. Voters in 10 additional states and the District of Columbia have legalized cannabis for adult recreational use. Other states are considering legalization, either for medical use or for both medical and recreational use. The state laws legalizing marijuana use are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The prior administration (President Obama) effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, the Trump administration has indicated the potential for stricter enforcement of the marijuana industry at the federal level, but to date there has been very little in terms of action. There is no guarantee that the Trump administration or future administrations will maintain the low-priority enforcement of federal laws in the marijuana industry that was adopted by the Obama administration. The Trump administration or any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to our business and our shareholders.

 

We are not aware of other specific Governmental Regulations that impact our business. We do, however, utilize Chinese vendors for manufacturing a significant portion of the products we sell. To the extent that tariffs are imposed on imported goods manufactured in China, our pricing structure and acceptance in the marketplace may be affected. We currently stock our products through distributors in foreign countries when appropriate and ship direct from our manufacturer to the foreign distributor when such can be done at a cost savings. We will continue to explore ways that we can hold our costs down on the products we sell in order to minimize price sensitivity concerns with our customers.

 

Organization Within Last Five Years

 

We were originally incorporated under the name HealthGuard International Marketing Corporation, in the State of Nevada on August 15, 2002. At the time we operated under the name HealthGuard International Marketing Corporation, no business was conducted. In 2003, the Company entered into a reverse takeover transaction with a Japanese Investment Group engaged in the business of gaming. After completing the reverse takeover, the Japanese Investment Group failed to implement its business plan, and ceased having any contact with the shareholders of the Company. As a result, the Company was dormant until June 27, 2011 when Jerry Cornwell, our president and one of our Directors, took legal action to obtain the appointment of a custodian to regain control over the Corporation. On August 15, 2011, the Corporation held a meeting, with the Custodian acting on behalf of the Japanese shareholders and approved a private offering of a control block of stock to a new investor. On September 18, 2011 the District Court of Clark County, Nevada entered an order cancelling all of the shares issued to the Japanese Investment Group. The result of this action was to cede control of the Company to the new investor. In late September, the Company undertook a one for ten reverse stock split of its total shares outstanding, reorganized the Company under the name EM Energy, Inc., and began seeking oil and gas properties for development.

 

In late 2017, the Board reevaluated the oil and gas development efforts and elected to reorganize again to focus on distribution of agricultural and horticultural implements used by farmers and hobbyists around the world. The Company has acquired the rights to the DeBudder product line, including the DeBudder Bucket Lid and the DeBudder Edge, and continues to seek other products for distribution through its distributor relationship and its distribution web site located at www.procannagro.com. In 2018, the Company changed its name to MJ Harvest, Inc. and amended and restated its articles of incorporation to reflect the reorganized business direction. The Company also changed its stock symbol to MJHI (formerly RZPK).

 

These changes were affected in order to make our corporate name and ticker symbol better align with our short-term and long-term business focus. Our current, short-term goals will focus on building our product portfolio while we expand our product sales and build our distribution platform and brand under the www.procannagro.com website.

 

Our long-term plan is to acquire a hemp grow operation where we can use our products in a real world setting and provide concrete examples of the effectiveness of the tools to our customers. This step will also allow us to expand operations into biomass production, processing, and sale of products containing CBD from hemp (no or very low THC content). We are currently looking at alternatives to speed up this aspect of our business plan through acquisition of an existing grow operation, but to date, we have not found the right opportunity. Assuming that we achieve our long-term goal of developing or acquiring a hemp grow operation, we also believe that it will position us well should marijuana be legalized at the federal level or the regulatory climate changes to allow legal grow operations in the cannabis space. We can offer no assurances that we will be able to accomplish any portion of our long-range vision.

  21  

 

 

Employees

 

As of September 25, 2019, we had three employees which consisted of our three executive officers. Many of our activities are outsourced to consultants who provide services to us on a project basis. As business activities require and capital resources permit, we will hire additional employees to fulfill our company’s needs.

 

 

DESCRIPTION OF PROPERTY

 

Our company is based in Nevada with our mailing address at 9205 West Russell Road, Suite 240, Las Vegas Nevada 89139. In order to keep overhead to a minimum, we have staffed our business with independent contractors working out offices in diverse locations in the United States. We have contractors in Arizona, Florida, California, and Washington. We utilize technology to communicate effectively and control our business remotely. We also meet face-to-face periodically as needed for specific projects or actions. Accordingly, we do not lease or own any real property.

 

 

LEGAL PROCEEDINGS

 

In the ordinary course of business, we may, from time-to-time, be involved in pending or threatened legal actions, and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, at this time, no litigation or proceeding is pending or threatened against us and management is not aware of any matter that would or could have a material adverse effect on our financial condition or results of operations.

 

 

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our stock is quoted on the OTC Markets’ “OTCQB” tier under the symbol “MJHI.” We have 20,007,739 shares of our common stock outstanding as of December 2, 2019. The following table sets forth the high and low bid information for each quarter within the two most recent fiscal years as reported on Yahoo Finance. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.

 

Period High Low
Jun 1, 2017 through Aug 31, 2017 1.20 1.20
Sep 1, 2017 through Nov 30, 2017 1.20 1.10
Dec 1, 2017 through Feb 28, 2018 2.75 1.10
Mar 1, 2018 through May 31, 2018 1.45 1.25
Jun 1, 2018 through Aug 31, 2018 1.25 1.01
Sep 1, 2018 through Nov 30, 2018 18.25 1.01
Dec 1, 2018 through Feb 28, 2019 6.25 1.00
Mar 1, 2019 through May 31, 2019 7.00 4.00
June 1, 2019 through August 31, 2019 5.15 1.30

 

On November 11, 2019, our stock closed at $1.31 with volume on that day of 100 shares. Our stock is thinly traded with average volume of 196 shares.

 

 

The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.

  22  

 

 

There are currently no outstanding options or warrants to purchase MJ HARVEST, INC. common stock. We do not have any convertible debentures outstanding that permit the holder to convert the outstanding obligation into shares of our common stock. The number of holders of record of shares of our common stock is one hundred thirteen (113). There have been no cash dividends declared on our common stock. Dividends are declared at the sole discretion of our Board of Directors. We have not adopted any stock option or stock bonus plans.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

This discussion and analysis should be read in conjunction with our financial statements included as part of this prospectus.

 

Business Overview

 

We are a development stage company currently focused on the building a portfolio of best in class products that can benefit farmers and hobbyists in their growing operations. Our first product line consists of the DeBudder Lids and EDGE. The Debudder is used to strip buds off of stems for a variety of plants, including hemp and cannabis. We are also building an international network of distributors that can service our customers with rapid deliveries of products stocked in country. Currently, we are actively seeking additional products to expand our portfolio and are adding international distributors as we find them.

 

Corporate Overview

 

The Company develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis space. In 2017, the Company acquired a 51% interest in G4 Products LLC, 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 also organized AgroExports LLC to serve as the international distribution arm for sales of agricultural and horticultural tools and implements, and also 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. from EM Energy, Inc., and a change of trading symbol to MJHI from RZPK. 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. These changes were made in order to align our corporate name and ticker symbol with our short-term and long-term business focus.

 

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 the Canadian Market. Sales in Canada are currently serviced through a fulfillment center in Toronto. The Company has also created www.procanngro.com as its marketing website allowing customers to access Company products online and obtain shipments from the Company’s international distributor best able to meet the order at the lowest cost.

 

Comparative results as of and for the Years Ended May 31, 2019 and 2018

 

Results of Operations

 

Summary of Results of Operations. Since the Company adopted its current business focus on sales of agricultural and horticultural implements to hemp and cannabis growers, the Company has incurred net losses from operations. During the period, the Company has acquired the debudder product line, built an international distributor network, established an online presence for marketing products, and incurred staffing, infrastructure and sales and marketing expenses intended to provide a solid base for growing operations in coming periods. This process took longer than anticipated. The Management team spent considerable time and effort in identifying, researching and negotiating with a number of candidates for acquisitions, with the expectation that one or more acquisitions could be completed in a timely manner prior to filing the Registration Statement of which this prospectus is a part, to enhance our public company stature by initiating reporting under the Securities Exchange Act of 1934, as amended. These potential acquisitions did not come to fruition, primarily due to unrealistic valuations expected by the target opportunity management teams. As a result, management has stepped back from the acquisition focus and is now aggressively pursuing sales growth by increasing marketing of our existing products and expansion of our product lines through distribution agreements and product licensing. We will revisit the acquisition opportunities once the Company’s shares are more actively traded. In the meantime, management will focus on growing sales of the products we have.

  23  

 

 

Operating Loss; Net Loss. In the year ended May 31, 2019, the Company generated a net loss from operations of $956,541 compared to a net loss of $732,305 in the year ended May 31, 2018. The increase in net loss from operations is detailed below.

 

Revenue

 

We have limited revenues since our reorganization in November 2017. Prior to November 2017, we were an exploration stage oil and gas company that owned a number of potential drill sites. In late 2017, we changed our short-term and long-term business focus to the development, acquisition, and sales of agricultural and horticultural implements for growers in the hemp and cannabis sectors. Our revenues in the year ended May 31, 2019 increased to $72,654 from $1,520 in the year earlier period, and after taking cost of goods sold into account, generated $48,057 in gross margin during our 2019 fiscal year compared to $1,184 in 2018. Our operational energies in 2019 were focused on building the distribution network, establishing the distribution centers and logistics for international distribution of product, and building an online presence for selling our products. That effort is largely in place now and we expect to see an increase in sales in the coming periods.

 

Officer and Director Compensation Expenses

 

Officer and director compensation expenses decreased from $420,195 for the year ended May 31, 2018 to $358,842 for the year ended May 31, 2019. The decrease was primarily the result of normalization of the compensation cycle to reflect services rendered in the period. In the fiscal year ended May 31, 2018, the Company was early in its reorganization process and incurred additional officer and director compensation for efforts undertaken in the reorganization. In the year ended May 31, 2019, the management team was in place for the full year and operating according to the adopted business plan which reduced the complexity and scheduling of management tasks and provided clear lines of authority and tasks to be accomplished. This allowed a reduction in officer and director compensation expense.

 

 

General and Administrative Expenses

 

General and administrative expenses increased from $19,287 for the year ended May 31, 2018 to $84,227 for the year ended May 31, 2019, primarily due to increased travel costs associated with our efforts to acquire other companies. As noted above, the Company acquisition efforts were slowed during the registration process of which this prospectus was a part.

