UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 ACT OF 1934

For the quarterly period ended: August 31, 20202021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

 ACT OF 1934

For the transition period from: _____________ to _____________

Commission File Number:  333-234048000-56250

MJ Harvest, Inc.

 (Exact name of registrant as specified in its charter)

  NEVADAnevada82-3400471
(State or Other Jurisdiction(I.R.S. Employer
of Incorporation)Identification No.)

9205 W. Russell Road, Suite 240, Las Vegas, Nevada89139

(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:

Title of each classTrading SymbolName of each exchange on which registered.
None

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

☒ Yes ☐ No

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

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

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐☒Smaller reporting company☒
Emerging growth company☒

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

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

☐ Yes ☒ No

The number of shares of the issuer's Common Stock outstanding as of October 15, 2020,1, 2021 is 22,892,874.31,449,344.

1

 

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

Attached after signature page.

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

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

Results of Operations

Three Months Ended August 31, 20202021 compared with the Three Months Ended August 31, 20192020

The narrative comparison of results of operations for the three-month periods ended August 31, 20202021 and 2019,2020, is based on the following table.

 Three Months Ended
 A B A-B%
 August 31, 2021 August 31, 2020 ChangeChange
REVENUE $        74,685  $        30,829  $        43,856142%
COST OF REVENUE           20,129            13,181              6,94853%
Cost of revenue as a % of total revenue27% 43% 16% 
Gross Profit           54,556            17,648            36,908209%
Gross profit as a % of revenue73% 57% -16% 
OPERATING EXPENSES      
Officer and director compensation         135,000          130,000              5,0004%
General and administrative           26,354              8,819            17,535199%
Professional fees and contract services           74,893            95,682          (20,789)-22%
Advertising and promotion         279,857                    -             279,857n.a.
Total operating expenses         516,104          234,501          281,603120%
NET LOSS FROM CONTINUING OPERATIONS       (461,548)        (216,853)        (244,695)113%

  Three Months Ended
  A B B-A
  August 31, 2019 August 31, 2020 Change
REVENUE $20,960  $106,046  $85,086 
COST OF REVENUE  12,444   92,549   80,105 
Cost of revenue as a % of total revenue  59%  87%  28%
Gross Profit  8,516   13,497   4,981 
Gross profit as a % of revenue  41%  13%  -28%
OPERATING EXPENSES            
Officer and director compensation  150,000   130,000   (20,000)
General and administrative  34,856   18,819   (16,037)
Professional fees and contract services  104,959   95,682   (9,277)
Total operating expenses  289,815   244,501   (45,314)
NET LOSS FROM OPERATIONS  (281,299)  (231,004)  50,295 

Revenues increased substantially a result142% in the quarter ended August 31, 2021 compared the same period in 2020. Management refocused sales efforts on the debudder products after discontinuing operations of additional product sales attributable to the acquisition of assetssoils business acquired from Elevated Ag Solutions, Inc. (“Elevated”) atin early October 2020. In the startprior period, management had expended considerable time and effort on the soils division The soils division was discontinued in the quarter ended November 30, 2020 and is not reflected in operating results for the periods presented. (See “Discontinued Operations.”) We anticipate that the marketing focus on the debudder products will continue now that the soils division has been discontinued.

2

Total operating expenses increased in the current period, primarily due to increased expenditures for advertising and promotion. In the quarter ended August 31, 2021, we retained two consultants to communicate with prospective funding sources, coordinate press releases, and in general assist with market awareness of our fiscal fourth quarter ending May 31,the company. The cost of these programs was paid partially in cash and partially in stock with an aggregate cost of $267,900. Officer and director compensation increased slightly due to increased director fees in 2021 compared with 2020. WhileGeneral and administrative expenses increased in the Elevatedcurrent period compared to a year earlier, primarily driven by travel expenses associated with the Company’s investment in PPK Investment Group, Inc. Professional fees and contract services decreased in 2021 compared with 2020 due to efforts by the Company to move more of the marketing efforts and target acquisition due diligence costs in-house.

Net loss from continuing operations increased our revenue flow,in 2021 compared with 2020 primarily due to the margins on these transactions were small and we saw a corresponding increase in cost of sales. The net effect ofadvertising and promotion expenses.

