UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

MJ Harvest, Inc. 

 (Exact name of registrant as specifie

d in its charter) 

9205 W. Russell Road, Suite 240, Las Vegas, Nevada 89148-1425

(Address of Principal Executive Office) (Zip Code)

(954) 519-3115

(Registrant’s telephone number, including area code)

N/A 

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

Securities registered pursuant to Section 12(b) of the Act: 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

☒ Yes ☐ No

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

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

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

☐ Yes ☒ No 

The number of shares of the issuer’s Common Stock outstanding as of April 14, 2022 is 33,068,952.

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements. Attached after signature page.

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

Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a differences include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; inflation, the war in Ukraine, supply chain slowdowns, reoccurring Covid-19 outbreaks, both nationally and internationally, particularly in China, and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “hope,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Results of Operations

Three Months Ended February 28, 2022 compared with the Three Months Ended February 28, 2021

The narrative comparison of results of operations for the three-month periods ended February 28, 2022 and 2021, is based on the following table.

Revenues increased 69% in the quarter ended February 28, 2022 compared with the same period in 2021. The increase in the current quarter was largely due to direct sales efforts by our sales team. Management has remained focused on sales efforts for the debudder products while also working to expand our relationship with PPK Investment Group, Inc., a vertically integrated cannabis company selling the Country Cannabis Brand of products, and seeking other acquisitions. We anticipate that we will maintain a marketing focus on the debudder products in the coming periods but also expect to devote substantial attention to our efforts at growing our presence in the cannabis industry through acquisitions. We recently entered into an agreement to acquire a facility and cannabis licenses for an operation in Denver Colorado, and we expect to close on a an acquisition of a facility and licenses in California in April or May of this year. These acquisitions will have a significant effect on the direction of our future operations.

As a percentage of sales, cost of sales decreased between periods as a result of improved efficiencies in our fulfillment centers. In the prior period, we moved our inventory to a new California fulfillment center and the costs of the move impacted results in the three months ended February 28, 2021.

Total operating expenses increased somewhat in the current period primarily due to increased expenditures for officer and director compensation resulting from the addition of a fourth director and payment of comensation to that director. General and administrative expenses increased in the current period compared with a year earlier, primarily driven by travel expenses associated with the Company’s investment in PPK Investment Group, Inc., and other merger and acquisition work performed during the current period. Advertising and promotion also increased as a result of increased expenditures for investor awareness in the current period. These increases were partially offset by a decrease in professional fees. In the current period, costs previously categorized as professional fees were reclassified as officer and director compensation when one of our consultants accepted a position on the Board.

Net loss from continuing operations increased in 2022 compared with 2021 primarily due to increases in advertising and promotion expenses and consulting fees relating to the Company’s investor relations efforts.

Nine Months Ended February 28, 2022 compared with the Nine Months Ended February 28, 2021

The narrative comparison of results of operations for the nine-month periods ended February 28, 2022 and 2021, is based on the following table.

Revenues increased 68% in the nine-month period ended February 28, 2022 compared with the same period in 2021. Management refocused sales efforts on the debudder products after discontinuing operations of the soils business acquired from Elevated Ag Solutions, Inc. (“Elevated”) in early October 2020. The soils division was discontinued in the quarter ended November 30, 2020 and is not reflected in operating results for the periods presented above (see “Discontinued Operations”). We anticipate that the marketing focus on the debudder products will continue now that the soils division has been discontinued. We also recently entered into an agreement to acquire a facility and cannabis licenses for an operation in Denver Colorado, and we expect to close on a an acquisition of a facility and licenses in California in April or May. Management believes these acquisitions will have a significant effect on the direction of our future operations.

Total operating expenses increased in the current period, primarily due to increased expenditures for advertising and promotion and increases in travel related to an increased focus on acquisitions. In the nine-month period ended February 28, 2022, we retained a consultant to communicate with prospective funding sources, coordinate press releases, and in general assist with market awareness of the company. The cost of this program was paid partially in cash and partially in stock with an aggregate cost of $250,250. Additional advertising expenses were incurred for trade show expenses in connection with our attendance at the MJBIZCON trade show in Las Vegas. Officer and director compensation increased and professional fees and contract services decreased in 2022 compared with 2021, primarily due to the appointment of one of our contractors as a director in the current period and the associated reclassification of his contract fees to “officer and director compensation.” General and administrative expenses increased in the current period compared with a year earlier, primarily driven by travel expenses associated with the Company’s investment in PPK Investment Group, Inc.