 

Professional Fees

 

Our professional fees increased during the year ended May 31, 2019 compared to the year ended May 31, 2018. Our professional fees were $383,392 for the year ended May 31, 2019 and $294,007 for the year ended May 31, 2018. These fees are largely related to fees paid for legal and accounting services, along with compensation to independent contractors. The increase in 2019 was primarily the result of increased patent work associated with the debudder product line. We expect these fees to grow steadily as our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

 

Impairment of Intangible Assets

 

During the year ended May 31, 2019, we reported an impairment of intangible assets of $178,137, compared to $0 in the year ended May 31, 2018. The impairment of intellectual property in 2019 was partially related to our acquisition of the minority interest of G4 Products LLC in the year ended May 31, 2019, and the subsequent adjustment to the carrying value of the assets at year-end based on estimates of revenue, earning capacity expected future revenues. Sales of the products derived from the intangible assets were less than originally estimated and this triggered an analysis of the carrying value of the intangible assets at yearend 2019.

  24  

 

 

Liquidity and Capital Resources

 

Introduction

 

During the years ended May 31, 2019 and 2018, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of May 31, 2019 was $13,592 and our monthly cash flow burn rate was approximately $40,000. Our cash on hand and our ability to cover recurring cash flow operating expenses was primarily derived from proceeds of officer and director advances. Absent additional advances from our officers and directors, we currently do not believe we will be able to satisfy our cash needs from our revenues for the coming year.

 

Our current assets, total assets, current liabilities, and total liabilities as of May 31, 2019 and 2018, respectively, are as follows:

 

Our current assets increased by $51,924 to $78,988 as of May 31, 2019 as compared to May 31, 2018. The increase in our current assets between the two periods was attributable to increases in cash, accounts receivable and inventory on hand.

 

Our total assets decreased by $110,714 to $250,387 as of May 31, 2019 as compared to May 31, 2018. The decrease in our total assets between the two periods was primarily attributable to the impairment of our intangible asset in the period.

 

Our current liabilities were essentially unchanged between our fiscal years ending May 31, 2018 and 2019 total liabilities increased by $625,827 as of May 31, 2019 as compared to May 31, 2018. A large portion of this increase was due to $539,704 in advances from related parties, as well as increases in stock-based compensation. Advances from related parties are classified as long-term liabilities and are expected to be satisfied with issuance of common stock.

 

We currently have positive working capital, but our existing assets and revenue sources will not cover our current monthly negative cash flows from operations. In order to continue our operations at current levels, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Cash Requirements

 

We had cash available as of May 31, 2019 of $13,592 and $3,277 on May 31, 2018. Based on our revenues, cash on hand and current monthly burn rate of approximately $40, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.

 

Sources and Uses of Cash

 

Operations. We had net cash used in operating activities of $418,931 for the year ended May 31, 2019, as compared to $119,923 for the year ended May 31, 2018. During our fiscal year ending May 31, 2019, the net cash used in operating activities consisted primarily of our net loss of ($956,541), shares issued for services of $397,125, stock based compensation of $270,000, intellectual property impairment of $178,137, and ($33,138) cash used for purchases of inventory. In 2018, the net cash used in operating activities consisted primarily of our net loss of ($732,305), offset by $134,100 proceeds of advances from related parties, shares issued for compensation of $609,500, shares issued for cash of $45,000, and reduced for ($50,000) cash used for acquisition of G4.

 

Investing. We used $69,209 in the year ended May 31, 2019 to acquire an interest in G4 ($50,000) and to acquire fixed assets ($19,209). In the year ended May 31, 2018, we used $55,900 to acquire an interest in G4 ($50,000) and for deposits on fixed assets ($5,900).

 

Financing. Our net cash provided by financing activities for the year ended May 31, 2019 was $498,455, compared to $179,100 for the year ended May 31, 2018. For the period in 2019, our financing activities related to proceeds from related party advances of $498,455. For the period in 2018, our financing activities related to proceeds from related party advances of $134,100 and stock sales of $45,000.

 

The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.

  25  

 

 

There are currently no outstanding options or warrants to purchase MJ HARVEST, INC. common stock. We do not have any convertible debentures outstanding that permit the holder to convert the outstanding obligation into shares of our common stock. The number of holders of record of shares of our common stock is one hundred thirteen (113). There have been no cash dividends declared on our common stock. Dividends are declared at the sole discretion of our Board of Directors. We have not adopted any stock option or stock bonus plans.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

This discussion and analysis should be read in conjunction with our financial statements included as part of this prospectus.

 

Business Overview

 

We are a development stage company currently focused on the building a portfolio of best in class products that can benefit farmers and hobbyists in their growing operations. Our first product line consists of the DeBudder Lids and EDGE. The Debudder is used to strip buds off of stems for a variety of plants, including hemp and cannabis. We are also building an international network of distributors that can service our customers with rapid deliveries of products stocked in country. Currently, we are actively seeking additional products to expand our portfolio and are adding international distributors as we find them.

 

Corporate Overview

 

The Company develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis space. In 2017, the Company acquired a 51% interest in G4 Products LLC, 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 also organized AgroExports LLC to serve as the international distribution arm for sales of agricultural and horticultural tools and implements, and also 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. from EM Energy, Inc., and a change of trading symbol to MJHI from RZPK. 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. These changes were made in order to align our corporate name and ticker symbol with our short-term and long-term business focus.

 

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 the Canadian Market. Sales in Canada are currently serviced through a fulfillment center in Toronto. The Company has also created www.procanngro.com as its marketing website allowing customers to access Company products online and obtain shipments from the Company’s international distributor best able to meet the order at the lowest cost.

 

Comparative results as of and for the Years Ended May 31, 2019 and 2018

 

Results of Operations

 

Summary of Results of Operations. Since the Company adopted its current business focus on sales of agricultural and horticultural implements to hemp and cannabis growers, the Company has incurred net losses from operations. During the period, the Company has acquired the debudder product line, built an international distributor network, established an online presence for marketing products, and incurred staffing, infrastructure and sales and marketing expenses intended to provide a solid base for growing operations in coming periods. This process took longer than anticipated. The Management team spent considerable time and effort in identifying, researching and negotiating with a number of candidates for acquisitions, with the expectation that one or more acquisitions could be completed in a timely manner prior to filing the Registration Statement of which this prospectus was a part, to enhance our public company stature by initiating reporting under the Securities Exchange Act of 1934, as amended. These potential acquisitions did not come to fruition, primarily due to unrealistic valuations expected by the target opportunity management teams. As a result, management has stepped back from the acquisition focus and is now aggressively pursuing sales growth by increasing marketing of our existing products and expansion of our product lines through distribution agreements and product licensing. We will revisit the acquisition opportunities once the Company’s shares are more actively traded. In the meantime, management will focus on growing sales of the products we have.

  26  

 

 

Operating Loss; Net Loss. In the year ended May 31, 2019, the Company generated a net loss from operations of $956,541 compared to a net loss of $732,305 in the year ended May 31, 2018. The increase in net loss from operations is detailed below.

 

Revenue

 

We have limited revenues since our reorganization in November 2017. Prior to November 2017, we were an exploration stage oil and gas company that owned a number of potential drill sites. In late 2017, we changed our short-term and long-term business focus to the development, acquisition, and sales of agricultural and horticultural implements for growers in the hemp and cannabis sectors. Our revenues in the year ended May 31, 2019 increased to $72,654 from $1,520 in the year earlier period, and after taking cost of goods sold into account, generated $48,057 in gross margin during our 2019 fiscal year compared to $1,184 in 2018. Our operational energies in 2019 were focused on building the distribution network, establishing the distribution centers and logistics for international distribution of product, and building an online presence for selling our products. That effort is largely in place now and we expect to see an increase in sales in the coming periods.

 

Officer and Director Compensation Expenses

 

Officer and director compensation expenses decreased from $420,195 for the year ended May 31, 2018 to $358,842 for the year ended May 31, 2019. The decrease was primarily the result of normalization of the compensation cycle to reflect services rendered in the period. In the fiscal year ended May 31, 2018, the Company was early in its reorganization process and incurred additional officer and director compensation for efforts undertaken in the reorganization. In the year ended May 31, 2019, the management team was in place for the full year and operating according to the adopted business plan which reduced the complexity and scheduling of management tasks and provided clear lines of authority and tasks to be accomplished. This allowed a reduction in officer and director compensation expense.

 

 

General and Administrative Expenses

 

General and administrative expenses increased from $19,287 for the year ended May 31, 2018 to $84,227 for the year ended May 31, 2019, primarily due to increased travel costs associated with our efforts to acquire other companies. As noted above, the Company’s acquisition efforts were slowed pending completion of the registration process of which this prospectus was a part.

 

Professional Fees

 

Our professional fees increased during the year ended May 31, 2019 compared to the year ended May 31, 2018. Our professional fees were $383,392 for the year ended May 31, 2019 and $294,007 for the year ended May 31, 2018. These fees are largely related to fees paid for legal and accounting services, along with compensation to independent contractors. The increase in 2019 was primarily the result of increased patent work associated with the debudder product line. We expect these fees to grow steadily as our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

  27  

 

 

Impairment of Intangible Assets

 

During the year ended May 31, 2019, we reported an impairment of intangible assets of $178,137, compared to $0 in the year ended May 31, 2018. The impairment of intellectual property in 2019 was partially related to our acquisition of the minority interest of G4 Products LLC in the year ended May 31, 2019, and the subsequent adjustment to the carrying value of the assets at year-end based on estimates of revenue, earning capacity expected future revenues. Sales of the products derived from the intangible assets were less than originally estimated and this triggered an analysis of the carrying value of the intangible assets at yearend 2019.

 

Liquidity and Capital Resources

 

Introduction

 

During the years ended May 31, 2019 and 2018, because of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of May 31, 2019 was $13,592 and our monthly cash flow burn rate was approximately $40,000. Our cash on hand and our ability to cover recurring cash flow operating expenses was primarily derived from proceeds of officer and director advances. Absent additional advances from our officers and directors, we currently do not believe we will be able to satisfy our cash needs from our revenues for the coming year.

 

Our current assets, total assets, current liabilities, and total liabilities as of May 31, 2019 and 2018, respectively, are as follows:

 

Our current assets increased by $51,924 to $78,988 as of May 31, 2019 as compared to May 31, 2018. The increase in our current assets between the two periods was attributable to increases in cash, accounts receivable and inventory on hand.