Non-Operating Expenses.

In the added business wasthree months ended August 31, 2021, the Company incurred $478,646 in interest expense relating to notes payable from a small increasefunding transaction on March 22, 2021. This amount included $450,000 in discount on notes payable.

Discontinued Operations.

After operating the dollar amount of our gross profit, but a 28% decrease insoils division for the gross profit as a percentage of revenue. Following the end of our first quarter endingthree months ended August 31, 2020, management reviewed the Elevated acquisition, business recorded to date, and the prospects for future success from this line of business. Management also reviewed the representations made by Elevated at the timeundertook an in-depth assessment of the acquisition,business and the manner in which the transactions were carried out in the Quarters ending May 31, 2020 and August 31, 2020.

Based on this review and evaluation, management has concluded that the Elevated businesssoils division was not what wasas represented at the time of the acquisition, was not likely to ever operate profitably without significant revisions to operating methods and changes in personnel and was likely to create significant business questions and concerns should it be continued. Accordingly, management has elected to cease doingdiscontinue the business acquired from Elevated and we have tendered all of the domain names and intangible assets acquired back to Elevated. The Company and Elevated are currently discussing an unwinding agreement, including taking steps to cancel some or all of the shares issued by the Company to Elevated for the acquisition, return by the Company of domains and intangible assets to Elevated, release of the covenant not to compete, assignment of an exclusive distributorship obtained by the Company after the acquisition over to Elevated, and mutual releases of any further obligations by each party to the other. An initial offer of settlement from the Company to Elevated was rejected by Elevated and it is uncertain if a settlement agreement can be reached. The Company is evaluating its options should settlement not be possible. Additional information including write off or impairment of the intangible assets will be reported when the settlement is finalized.

As a result of theUpon discontinuation of the Elevated business, revenues and cost of revenues in future periods will be significantly reduced, and gross profit as a percentage of revenue is likely to increase. The overall effect on continuing operations, however, is not likely to be significant. Depending on the resolution reached, the Company also reportentered into a one timesettlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. Common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, were cancelled, and the Company paid a $10,000 walk-away fee. In the aggregate, the Company recognized a loss onfrom discontinued operations butof $10,000.

Operating results for the amount ofthree-month periods from the loss, if any, cannot be determined at this time.

Total operating expenses decreaseddiscontinued operations are reflected in the current period due to reductions in officer and director compensation, general and administrative expenses, and professional fees and contract services. Officer and director compensation decreased due to elimination of a catch-up payment that management authorized in the quarter ended August 31, 2019 that did not reoccur in the current period. General and administrative expenses and professional fees and contract services decreased in 2020 compared to 2019 due to tightened spending controls, shifting more of the general and administrative costs to contractors and contracted officers, and a reduction in professional fees for intellectual property matters following issuance of patents in October of 2019.table.

Net loss from operations decreased in 2020 compared 2019 and reflects management’s efforts to tighten operational controls as we focus on building the business through acquisitions anticipated in the coming periods.

OPERATING RESULTS Three Months Three Months
  Ended Ended
  August 31, 2021 August 31, 2020
Revenue $—    $75,217 
Cost of revenue  —     66,243 
Amortization  —     13,125 
Gross profit  —     (4,151)
Loss on discontinued operations  —     10,000 
  $—    $(14,151)

Liquidity and Capital Resources

Cash flow used in operating activities for the three-month period ended August 31, 20202021 was $90,811$164,942 compared to $126,585$90,811 in the comparable period 2019.2020. During the period, our total cash decreased by $24,811.$100,942. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $66,000.$134,000.

The Company continues to make progress in growing sales of its existing product line, but the business is not yet sufficient to support our current operating structure. We added the Elevated product line in hopes that this would beginOur current ratio, which reflects our ability to address this issue, but as noted above, we are now in the processpay our current debts, is 0.09, based on current assets of discontinuing the Elevated business.$90,243 and current liabilities of $1,077,072. 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.

3

 

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 operations of $231,004$461,548 and $281,299$216,853 for the three-month periods ended August 31, 20202021 and 2019,2020, respectively, and had an accumulated deficit of $4,413,398$10,038,451 as of August 31, 2020.2021. In addition, we have notes payable aggregating $900,000 that will be 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.