Net loss from continuing operations increased in 2022 compared with 2021 primarily due to the increase in advertising and promotion expenses.

Non-Operating Expenses.

In the three and nine-month periods ended February 28, 2022, the Company incurred $34,134 and $645,592, respectively, in interest and finance expense relating to notes payable from a funding transaction on March 22, 2021. The nine-month amount included $550,000 in discount on notes payable. The Company had no comparable outstanding debt in the three and nine-month periods ended February 28, 2021. The notes payable were due on March 22, 2022, subsequently extended to March 29, 2022, and paid in full with accrued interest on March 29, 2022. The source of funds for the repayment of the notes was from a new senior lender. The company expects to enter into a senor convertible debt agreement with the new senior lender in our fiscal fourth quarter.

Discontinued Operations.

In the prior year, after operating the soils division for the first four months of the year ended May 31, 2021, management undertook an in-depth assessment of Elevated Ag Solutions, Inc. (“Elevated”) and concluded that the soils division was not as represented at the time of the acquisition in January 2020, was not likely to ever operate profitably without significant revisions to operating methods and changes in personnel and was likely to create significant business questions and concerns should it be continued. Accordingly, management elected to discontinue the business acquired from Elevated. Upon discontinuation of the Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. During the nine months ended February 28, 2021, the common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, were cancelled, and the Company paid a $10,000 walk-away fee. In the aggregate, the Company recognized a loss from discontinued operations of $10,000.

Operating results for the three and nine-month periods ended February 28, 2021 from the discontinued operations are reflected in the following table.

Liquidity and Capital Resources

Cash flow used in operating activities for the nine-month period ended February 28, 2022 was $329,212 compared with $175,329 in the comparable period in 2021. During the period, our total cash decreased by $115,712. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $213,500.

The Company continues to make progress in growing sales of its existing product line, but the business is not yet sufficient to support our current operating structure. Our current working capital is negative $1,237,969, based on current assets of $122,238 and current liabilities of $1,360,207. We continue to seek out potential acquisition candidates and distributorships and hope to see continuing growth in sales in the coming periods. The Company is currently reliant on funding through advances from related parties, but we have no binding agreements or commitments for such funding and no assurances can be given that such funding will continue to be available in future periods.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred net losses from continuing operations of $327,285 and $1,757,356 for the three and nine-month periods ended February 28, 2022, respectively, and had an accumulated deficit of $10,855,613 as of February 28, 2022. In addition, we have notes payable aggregating $900,000 plus accrued interest that are due on March 22, 2022.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt.  It will be important for the Company to succeed in its efforts to raise capital in this manner to further its business plan in an aggressive manner.  Raising additional capital may cause dilution to current shareholders.

COVID-19

We are now in the third year of the COVID-19 pandemic. While the impact of the pandemic is lessening, new COVID variants are causing continued concern and the pandemic is not over. To date, the disruption from COVID-19 did not materially impact the Company’s financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the third fiscal quarter ended February 28, 2022.

The effects of the continued outbreak of COVID-19 and related government responses may include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity in our industry. These effects could have a variety of adverse impacts to the Company, including an inability to adequately staff and operate our facilities. To date, there have been no material adverse impacts to the Company’s operations due to COVID-19.

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

Off Balance Sheet Arrangements

None

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

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

Management of the Company believes that these material weaknesses are due primarily to the small size of the company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended February 28, 2022 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

PART II – OTHER INFORMATION

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

During the three months ended February 28, 2022, the Company issued 281,506 shares of common stock without registration under the Securities Act. Of these, 63,710 shares ($25,510) were issued to two contractors and 217,796 shares ($103,785) were issued to four officers and directors for services. All of the above shares were issued in exempt transactions under Section 4(a)(2) of the Securities Act since the recipients of the shares were persons closely associated with the Company and the issuance of the shares did not involve any public offering.

Item 6.  Exhibits. 

The following documents are included as exhibits to this report:

(a) Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MJ Harvest, Inc.

Contents

MJ HARVEST, INC. 

Condensed Consolidated Balance Sheets
(unaudited)

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

MJ HARVEST, INC

Condensed Consolidated Statements of Operations
(unaudited)

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

MJ HARVEST, INC 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(unaudited)

FOR THE THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 2022 AND 2021

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

MJ HARVEST, INC. 

Condensed Consolidated Statements of Cash Flows
(unaudited)

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

MJ HARVEST, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)