 

Our total assets decreased by $110,714 to $250,387 as of May 31, 2019 as compared to May 31, 2018. The decrease in our total assets between the two periods was primarily attributable to the impairment of our intangible asset in the period.

 

Our current liabilities were essentially unchanged between our fiscal years ending May 31, 2018 and 2019 total liabilities increased by $625,827 as of May 31, 2019 as compared to May 31, 2018. A large portion of this increase was due to $539,704 in advances from related parties, as well as increases in stock-based compensation. Advances from related parties are classified as long-term liabilities and are expected to be satisfied with issuance of common stock.

 

We currently have positive working capital, but our existing assets and revenue sources will not cover our current monthly negative cash flows from operations. In order to continue our operations at current levels, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Cash Requirements

 

We had cash available as of May 31, 2019 of $13,592 and $3,277 on May 31, 2018. Based on our revenues, cash on hand and current monthly burn rate of approximately $40, we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.

 

Sources and Uses of Cash

 

Operations. We had net cash used in operating activities of $418,931 for the year ended May 31, 2019, as compared to $119,923 for the year ended May 31, 2018. During our fiscal year ending May 31, 2019, the net cash used in operating activities consisted primarily of our net loss of ($956,541), shares issued for services of $397,125, stock based compensation of $270,000, intellectual property impairment of $178,137, and ($33,138) cash used for purchases of inventory. In 2018, the net cash used in operating activities consisted primarily of our net loss of ($732,305), offset by $134,100 proceeds of advances from related parties, shares issued for compensation of $609,500, shares issued for cash of $45,000, and reduced for ($50,000) cash used for acquisition of G4.

 

Investing. We used $69,209 in the year ended May 31, 2019 to acquire an interest in G4 ($50,000) and to acquire fixed assets ($19,209). In the year ended May 31, 2018, we used $55,900 to acquire an interest in G4 ($50,000) and for deposits on fixed assets ($5,900).

  28  

 

Financing. Our net cash provided by financing activities for the year ended May 31, 2019 was $498,455, compared to $179,100 for the year ended May 31, 2018. For the period in 2019, our financing activities related to proceeds from related party advances of $498,455. For the period in 2018, our financing activities related to proceeds from related party advances of $134,100 and stock sales of $45,000.

 

Comparative results as of August 31, 2019 and May 31, 2019, and for the Three Months Ended August 31, 2019 and 2018

 

Results of Operations

 

Operating Loss; Net Loss. In the three months ended August 31, 2019, the Company generated a net loss from operations of $281,299 compared to a net loss of $137,490 in the three months ended August 31, 2018. The increase in net loss from operations is detailed below.

 

Revenue

 

We have generated limited revenues since our reorganization in November 2017. Prior to November 2017, we were an exploration stage oil and gas company that owned a number of potential drill sites. In late 2017, we changed our short-term and long-term business focus to the development, acquisition, and sales of agricultural and horticultural implements for growers in the hemp and cannabis sectors. Our revenues in the three months ended August 31, 2019 increased to $20,960 from $18,386 in the year earlier period, and after taking cost of goods sold into account, generated $8,516 in gross margin in the quarter ended August 31, 2019 compared to $12,127 in the quarter ended August 31, 2018. Margins declined in the current period compared to the prior year due to changes in our fulfillment process that resulted in one-time shipping costs and moderate increases in our order fulfillment processing costs. Our operational energies in 2019 and the first quarter of 2020 were focused on building the distribution network, establishing the distribution centers and logistics for international distribution of product, and building an online presence for selling our products. That effort is largely in place now and we expect to see an increase in sales in the coming periods. Management is also focused on adding additional products to our online portals and this should allow us to connect with more customers through our more diverse offerings.

 

Officer and Director Compensation Expenses

 

Officer and director compensation expenses increased to $150,000 for the three months ended August 31, 2019 compared to $60,000 for the three months ended August 31, 2018. The increase was primarily the result of additional personnel, and implementation of independent contractor agreements with the CEO and CFO.

 

General and Administrative Expenses

 

General and administrative expenses increased to $34,856 for the three months ended August 31, 2019 compared to $2,609 for the three months ended August 31, 2018, primarily due to increased travel costs associated with our efforts to acquire other companies. As noted above, the Company’s acquisition efforts were slowed pending completion of the registration process of which this prospectus was a part.

 

Professional Fees

 

Our professional fees increased to $104,959 during the three months ended August 31, 2019 compared to $87,008 for the three months ended August 31, 2018. These fees are largely related to fees paid for legal and accounting services and web services, along with compensation to independent contractors. The moderate increase in 2019 was primarily the result of patent work associated with the debudder product line and increased costs in maintaining our web presence. We expect these fees to grow steadily as our business expands. In the event we undertake an unusual transaction, such as an acquisition, securities offering, or file a registration statement, we would expect these fees to substantially increase during that period.

  29  

 

 

Impairment of Intangible Assets

 

During the three months ended August 31, 2019, we determined that no impairment was required of our intangible assets. We recorded an impairment expense at the end of our last fiscal year and no additional impairment was necessary in our first fiscal quarter of 2020. No impairment was recorded in the first quarter of fiscal year 2019.

 

Liquidity and Capital Resources

 

Introduction

 

During the three months ended August 31, 2019, as a result of our operating losses, we did not generate positive operating cash flows. Our cash on hand as of August 31, 2019 was $11,966 and our monthly cash flow burn rate was approximately $40,000. Our cash on hand and our ability to cover recurring cash flow operating expenses was primarily derived from proceeds of officer and director advances. Absent additional advances from our officers and directors, we currently do not believe we will be able to satisfy our cash needs from our revenues for the coming year.

 

Our current assets, total assets, current liabilities, and total liabilities as of August 31, 2019 and May 31, 2019, respectively, are as follows:

 

Our current assets decreased by $747 to $78,241 as of August 31, 2019 as compared to May 31, 2018.

 

Our total assets remained constant at $247,900 as of August 31, 2019 as compared to $250,287 on May 31, 2018.

 

Our current liabilities were essentially unchanged between August 31, 2019 and May 31, 2019. Long-term liabilities increased by $124,959 as of August 31, 2019 as compared to May 31, 2018. This increase was due to $124,959 in advances from related parties during the period.

 

We currently have positive working capital, but our existing assets and revenue sources will not cover our current monthly negative cash flows from operations. In order to continue our operations at current levels, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Cash Requirements

 

We had cash available as of August 31, 2019 of $11,966 and $13,592 on May 31, 2019. Based on our revenues, cash on hand and current monthly burn rate of approximately $40,000 we will need to continue borrowing from our shareholders and other related parties, and/or raise money from the sales of our securities, to fund operations.

 

Sources and Uses of Cash

 

Operations. We had net cash used in operating activities of $126,585 for the three months ended August 31, 2019, as compared to $92,878 for the three months ended August 31, 2018. During the three months ending August 31, 2019, the net cash used in operating activities consisted primarily of our net loss of ($281,299), and share based compensation of $152,625, In the three months ended August 31, 2018, the net cash used in operating activities consisted primarily of our net loss of ($137,490), offset by $105,000 proceeds of advances from related parties.

 

Financing. Our net cash provided by financing activities for the three months ended August 31, 2019 was $124,959, compared to $105,000 for the three months ended August 31, 2018. These amounts in both periods related to proceeds from related party advances.

 

Off Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

 

  30  

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES

 

ABOUT MARKET RISK

 

We are exposed to market risks, which include interest rate changes in United States of America and commodity prices. We do not engage in financial transactions for trading or speculative purposes.

 

Interest Rate Risk. There may be interest charged on our accounts payable, as well as interest we charge on our accounts receivable, depending on their age. Typically, these interest rates are fixed and are not affected by changes in market interest rates. However, from time to time we may enter into debt transactions that have a variable interest rate which would leave us subject to interest rate fluctuations.

 

Commodity Prices. We are exposed to fluctuation in market prices for the raw materials necessary to manufacture the products we sell. To mitigate risk associated with increases in market prices and commodity availability, we will attempt to negotiate contracts with favorable terms directly with vendors. We do not believe we will enter into forward contracts or other market instruments as a means of achieving our objectives or minimizing our risk exposures on these materials.

 

DIRECTORS, EXECUTIVE OFFICERS,

 

PROMOTERS, AND CONTROL PERSONS

 

The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person and the date such person became a director or executive officer of the Company. The executive officers of the Company are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. There are no family relationships among any of the directors and officers.

 

Name Age Position Incumbency Date
Patrick Bilton 58 Secretary and Director 11/3/2017
Patrick Bilton   Chief Executive Officer 1/1/2018
Brad Herr 65 Chief Financial Officer 3/24/2018
Jerry Cornwell 80 Director and President 9/20/2011
David Tobias 58 Director 11/3/2017

 

Patrick Bilton, CEO, Secretary and Director, age 58, manages our product development and product acquisition efforts and is focused on implementing our strategic business direction. Patrick joined MJ Harvest in 2017 and has been instrumental in establishing our existing operations while also seeking to expand our business as opportunities present themselves. Patrick sold his landscape services business in 2007 and after working with the new owners over a three-year transition period, has been since 2010 to the present, involved as a consultant in construction management, working primarily on luxury and high end residential real estate projects. Concurrently, Patrick has worked as a consultant with other public companies in their business development and merger and acquisition efforts, primarily focused on herbal and plant-based products and derivatives, including Cannabis Sativa, Inc. (symbol “CBDS”). Patrick brings a wealth of practical experience and a deep understanding of the requirements of growers of hemp and cannabis crops. With Patrick’s guidance, we are developing a portfolio of tools and implements that are used in growing and harvesting crops.

 

Brad Herr, CFO, age 65, manages our financial reporting functions, provides risk management oversight, and is a key member of the management team working closely with Patrick Bilton to evaluate and structure business opportunities as they arise. Brad is the sole owner of Nexit, Inc., a management services firm though which he offers business consulting services to the public, Brad has owned Nexit, Inc. since April 2018. He also served as CFO to SponsorsOne, Inc., another publicly traded company with emerging business opportunities until April 30, 2019. Brad graduated from the University of Montana with a Bachelor of Science Degree in Business Accounting in 1977 and a Juris Doctorate in 1983. In 2005, Mr. Herr received an MBA from Gonzaga University. Brad practiced law for 13 years focusing primarily on business representation and securities law. Brad participated as legal counsel or principal in private and public offerings raising more than $75 million over his career. In 1996, Brad left the practice of law to pursue a career in business. Brad has served as CFO, COO, President and Board Member for a number of publicly traded and private companies over the last 23 years though other than as set forth herein, he holds no such positions at this time. Brad brings a diverse business development, accounting and legal background to his current positions.

 

  31  

 

Jerry Cornwell, President and Director, age 80, is currently and has been since 1993, the managing member of two Investor Relations companies: XXX Enterprises, LLC dba Bristol Media, Ltd. and Valhalla Financial Group, LLC. The services provided to clients range from initial merger of Microcap OTC companies to NASDAQ listed companies. He was President and Chief Executive Officer of Pan Environmental Corporation from 1993 until 2000. For the prior ten years, he was a principal of Corn-Mill Enterprises, a business advisory firm involved in Mergers/Acquisitions and Capital funding. From 1974 to 1983 Mr. Cornwell was owner, President and Chief Executive Officer of J. A. Cornwell, Inc. a land reclamation and irrigation development firm, with annual revenues of $135 million. In 1982 the company was listed #7 on Inc 500 fastest growing Private Companies. In the past 30 years Mr. Cornwell has held positions as Director and/or Officer, on at least 10 other public companies, though other than as set forth herein, he does not hold any such positions at this time. He was elected to the Board of Directors by shareholders and appointed as President/CEO of the Company, then operating as Ryozanpaku International, Inc. on October 24, 2010. Jerry currently focuses on the building an active market for the Company’s shares and provides assistance in finding and evaluating business opportunities.

 

David Tobias, Director, age 68, is serving as President of Wild Earth Naturals, Inc., a position he has held since May 2013. In addition, Mr. Tobias is serving as the CEO, president, secretary and director of Cannabis Sativa, Inc. (“CBDS”), a fully reporting company under the Securities Exchange Act of 1934. Mr. Tobias has been a director and officer of CBDS since July of 2013. He also served as the President of Hemp, Inc. from August 2011 to January 9, 2014. Prior to that, from October 2009 until May 2011, Mr. Tobias held the position of Vice President at Medical Marijuana Inc. where he was instrumental in bringing forward and culminating the merger between CannaBank and Medical Marijuana, Inc. Within the last five years, Mr. Tobias has also served as a member of the board of directors for Grow Capital, Inc. (“GRWC”). David’s experience with many aspects of the burgeoning marijuana trade in the United States allows him to focus on business development. His extensive contacts in the cannabis industry yield frequent business opportunities which David refers to Patrick and Brad for a detailed conceptual work-up.

 

Director Independence

 

Of our four directors, only one is an independent director, that being David Tobias. Our standard for being an independent director, is that the director is not an officer of the company, is not related to an officer or an non-independent director, and does not receive over $100,000 annually from the Company in compensation by way of consulting services or for any other reason.

 

Code of Ethics

 

As of yet, the Company has not adopted a code of ethics. The Company expects to adopt a code of ethics prior to the time it is required to file reports pursuant to the Securities Exchange Act of 1934.

 

EXECUTIVE COMPENSATION

 

The Summary Compensation Table shows certain compensation information for services rendered as officers and directors for the fiscal years ended May 31, 2019 and 2018. The following information includes the dollar value of base salaries, and the number of shares of common stock granted and certain other compensation, if any, whether paid or deferred. No bonuses were paid to any officer or director in the periods presented, and the Company did not issue any non-equity incentive plan or option awards, or qualified or non-qualified deferred compensation. Cash and stock issued or accrued represents payments of independent contractor agreement compensation as described in “Certain Relationships and Related Party Transactions” below.

 

Year Ended May 31, 2019       Stock Issued   Accrued Compensation   Total
    Cash   Shares   Value   Shares   Value   Value
Patrick Bilton     —         560,000       140,000       80,000       60,000     $ 200,000  
David Tobias     —         —         —         —         —         —    
Jerry Cornwell     —         —         —         —         —         —    
Brad Herr     112,500       120,000       30,000       20,000       15,000       157,500  
Total for officers and directors     112,500       680,000       170,000       100,000     $ 75,000     $ 357,500  
                                                 

 

  32  

 

              Stock Issued               Accrued Compensation                  
Year Ending May 31. 2018     Cash       Shares       Value       Shares       Value       Total  
Patrick Bilton     —         1,070,000     $ 267,500       —       $ —       $ 267,500  
David Tobias     —         220,000       55,000       —         —         55,000  
Jerry Cornwell     —         220,000       55,000       —         —         55,000  
Brad Herr     —         60,000       15,000       —         —         15,000  
Total for officers and directors     —         1,570,000     $ 392,500       —       $ —       $ 392,500  

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

None

 

Compensation of Directors

 

Our directors received compensation for their services as directors during the fiscal years ended May 31, 2019 and 2018 as set forth in the preceding table. For our fiscal year ending May 31, 2020, the directors will receive compensation in shares of common stock at the rate of $5,000 per quarter. The number of shares issuable to the directors for the director fees may be adjusted from time to time to reflect the Company’s assessment of fair value of the shares being issued at the time of issuance.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

 

OWNERS AND MANAGEMENT

 

The following table sets forth, as of December 2, 2019, certain information with respect to our equity securities owned of record or beneficially by:

 

(1) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.

 

(2) Unless otherwise noted, the shares indicated are beneficially owned by the individuals listed.

 

  Number of Percentage of Total
Share Ownership on September 10, 2019 Shares Held Outstanding
Patrick Bilton, CEO, Secretary and Director 2,159,334 11.3%
Jerry Cornwell, President and Director 3,483,578 18.2%
Brad Herr, CFO 220,000   1.2%
David Tobias, Director 6,175,733 32.4%
All Officers and Directors as a Group 12,038,645 63.1%
     
Total Shares Issued and Outstanding 19,088,407 100.0%

 

· The shares listed for Patrick Bilton include shares owned by Salon LLC, an entity soley owned b y Mr. Bilton, and shares held for the benefit of Samantha, Sawyer, and Shawna Bilton, his children.

 

· The shared listed for Jerry Cornwell are beneficially owned by him. A total of 1,037,317 are listed in his name and 2,446,261 are registered in the name of XXX Enterprises, LLC, and entity wholly owned by Mr. Cornwell

 

· The shares listed for Brad Herr are beneficially owned by him and are registered in the name of Nexit, Inc., a corporation wholly owned by Mr. Herr.

 

  33  

 

The issuer is not aware of any person who owns of record, or is known to own beneficially, ten percent or more of the outstanding securities of any class of the issuer, other than as set forth above. The issuer is not aware of any person who controls the issuer as specified in Section 2(a)(1) of the 1940 Act. There are no classes of stock other than common stock issued or outstanding. The Company does not have an investment advisor.

 

There are no current arrangements which will result in a change in control.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Consulting Agreements

 

The Company has independent contractor agreements with each of its officers. These agreements are described below.

 

Patrick Bilton. The Company entered into an Independent Contractor Agreement with Patrick Bilton on February 26, 2019 with an effective date of January 1, 2019. The agreement provides for a consulting fee of $20,000 per month payable in common stock at the fair value of the shares on the dates of issuance. The compensation is payable quarterly, and management currently estimates that the fair value of the Company’s common stock is $0.25 per share. The term of the agreement is for one year. The services performed by Mr. Bilton pursuant to the Agreement include serving as the Company’s Chief Executive Officer. In this capacity, Mr. Bilton oversees all strategic and tactical functions, supervises all other contractors, and coordinates these activities under the direct oversight of the Board of Directors. Mr. Bilton’s Independent Contractor Agreement provides that one-half of Mr. Bilton’s monthly salary will be payable in cash each month ($10,000) at such time as the company receives at least $500,000 in funding through a private placement or public offering. This condition has not yet been met and Mr. Bilton’s compensation is being fully paid in stock at this time.

 

Brad Herr. The Company entered into an Independent Contractor Agreement with Patrick Bilton on February 28, 2019 with an effective date of January 1, 2019. The agreement provides for a consulting fee of $15,000 per month payable $10,000 per month in cash and $5,000 per month in common stock at the fair value of the shares on the dates of issuance. The stock compensation is payable quarterly, and management currently estimates that the fair value of the Company’s common stock is $0.25 per share. The term of the agreement is for one year. The services performed by Mr. Herr pursuant to the Agreement include serving as the Company’s Chief Financial Officer. In this capacity, Mr. Herr manages all accounting and financial statement preparation duties, and participates with the CEO on planning and direction, drafts agreements as needed, and prepares public company reports and coordinates these activities under the direct oversight of the CEO and the Board of Directors.

 

Transactions with Officers and Directors

 

Mr. Bilton has advanced $573,414 to the Company for operating capital and expenses. As of August 31, 2019, Mr. Bilton was also owed $91,666 in accrued compensation for services as an officer and director. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock.

 

Mr. Tobias has advanced $75,553 to the Company for operating expenses. As of August 31, 2019, Mr. Tobias was owed $75,553 for advances and $11,667 for director’s fees. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock.

 

Mr. Cornwell paid expenses totaling $818 on behalf of the Company. This balance is included in accounts payable. As of August 31, 2019, there was also a payable to Mr. Cornwell in the amount of $15,696 for operating capital advances and $11,667 for director’s fees. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock.

 

The Company paid Nexit, Inc., a company wholly owned by Brad Herr, the Company’s Chief Financial Officer, $112,500 in the year ended May 31, 2019, and $30,000 in the quarter ended August 31, 2019, and had accrued compensation payable in stock to Nexit in the amount of $20,000 for services. The balance accrued as stock compensation payable is classified as a long-term liability since it will be settled with shares of the Company’s common stock.

 

The Company has no written agreement with the officers and directors regarding repayment of these amounts and each officer and director has indicated that the balances will likely be settled by issuance of common stock at a future date. The balances do not bear interest and no payments are due at this time. The amounts have been classified as long-term liabilities on the balance sheet to reflect the likelihood that the balances will be satisfied in common stock.

  34  

 

 

Long-Term Incentive Plans.

 

We do not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans and has no intention of implementing any of these plans for the foreseeable future.

 

Employee Pension, Profit Sharing or other Retirement Plans.

 

We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although it may adopt one or more of such plans in the future.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION

 

FOR SECURITIES ACT LIABILITIES

 

Article 5 of our Articles of Incorporation provides that, to the fullest extent permitted by law, no director or officer shall be personally liable to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders.

 

Article 6 of our Articles of Incorporation provides that, to the fullest extent permitted by the General Corporation Law of the State of Nevada we will indemnify our officers and directors from and against any and all expenses, liabilities, or other matters.

 

 

Article IX of our Bylaws further addresses indemnification of our directors and officers and allows us to indemnify our directors in the event they meet certain criteria in terms of acting in good faith and in an official capacity within the scope of their duties, when such conduct leads them to be involved in a legal action.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

 

AVAILABLE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the resale of shares of our common stock by the Selling Shareholders. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us, our common stock and the Selling Shareholders, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement.

 

We are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, we will file periodic reports. You can read our SEC filings, including the registration statement, over the internet at the SEC’s website at www.sec.gov.

 

EXPERTS

 

The financial statements of MJ HARVEST, INC. as of May 31, 2019 and May 31, 2018 and for the years ended May 31, 2019 and May 31, 2018, and the balance sheets of MJ HARVEST, INC. as of May 31, 2019 and May 31, 2018 have been included herein in reliance upon the reports of DeCoria, Maichel, and Teague, P.S., independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

  35  

 

 

MJ HARVEST, INC.    
Contents    
      Page
       
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   F-2
     
       
FINANCIAL STATEMENTS - YEAR ENDED MAY 31, 2019 AND 2018:    
       
Consolidated balance sheets   F-4
       
Consolidated statements of operations   F-5
       
Consolidated statements of changes in stockholders’ equity (deficit)   F-6
       
Consolidated statements of cash flows   F-7
       
Notes to consolidated financial statements F-8 to F-18
       

 

  F-1  

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

 

of MJ Harvest, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of MJ Harvest, Inc. (“the Company”) as of May 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2018 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The Company’s ability to continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit through May 31, 2019 and has operating losses since its inception. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

  F-2  

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

 

DeCoria, Maichel & Teague P.S.

August 30, 2019

Spokane, Washington

 

We have served as the Company's auditor since 2016

  F-3  

 

MJ HARVEST, INC.

 

Consolidated Balance Sheets

 

May 31, 2019 and 2018

 

    2019   2018
ASSETS                
CURRENT ASSETS:                
Cash     13,592     $ 3,277  
Accounts receivable     9,191       720  
Inventory     56,205       23,067  
Total current assets     78,988       27,064  
Deposits     480       5,900  
Fixed assets, net     20,919       —    
Intangible assets     150,000       328,137  
Total Assets     250,387     $ 361,101  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
CURRENT LIABILITIES:                
Accounts payable     2,232     $ 15,468  
Other current liabilities     13,683       200  
Total current liabilities     15,915       15,668  
Compensation payable in common stock     127,125       —    
Advances from related parties     539,704       41,249  
Total Liabilities     682,744       56,917  
COMMITMENTS AND CONTINGENCIES (Note 4)                
STOCKHOLDERS’ EQUITY (DEFICIT):                
Preferred stock, par value $0.0001, 5,000,000 shares authorized,                
no shares issued and outstanding     —         —    
Common stock, $0.0001 par value per share, 50,000,000 shares                
authorized, 18,758,739 and 17,598,739 issued and outstanding,                
respectively     1,876       1,760  
Additional paid-in capital     1,784,486       1,418,227  
Accumulated deficit     (2,218,719 )     (1,256,448 )
Total stockholder's equity (deficit)     (432,357 )     163,539  
Non-controlling interest     —         140,645  
Total Stockholders' Equity (Deficit)     (432,357 )     304,184  
Total Liabilities and Stockholders' Equity (Deficit)   $ 250,387     $ 361,101  

 

 

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

 

  F-4  

 

MJ HARVEST, INC.

 

Consolidated Statements of Operations

 

For the years ended May 31, 2019 and 2018

 

    2019   2018
REVENUE   $ 72,654     $ 1,520  
COST OF REVENUE     24,597       336  
Gross profit     48,057       1,184  
OPERATING EXPENSES:                
Officer and director compensation     358,842       420,195  
General and administrative     84,227       19,287  
Impairment of intangible assets     178,137          
Professional fees and contract services     383,392       294,007  
Total operating expenses     1,004,598       733,489  
NET LOSS FROM OPERATIONS     (956,541 )     (732,305 )
Allocation of (gain) loss attributable to non-controlling interest     (5,730 )     27,492  
NET LOSS ATTRIBUTABLE TO MJ HARVEST, INC.   $ (962,271 )   $ (704,813 )
NET LOSS PER COMMON SHARE - Basic and diluted     (0.053 )   $ (0.047 )
WEIGHTED AVERAGE NUMBER OF COMMON                
SHARES OUTSTANDING - Basic and diluted     18,078,635       15,032,616  

 

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

 

  F-5  

 

MJ HARVEST, INC.

 

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

 

For the years ended May 31, 2019 and 2018

 

          Additional            
  Common Stock   Paid-In   Accumulated   controlling      
  Shares   Amount   Capital   Deficit   Interest   Total
                         
BALANCES, May 31, 2017 13,944,339 $ 1,393 $ 504,994 $ (551,635) $ - $ (45,248)
                         
Stock exchanged for advances from related                        
parties 536,400   54   134,046   -   -   134,100  
Share based compensation 2,438,000   244   609,256   -   -   609,500  
Acquisition of minority interest in G4 500,000   50   124,950   -   168,137   293,137  
Stock issued for cash 180,000   19   44,981   -   -   45,000  
Net loss for the year ended May 31, 2018 -   -   -   (704,813)   (27,492)   (732,305)  
                         
BALANCES, May 31, 2018 17,598,739 $ 1,760 $ 1,418,227 $ (1,256,448) $ 140,645 $ 304,184
                         
Acquisition of minority interest in G4 80,000   8   96,367   -   (146,375)   (50,000)
Share based compensation 1,080,000   108   269,892   -   -   270,000  
Net income (loss) for the year ended May                        
31, 2019 -   -   -   (962,271)   5,730   (956,541)  
                         
BALANCES, May 31, 2019 18,758,739 $ 1,876 $ 1,784,486 $ (2,218,719) $ - $ (432,357)

 

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

 

  F-6  

 

MJ HARVEST, INC.

 

Consolidated Statements of Cash Flows

 

For the years ended May 31, 2019 and 2018

 

    2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss     (956,541 )   $ (732,305 )
Adjustments to reconcile net loss to net cash                
used in operating activities:                
Share based compensation     270,000       609,500  
Depreciation     4,190       —    
Impairment of intangible assets     178,137       —    
Deposits for operating expenses     (480 )        
Changes in operating assets and liabilities:                
Accounts receivable     (8,471 )     (720 )
Inventory     (33,138 )     (8,067 )
Stock issuable for compensation     127,125          
Accounts payable and other current liabilities     247       11,669  
NET CASH (USED IN) OPERATING ACTIVITIES     (418,931 )     (119,923 )
CASH FLOWS FROM INVESTING ACTIVITIES                
Cash used in acquisition of G4     (50,000 )     (50,000 )
Deposits on fixed assets     —         (5,900 )
Acquisition of fixed assets     (19,209 )     —    
NET CASH (USED) IN INVESTING ACTIVITIES     (69,209 )     (55,900 )
CASH FLOWS FROM FINANCING ACTIVITIES                
Stock issued for cash     —         45,000  
Proceeds from advances from related parties     498,455       134,100  
NET CASH PROVIDED BY FINANCING ACTIVITIES     498,455       179,100  
NET CHANGE IN CASH AND CASH EQUIVALENTS     10,315       3,277  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR     3,277       —    
CASH AND CASH EQUIVALENTS END OF YEAR     13,592     $ 3,277  
Non cash financing and investing activities:                
Stock exchanged for advances to related parties     —       $ 134,100  
Stock issued for acquisition of G4   $ 20,000       125,000  

 

 

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

  F-7  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

The Company develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis space. In 2017, the Company acquired a 51% interest in G4 Products LLC, 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 also organized AgroExports LLC to serve as the international distribution arm for sales of agricultural and horticultural tools and implements, and also 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 51% of G4 Products LLC, making it a wholly owned subsidiary. On April 10, 2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online payments in the Canadian Market. Sales in Canada are currently serviced through a fulfillment center in Toronto.

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s fiscal year-end is May 31.

 

The consolidated financial statements of the Company for the year ended May 31, 2019, 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 in 2018 and the financial statements for the year ended May 31, 2019 included a non-controlling interest for G4. All intercompany transactions have been eliminated. Subsidiaries are consolidated from the date of acquisition, that being the date on which the Company has the power to govern financial and operating policies of the entities acquired. The financial statements of the subsidiaries are reported for the same reporting period as the parent, using consistent accounting policies in all material respects. Non-controlling interest in the consolidated balance sheets represents the minority members’ proportionate share of equity in G4. Consolidated net income (loss) is allocated to the Company and non-controlling interest (minority stockholder) in proportion to their percentage ownership.

 

 

  F-8  

 

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:

 

Going Concern

 

The Company has an accumulated deficit of $2,218,719 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.

 

In the year ended May 31, 2018, the acquired a 51% interest in certain intangible assets and in the year ended May 31, 2019, the Company acquired the remaining 49% of the intangible assets. The intangible assets serves as a building block for the Company’s efforts to grow revenues. In the year ended 2019, the Company began generating operating revenue but the level of revenue from the current product line is not sufficient to support profitable operations with the current overhead. Additional acquisitions and business opportunities are now under consideration. 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 year presentation.

 

New Accounting Standards

 

Revenue Recognition: In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.

 

In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. We have performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies. ASU No. 2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing

 

 

  F-9  

 

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:

 

of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. The Company does not anticipate the disclosure requirements under the ASU to have a material change on how it presents information regarding its revenue streams as compared to existing GAAP. The Company will expand its financial statement disclosures in order to comply with the standard.

 

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. As of May 31, 2019, the Company had no leases and the update is not expected to have a material effect on the financial statements.

 

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 financial instruments 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 May 31, 2019 and 2018.

 

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.

 

  F-10  

 

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:

 

Revenue Recognition

 

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

 

· identify the contract with a customer;

 

· identify the performance obligations in the contract;

 

· 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 market, with cost being determined using the average cost method. Allowances for obsolete inventory are recognized when the inventory is determined to be unsalable through the normal course of business.

 

Fixed Assets

 

Fixed assets consist 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.

 

  F-11  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:

 

Intangible Assets

 

We account for intangible assets in accordance with ASC 350 ”Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that intangible assets with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Application of the intangible asset impairment test requires judgment, including the identification of intangible assets and determining their fair value. Significant judgments required to estimate the fair value of intangible assets include estimating future cash flows, determining appropriate discount rates and other assumptions. If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model. Changes in estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.

 

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense is included as a component of cost of product revenue. As of May 31, 2019, no amortization expense has been recognized.

 

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, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the years ended May 31, 2019 and 2018, 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

  F-12  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, Continued:

 

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 goods or services received when the fair value of the goods and services is a more reliable measurement of fair value than the equity instruments issued.

 

NOTE 2 –ACQUISITIONS OF G4

 

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 Company paid $175,000 to Original Ventures for the initial 51% contributed interest in G4. The initial purchase price was paid $50,000 in cash and 500,000 in shares of the Company’s common stock with an estimated fair value at $0.25 per share, or $125,000. The sole intangible asset of G4 at the time of the acquisition was a provisional U. S. Patent application. As part of the acquisition transaction, 5,000 units of the Product were also sold to G4 at a cost of $3.00 per unit or $15,000 in the aggregate. Management estimated that the fair value of the intangible asset was $328,137, based upon the value of Original Venture’s non-controlling interest of 49% and the consideration paid by the Company. The inventory was assigned a fair value of $15,000 based upon its cost.

 

In December 2018, the Company paid an additional $50,000 in cash and 80,000 shares of Company’s common stock with an estimated fair value at $0.25 per share or $20,000. The Company’s common stock is quoted on the Pink Open Market. During the past several years minimal trading activity has taken place, primarily due to the limited number of shares in the public float and the fact that the Company does not currently know if market makers are or would be willing to make a market in the Company’s shares. Accordingly, the Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares which occurred at $0.25 per share.

 

At the time of the second acquisition of the interest in G4, the assets of G4 consisted primarily of the provisional U.S. Patent application and certain other international patent applications.

 

The G4 acquisition was undertaken because of its strategic fit with the Company’s business plan. Subsequently, the U.S. Patent and Trademark Office (“USPTO”) has issued a notice of allowance and the Company expects that patent issuance is imminent. Once the patents issue, the Company will begin amortizing the cost of the intangible asset over the life of the patent. During the provisional patent period and the patent pending period, the Company will continue to assess the value of the intangible asset and will write off all or a portion of the intangible asset if the valuation determines that the intangible asset has become impaired.

  F-13  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 –ACQUISITIONS OF G4, Continued:

 

The acquisition-related expenses incurred during the year ended May 31, 2018, and during the year ended May 31, 2019 were insignificant and are included in general and administrative expenses in the Company’s consolidated financial position and results of operations.

 

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 earnout provisions that are described in Note 4 – Commitments and Contingencies.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

In addition to the related party transactions discussed in Note 5, during the year ended May 31, 2018, Jerry Cornwell, the Company’s President and a director, paid expenses totaling $1,352 on behalf of the Company. This balance is included in accounts payable in the consolidated financial statements at May 31, 2019 and 2018. As of May 31, 2019, and 2018, there was also a payable to Mr. Cornwell in the amount of $15,696 that is classified as a long-term liability as it is anticipated to be settled with shares of the Company’s common stock.

 

Prior to June 1, 2017, David Tobias, a majority shareholder and director, paid expenses on behalf of the Company totaling $25,553. During the year ended May 31, 2019, Mr. Tobias advanced $50,000 to the Company for operating expenses. As of May 31, 2019 and 2018, there were advances payable to Mr. Tobias in the amounts of $75,553 and $25,553, respectively, that are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock.

 

During the year ended May 31, 2019, Patrick Bilton, a director and the Company’s Chief Executive Officer, paid expenses on behalf of the Company totaling $47,455 and also advanced $401,000 to the Company for operating expenses. As of May 31, 2019, and 2018, there were payables to Mr. Bilton in the amounts of $448,455 and $ -0-, respectively that are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock.

 

In addition, at May 31, 2019, the Company also had accrued compensation payable in common stock to Mr. Bilton in the amount of $60,000 for services which will be paid with 240,000 shares of the Company’s common stock in the year ended May 31, 2020.

 

During the year ended May 31, 2019, the Company paid Nexit, Inc., a company wholly owned by Brad Herr, the Company’s Chief Financial Officer, $112,500 and had accrued compensation payable in stock to Nexit in the amount of $15,000 for services which will be paid with 60,000 shares of the Company’s common stock.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

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

 

  F-14  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES, Continued:

 

In addition, an earn-out compensation payment of $100,000, payable in shares of the Company’s common stock, will be due Original Ventures upon the issuance of the non-provisional patent to G4. The Company received notice that the US Patent and Trademark Office has allowed the patents on the debudder products and the patents are expected to be issued before the end of September 2019. The issuance of the patents will occur in our fiscal year ending May 31, 2020 and the earnout compensation due on the issuance will be recorded when the patents are issued.

 

NOTE 5 – SHARE CAPITAL

 

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

 

As of May 31, 2019 and 2018, there were 18,758,739 and 17,598,739, respectively, of shares of common stock outstanding and there were no preferred shares issued and outstanding.

 

During the year ended May 31, 2019, shares of common stock were issued to related and non-related parties for acquisitions, and services. The following table breaks out the issuances by type of transaction and by related and non-related parties:

 

Cash   Services   Debt Repayment   Acquisitions   Total                        
Related Parties   Shares   Value   Shares   Value   Share   Value   Shares   Value   Shares   Value
Patrick Bilton     —       $ —         560,000       140,000       —       $ —         —       $ —         560,000     $ 140,000  
David Tobias     —         —         —         —         —         —         —         —         —         —    
Jerry Cornwell     —         —         —         —         —         —         —         —         —         —    
Brad Herr     —         —         120,000       30,000       —         —         —         —         120,000       30,000  
Total for related                                                                                
Parties     —       $ —         680,000       170,000       —       $ —         —       $ —         680,000     $ 170,000  
Unrelated Parties     —       $ —         400,000       100,000       —       $ —         80,000       20,000       480,000     $ 120,000  
Aggregate Totals     —       $ —         1,080,000       270,000       —       $ —         80,000       20,000       1,160,000     $ 290,000  

 

In addition, the Company issued 80,000 shares of its common stock with an estimated fair value of $0.25 per share, or $20,000, in connection with its acquisition of G4 (See Note 2). The Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares.

 

The Company also accrued an aggregate of $127,125 of services payable in common stock as of May 31, 2019. This will result in the issuance of 508,500 shares of common stock in the year ending May 31, 2020. Of this amount, $75,000 was payable to related parties. See Note 2.

 

During the year ended May 31, 2018, shares of common stock were issued to related and non-related parties for cash, services, acquisitions and advances repayment. The following table breaks out the issuances by type of transaction and by related and non-related parties:

  F-15  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – SHARE CAPITAL, Continued:                              

 

Cash   Services   Debt Repayment   Acquisitions   Total                        
Related Parties   Shares   Value   Shares   Value   Share   Value   Shares   Value   Shares   Value
Patrick Bilton     —       $ —         1,070,000       267,500       356,400       89,100       —       $ —         1,426,400     $ 356,600  
David Tobias     40,000       10,000       220,000       55,000       100,000       25,000       —         —         360,000     $ 90,000  
Jerry Cornwell     —         —         220,000       55,000       80,000       20,000       —         —         300,000     $ 75,000  
Brad Herr     —         —         60,000       15,000       —         —         —         —         60,000     $ 15,000  
Total for related                                                                                
Parties     40,000       10,000       1,570,000       392,500       536,400       134,100       —       $ —         2,146,400     $ 536,600  
Unrelated Parties     140,000       35,000       868,000       217,000       —         —         500,000       125,000       1,508,000       377,000  
Aggregate Totals     180,000     $ 45,000       2,438,000     $ 609,500       536,400     $ 134,100       500,000       125,000       3,654,400     $ 913,600  

 

 

In addition, the Company issued 500,000 shares of its common stock with an estimated fair value of $0.25 per share, or $125,000, in connection with its acquisition of G4 (See Note 2), sold 180,000 shares of its common stock for $45,000 cash, and issued 526,400 shares to related parties in exchange for advances payable to them of $134,100. The Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares.

 

Shares issued to non-related parties in the years ended May 31, 2019 and 2018, were issued to non-employee contractors for services rendered during the periods. Share based compensation expense is recognized on non-employee awards on the date granted and based upon management’s estimate of fair value of the securities issued. The Company estimated the fair value of the common stock to be $0.25 per share at the times of issuance. The Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares.

 

NOTE 6 – INCOME TAXES

 

The Company did not recognize a tax provision or benefit for the years ended May 31, 2019 and 2018 due to ongoing net losses and a valuation allowance. At May 31, 2019, the Company had net deferred tax assets which will not be realized and are fully reserved by valuation allowances.

 

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The primary impact of the Act in fiscal year 2018 is a reduction of the federal statutory tax rate from 35% to the weighted average rate of 29%, based upon a 35% effective rate for the first seven months of the Company’s fiscal year, and 21% for last five months of the Company’s fiscal year 2018, consistent with Internal Revenue Code Section 15. The final impact of the Act may differ due to and among other things, changes in interpretations, assumptions made, the issuance of additional guidance, and actions the Company may take as a result of the Act. The Company’s net deferred tax asset was reduced by approximately $208,000 during the year ended May 31, 2018, which consisted primarily of the re-measurement of federal deferred tax assets and liabilities from the previous rate of 35% to the newly enacted rate of 21%.

 

The components of the Company’s net deferred tax assets at May 31 are as follows:

 

  F-16  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – INCOME TAXES, Continued:                

 

    2019   2018
Net operating loss carryforward   $ 428,522     $ 263,854  
Intangible asset     37,409       —    
Total deferred tax assets     465,931       263,854  
Valuation allowance     (465,931 )     (263,854 )
Net deferred tax assets   $ —       $ —    

 

During the years ended May 31, 2019 and 2018, the Company had approximately $2,218,000 and $1,256,000 of Federal net operating losses available to carryforward, respectively. These net operating losses will expire in various amounts from 2035 through 2038, with the exception of approximately $800,000, which do not expire but future usage of which is limited to 80% of taxable income in the year of usage.

 

The reconciliation of the federal income tax rate and the Company’s tax provision (benefit) is as follows:

 

    2019       2018    
Provision (benefit) computed using the statutory rate $ (202,077) (21)%   $ (204,396) (29)%
Impact of change in statutory tax rate   -   0%   133,264 20%
Change in valuation allowance   202,077 21%   71,132 9%
Total income tax provision (benefit) $ -   0%   $ -   0%

 

The Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns and found no positions that would require a liability for uncertain income tax benefits to be recognized. The Company is subject to possible tax examinations for the fiscal years 2014 through 2018. Prior year tax attributes could be adjusted by taxing authorities. If applicable, the Company will deduct interest and penalties as interest expense on the financial statements.

 

NOTE 7 – NON-CONTROLLING INTEREST

 

In the year ended May 31, 2018, the Company acquired a 51% interest in G4 Products LLC. The Company recognized the 49% non-controlling interest in the ownership of G4 as of the date of the acquisition. The non-controlling interest was reduced by $27492 during the year ended May 31, 2018 representing its share of the losses incurred that were attributable to the minority interest.

 

  F-17  

 

MJ HARVEST, INC.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 7 – NON-CONTROLLING INTEREST, Continued:

 

In December 2018, the Company acquired the remaining 49% interest in G4 for aggregate consideration of $70,000 (see Note 2). During the year ended May 31, 2019, the non-controlling interest earned $5,730 of net income prior to the Company’s acquisition of the remaining 49%.

 

As a result of the acquisition, the Company owned 100% of G4. The non-controlling interest equity balance of $146,375 less the consideration paid was eliminated through additional paid-in capital as a result.

 

NOTE 8 – IMPAIRMENT OF INTANGIBLE ASSETS

 

The Company performed a year-end impairment analysis of the carrying value of its intangible assets. The analysis was triggered by the acquisition of the non-controlling interest during the year ended May 31, 2019 and the lower than expected revenues generated from sales of its products during the year. The analysis included an evaluation of expected future revenues and earnings from the intangible assets and determined that a reasonable value for the intangible assets was $150,000 at May 31, 2019, and as a result recording an impairment loss of $178,137 for the year ended May 31, 2017.

 

Based on future earning potential from the intangible assets, the length of time remaining on the patents, and the historical sales of the product to date, management believes that the recorded value of the intangible assets totaling $150,000 is reasonable. The Company received notice of allowance for the patents and the patents are expected to issue sometime in the Fall 2019. The Company will continue to evaluate the intangible assets for additional impairments as appropriate in future periods.

 

NOTE 9 – REVENUE

 

The Company product revenue is 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. Domestic sales for the fiscal year were $39,061. Sales to foreign customers for the fiscal year were $33,593.

 

Shipments to two customers during the year ended May 31, 2019 totalled to $58,307 or 80% of sales in that year. As of May 31, 2019, there were $3,234 of accounts receivable from these customers.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company has evaluated all events subsequent to the end of the Company’s reporting period up through the release date of these financial statements (August 30, 2019), and determined that no other events, recognized or unrecognized require disclosure in the basic financial statements. In July 2019, the Company received notice from the United State Patent and Trademark Office that its patent applications relating the debudder products had been allowed. The Company expects the patents to be issued before the end of September 2019, and the issuance will trigger an earnout distribution of $100,000, payable in the Company’s common stock, to the inventor pursuant to the agreement for the acquisition of G4. The Company has also entered into a verbal commitment to pursue development of a hemp clone farm in Florida as soon as the State of Florida approves the regulatory provisions governing hemp cultivation. Florida has drafted the regulations, solicited comment, and is expected to approve the regulatory framework later this fall. Upon approval, the Company intends to formalize its relationship with the landowner for development of the hemp cloning operation and commence the operation as soon as possible. The Company continues to actively seek new product distribution arrangements with third parties and is in the process of formalizing agreements with several product companies that will expand the Company’s product portfolio in the fiscal year ending May 31, 2020.

 

  F-18  

 

 

MJ Harvest, Inc.      
Contents      
FINANCIAL STATEMENTS – Quarter Ended August 31, 2019:   Page
       
Consolidated Balance Sheets   F-20
       
Consolidated Statements of Operations   F-21
       
Consolidated Statements of Changed in Stockholders’ Equity (Deficit)   F-22
       
Consolidated Statements of Cash Flows   F-23
       
Notes to Consolidated Financial Statements F-24-F-31
     
  F-19  

 

 

MJ HARVEST, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

    31-Aug   May 31,
ASSETS   2019   2019
CURRENT ASSETS:                
Cash     11,966     $ 13,592  
Accounts receivable     12,712       9,191  
Inventory     53,563       56,205  
Total current assets     78,241       78,988  
NON-CURRENT ASSETS:                
Machinery and equipment - net     19,659       20,919  
Deposits     —         480  
Intangible asset     150,000       150,000  
Total non-current assets     169,659       171,399  
Total Assets     247,900     $ 250,387  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:                
Accounts payable and other liabilities     17,143     $ 15,915  
LONG-TERM LIABILITIES                
Common stock payable     191,500       127,125  
Advances from related parties     664,663       539,704  
Total long-term liabilities     856,163       666,829  
Total Liabilities     873,306       682,744  
COMMITMENTS AND CONTINGENCIES (Note 4)                
STOCKHOLDERS’ EQUITY (DEFICIT):                
Preferred stock, par value $0.0001, 5,000,000 shares authorized,                
no shares issued and outstanding     —         —    
Common stock, $0.0001 par value per share, 50,000,000 shares                
authorized, 19,111,739 and 18,758,739 issued and                
outstanding, respectively     1,911       1,876  
Additional paid-in capital     1,872,701       1,784,486  
Accumulated deficit     (2,500,018 )     (2,218,719 )
Stockholder's equity before non-controlling interest  Total Stockholder's deficit     (625,406 )     (432,357 )
Total Liabilities and Stockholders' deficit   $ 247,900     $ 250,387  

 

 

  F-20  

 

MJ HARVEST, INC.

STATEMENTS OF OPERATIONS

(unaudited)

 

    Three months ended
    August 31,   August 31,
    2019   2018
         
REVENUE     20,960     $ 18,386  
Cost of sales     12,444       6,259  
Gross profit     8,516       12,127  
                 
OPERATING EXPENSES:                
Officer and director compensation     150,000       60,000  
General and administrative     34,856       2,609  
Professional fees and contract services     104,959       87,008  
Total operating expenses     289,815       149,617  
                 
NET LOSS FROM OPERATIONS     (281,299 )     (137,490 )
                 
Net income attributable to non-controlling interest     —         (1,735 )
                 
NET LOSS ATTRIBUTABLE TO MJ HARVEST, INC.   $ (281,299 )   $ (139,225 )
                 
NET LOSS PER COMMON SHARE - Basic and diluted   $ (0.01 )   $ (0.01 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON                
SHARES OUTSTANDING - Basic and diluted     18,777,924       17,655,652  
  F-21  

 

MJ HARVEST, INC.

 

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED AUGUST 31, 2019 AND 2018 (unaudited)

     

                         
            Additional            
    Common Stock   Paid-In   Accumulated   Non-controlling    
    Shares   Amount   Capital   Deficit   Interest   Total
                         
 BALANCES, May 31, 2018     17,598,739     $ 1,760     $ 1,418,227     $ (1,256,448 )   $ 140,645     $ 304,184  
 Shares issued for compensation     119,000       12       29,738                       29,750  
 Net loss for the three months ended August 31, 2018                             (139,225 )     1,735       (137,490 )
 BALANCES, August 31, 2018     17,717,739     $ 1,772     $ 1,447,965     $ (1,395,673 )   $ 142,380     $ 196,444  
                                                 
 BALANCES, May 31, 2019     18,758,739     $ 1,876     $ 1,784,486     $ (2,218,719 )   $ —       $ (432,357 )
 Share issued for common stock payable     353,000       35       88,215                       88,250  
 Net loss for the three months ended August 31, 2019                             (281,299 )     —         (281,299 )
 BALANCES, August 31, 2019     19,111,739     $ 1,911     $ 1,872,701     $ (2,500,018 )   $ —       $ (625,406 )

 

  F-22  

 

MJ HARVEST, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

 

    Three months ended
    August 31,   August 31,
    2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss     (281,299 )   $ (137,490 )
Adjustments to reconcile net loss to net cash                
used in operating activities:                
Depreciation     1,260       750  
Share based compensation     152,625       89,750  
Changes in operating assets and liabilities:                
Accounts receivable     (3,521 )     (18,386 )
Inventory     2,642       (18,283 )
Deposits     480       —    
Accounts payable and other current liabilities     1,228       (8,469 )
NET CASH (USED IN) OPERATING ACTIVITIES     (126,585 )     (92,128 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of machinery and equipment     —         (14,809 )
Deposits     —         5,900  
NET CASH (USED) IN INVESTING ACTIVITIES     —         (8,909 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from advances by related parties     124,959       105,000  
NET CASH PROVIDED BY FINANCING ACTIVITIES     124,959       105,000  
                 
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS     (1,626 )     3,963  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR     13,592       3,277  
                 
CASH AND CASH EQUIVALENTS END OF YEAR   $ 11,966     $ 7,240  
                 
Non-cash financing and investing activities                
Shares issued for Common stock payable     88,250     $ —    

  F-23  

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

The Company develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis space. In 2017, the Company acquired a 51% interest in G4 Products LLC, 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 also organized AgroExports LLC to serve as the international distribution arm for sales of agricultural and horticultural tools and implements, and also 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 51% of G4 Products LLC, making it a wholly owned subsidiary. On April 10, 2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online payments in the Canadian Market. Sales in Canada are currently serviced through a fulfillment center in Toronto.

 

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-month period ended August 31, 2019 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 Company’s Annual Report on Form 10-K for the year ended May 31, 2019.

 

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 in 2018 and the Statement of Operations for the three months ended August 31, 2018 includes the net loss of the non-controlling interest in G4, represented by the non-controlling interest’s proportionate share of its ownership in G4. All intercompany transactions have been eliminated.

 

Going Concern

 

The Company has an accumulated deficit of $2,500,018 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.

 

In the year ended May 31, 2018, the Company acquired a 51% interest in G4, a controlled subsidiary that owned certain intangible assets and in the year ended May 31, 2019, the Company acquired the remaining 49% of G4 and thereby became the sole owner of the intangible assets. The intangible assets serve as a building block for the Company’s efforts to grow revenues. In the year ended 2019, the Company began generating operating revenue but the level of revenue from the current product line is expected to not be sufficient to support profitable operations in the fiscal year ending May 31, 2020. Additional acquisitions and business opportunities are under consideration but has not reached agreement with any 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.

  F-24  

 

 

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 August 31, 2019, the Company had no leases and the update did not have a material effect on the financial statements.

 

Nonemployee compensation: In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expands the scope of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goods and services from nonemployees. 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.

 

  F-25  

 

Financial Instruments

 

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

 

Cash and cash equivalents

 

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

 

Revenue Recognition

 

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

 

· identify the contract with a customer;

 

· identify the performance obligations in the contract;

 

· 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.

 

Fixed Assets

 

Fixed assets consist 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.

  F-26  

 

 

Intangible Assets

 

We account for intangible assets in accordance with ASC 350 ”Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that intangible assets with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Application of the intangible asset impairment test requires judgment, including the identification of intangible assets and determining their fair value. Significant judgments required to estimate the fair value of intangible assets include estimating future cash flows, determining appropriate discount rates and other assumptions. If the evaluation indicates that the carrying amount of an asset may not be recoverable, the potential impairment is measured based on a fair value discounted cash flow model. Changes in estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.

 

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense is included as a component of cost of product revenue. As of August 31, 2019, no amortization expense has been recognized, as the Company’s intangible assets consisted of a provisional patent. When the Company receives its non-provisional patent, it will begin amortizing the intangible asset.

 

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, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the periods ended August 31, 2019 and 2018, 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

  F-27  

 

 

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 goods or services received when the fair value of the goods and services is a more reliable measurement of fair value than the equity instruments issued.

 

NOTE 2 –ACQUISITIONS OF G4

 

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.

 

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.

 

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 earnout provisions that are described in Note 4 – Commitments and Contingencies.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

At August 31, 2019, and May 31, 2019, the Company had advances from related parties totaling $664,663 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 August 31, 2019, and May 31, 2019, the Company owed Mr. Jerry Cornwell, a director, $15,696.

 

· As of August 31, 2019, and May 31, 2019, the Company owes David Tobias, a majority shareholder and director, $75,553.

 

· As of August 31, 2019, and May 31, 2019, Patrick Bilton, a director and the Company’s Chief Executive Officer, was owed $525,959 and $401,000, respectively, for advances to the Company for operating capital and an additional $47,455 at August 31, 2019 and May 31, 2019, for expenses paid on behalf of the Company. Collectively, Mr. Bilton is owed $573,414 and $448,455, respectively, as of August 31, 2019 and May 31, 2019.

 

The Company also owed Mr. Cornwell $818 for expenses he paid on behalf of the Company in prior periods. This amount is classified as an account payable at August 31, 2019, and May 31, 2019.

 

At August 31, 2019 and May 31, 2019, the Company had common stock payable totaling $191,500 and $127,125, respectively. Of these amounts, $135,000 and $75,000, respectively, were payable to related parties. These amounts consisted of the following.

 

· The Company also had common stock payable to Mr. Cornwell of $11,667 and -0- at August 31, 2019 and May 31, 2019, respectively, for services as a director.

 

· The Company also had common stock payable to Mr. Tobias of $11,667 and -0- at August 31, 2019 and May 31, 2019, respectively, for services as a director.

 

· The Company also had common stock payable to Mr. Bilton of $91,666 and $60,000 at August 31, 2019 and May 31, 2019, respectively, for services as an officer and director.

 

· As of August 31, 2019, and May 31, 2019, the Company had common stock payable to Nexit, Inc, an entity solely owned by Brad Herr, Chief Financial Officer, of $20,000 and $15,000, respectively, for services as an officer of the Company.

 

  F-28  

 

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

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

 

In addition, an earn-out compensation payment of $100,000, payable in shares of the Company’s common stock, will be due Original Ventures upon the issuance of the non-provisional patent to G4. The Company received notice that the US Patent and Trademark Office has allowed the patents on the debudder products and the patents are expected to be issued in the second fiscal Quarter ended November 30, 2019 and the earnout compensation due on the issuance will be recorded when the patents are issued. See Note 9.

 

NOTE 5 – SHARE CAPITAL

 

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

 

As of August 31, 2019, and May 31, 2018, there were 19,111,739 and 18,758,739, respectively, of shares of common stock outstanding and there were no preferred shares issued and outstanding.

 

In the three months ended August 31, 2019, shares of common stock were issued to related and non-related parties for services performed in the year ended May 31, 2019 and recorded as common stock payable, and for services performed in the current period. The following table breaks out the issuances by type of transaction and by related and unrelated parties:

                    Three months ended August 31, 2019                
        Shares issued in the Period for:         Shares Issuable at August 31, 2019      
    Common Stock               Services in Prior Current Period        
    Payable Services Total Period Services Total
Related Parties Shares   Value   Shares Value   Shares Value   Shares   Value   Shares   Value   Shares   Value  
                                             
  Patrick                                              
  Bilton 160,000 $ 40,000 13,333 $ 3,333 173,333 $43,333   80,000 $ 20,000 286,667 $ 71,667 366,667 $ 91,667  
  David                                              
Tobias -   -   13,334 $ 3,334 13,334 3,334   -   -   46,666   11,667 46,666   11,667
  Jerry                                              
  Cornwell -   -   13,334 $ 3,333 13,334 3,333   -   -   46,666   11,666 46,666   11,666  
  Brad                                              
Herr 40,000   10,000   -   -   40,000 10,000   20,000   5,000 60,000   15,000 80,000   20,000
  Total for                                              
  related                                              
  Parties 200,000 $ 50,000 40,001   10,000 240,001 $60,000   100,000 $ 25,000 439,999 $ 110,000 539,999 $ 135,000  
                                                 
Unrelated 112,999 $ 28,250 - $ -   112,999 $28,250   95,501 $ 23,875 130,500 $ 32,625 226,001 $ 56,500  
  Parties      
  Aggregate 312,999 $ 78,250   40,001 $ 10,000 353,000 $88,250   195,501 $ 48,875 570,499 $ 142,625 766,000 $ 191,500  
  Totals    

 

 

  F-29  

 

 

The Company had an aggregate of $191,500 of services payable in common stock as of August 31, 2019. $48,875 of this amount relates to services performed in the prior period, and $142,625 was for services rendered in the current period. This will result in the issuance of 766,000 shares of common stock in the year ending May 31, 2020. $135,000 of the total was payable to related parties. See Note 3.

 

In the three months ended August 31, 2018, shares of common stock were issued to related and non-related parties for services performed in the year ended May 31, 2018. The following table breaks out the issuances by type of transaction and by related and unrelated parties:

 

                          Three months ended August 31, 2018                    
          Shares issued in the Period for:             Shares Issuable at August 31, 2018      
    Common Stock                           Services in Current Period          
    Payable Services     Total Prior Period Services Total
    Shares   Value   Shares   Value     Shares   Value   Shares   Value   Shares Value   Shares   Value
  Related Parties                                                                      
  Brad Herr 60,000 $15,000     — $ — 60,000 $15,000     — $ — — $ — — $ —
  Total for related Parties 60,000     $15,000     —     $ —       60,000     $15,000     —     $ —     —   $ —     —     $ —  
                                                                         
Unrelated Parties 59,000 $14,750     — $ — 59,000 $14,750     — $ — — $ — — $ —
                                                                         
Aggregate Totals 119,000 $29,750     — $ — 119,000 $29,750     — $ — — $ — — $ —
                                                                         

 

Shares issued to non-related parties in the three months ended August 31, 2019 and 2018 were issued to non-employee contractors for services rendered during the periods. Share based compensation expense is recognized on non-employee awards on the date granted and based upon management’s estimate of fair value of the securities issued. The Company estimated the fair value of the common stock to be $0.25 per share at the times of issuance. The Company believes that no active market for the Company’s securities currently exists and estimates the fair value of its common stock based upon the most recent cash sales of shares.

 

NOTE 6 – NON-CONTROLLING INTEREST

 

In the year ended May 31, 2018, the Company acquired a 51% interest in G4 Products LLC. The Company recognized the 49% non-controlling interest in the ownership of G4 as of the date of the acquisition. The non-controlling interest was reduced by $27,492 during the year ended May 31, 2018 representing its share of the losses incurred that were attributable to the minority interest.

 

In December 2018, the Company acquired the remaining 49% interest in G4 for aggregate consideration of $70,000 (see Note 2). During the year ended May 31, 2019, the non-controlling interest earned $5,730 of net income prior to the Company’s acquisition of the remaining 49%.

 

As a result of the acquisition, the Company now owns 100% of G4. The non-controlling interest equity balance of $146,375 less the consideration paid was eliminated through additional paid-in capital as a result.

 

  F-30  

 

NOTE 7 – IMPAIRMENT OF INTANGIBLE ASSETS

 

For the three months ended August 31, 2019, the Company evaluated its intangible assets and determined that the recorded value of the intangible assets on the books of the Company is not impaired.

 

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

 

Based on future earning potential from the intangible assets, the length of time remaining on the patents, and the historical sales of the product to date, management believes that the recorded value of the intangible assets totaling $150,000 is reasonable. The Company received notice of allowance for the patents and the patents are expected to issue sometime in the Fall 2019. The Company will continue to evaluate the intangible assets for additional impairments as appropriate in future periods.

 

NOTE 8 – REVENUE

 

The Company’s product revenue is currently generated exclusively though sales of its debudder products. The Company’s customers, to which trade credit terms are extended, consist of foreign and domestic companies. For the three months ended August 31, 2019, domestic sales were $20,960 and no sales were made to foreign customers. For the three months ended August 31, 2018, domestic sales were $18,386 and no sales were made to international customers.

 

Shipments to one customer during the three months ended August 31, 2019 totaled $14,750 or 70% of sales in that year. As of August 31, 2019, there were $9,875 of accounts receivable from this customer.

 

In the three months ended August 31, 2018, all of our sales ($18,386) were through one distributor in domestic markets.

 

NOTE 9 – SUBSEQUENT EVENTS

 

On October 8, 2019, the Company received Patents on the Debudder Bucket Lid and the Debudder Edge. Patent Nos. US D862280 S and US D862,181 S. The issuance has triggered an earnout distribution of $100,000, payable in the Company’s common stock, to the inventor pursuant to the agreement for the acquisition of G4. See Note 4.

  F-31  

 

 

 

 

MJ Harvest (CE) (USOTC:MJHI)
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