3

COVID-19

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

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

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

 

Off Balance Sheet Arrangements

None



Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

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

4

 

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.

4

Changes in Internal Control over Financial Reporting

There have been no changes during the quarter ended August 31, 20202021 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 1.  Legal Proceedings.

We are not a party to any material legal proceedings, and, to the best of our knowledge, no such legal proceedings have been threatened against us.

Item 1A.  Risk Factors

Not required.

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

During the three months ended August 31, 2020,2021, the board of directors did not issue anyCompany issued 6,147,222 shares of common stock. The Board did authorize issuance of an aggregate of 647,857stock without registration under the Securities Act. Of these, 175,000 shares of unregistered common shares to three non-related parties (122,857 shares) and four related parties that were officers and/or directors (525,000 shares) in exchange for services rendered to the Company.  The shares to be issued are valued at $0.20 per share which was$80,250 were issued to a contractor for investor relations services. An additional 5,972,222 shares valued at $1,791,666 were issued to acquire an additional 15% interest in PPK Investment Group, Inc., bringing the closing priceCompany’s total ownership of PPK to 25%.  All of the common stockabove shares were issued in the OTCQB market on the date the shares became issuable (September 1, 2020).  The shares, when issued will be exempt from the registration requirements oftransactions under Section 54(a)(2) of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares arewere persons closely associated with the Company and the issuance of the shares willdid not involve any public offering.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

5

 

Item 6.  Exhibits. 

The following documents are included as exhibits to this report:

(a) Exhibits

    
Exhibit NumberSEC Reference Number Title of Document
31.131 Section 302 Certification of Principal Executive Officer
31.231 Section 302 Certification of Principal Financial Officer
32.132 Section 1350 Certification of Principal Executive Officer
32.232 Section 1350 Certification of Principal Financial Officer
101.INS  XBRL Instance Document
101.SCH  XBRL Taxonomy Extension Schema
101.CAL  XBRL Taxonomy Extension Calculation Linkbase
101.DEF  XBRL Taxonomy Extension Definition Linkbase
101.LAB  XBRL Taxonomy Extension Label Linkbase
101.PRE  XBRL Taxonomy Extension Presentation Linkbase
    
XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement, prospectus or other document to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.   

Exhibit

Number

SEC Reference Number

Title of Document

   
3.1*3Articles of Incorporation of MJ Harvest, Inc.
   
3.2*3Amended Bylaws of MJ Harvest, Inc.
   
10.1*10Independent Contractor Agreement with Patrick Bilton effective January 1, 2019
   
10.2*10Independent Contractor Agreement with Brad Herr effective January 1, 2019
   
10.3*10Securities Purchase Agreement by and between MJ Harvest, Inc. (fka EM Energy, Inc). and Original Ventures, Inc. dated November 7, 2017
   
10.4*10Securities Purchase Agreement by and between MJ Harvest, Inc. and Original Ventures, Inc. dated December 7, 2018
   
31.131Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)
   
31.231Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)
   
32.132Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)
   
32.232Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

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

SIGNATURES

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

MJ Harvest, Inc. 

Date:  October 19, 2020  

MJ Harvest, Inc.
Date:  October 19, 2021By: /s/ Patrick Bilton

Patrick Bilton, Principal Executive OfficerCEO

Date:  October 19, 2021By:  /s/ Brad E. Herr
Brad E. Herr, Chief Financial Officer and Principal Financial Officer

6

 

MJ Harvest, Inc.

 

Contents

 

Page

FINANCIAL STATEMENTS – (Unaudited):

Consolidated balance sheets

2

Consolidated statements of operations

3

Consolidated statements of changes in stockholders’ deficit

4

Consolidated statements of cash flows

5

Notes to consolidated financial statements

6 - 1416

MJ HARVEST, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 MJ HARVEST, INC. 
 CONSOLIDATED BALANCE SHEETS 
 (unaudited) 

       August 31, May 31,
       2020 2020
          
    ASSETS 
  CURRENT ASSETS:       
   Cash and cash equivalents   $             7,532 $         32,343
   Accounts receivable             24,140         19,216
   Vendor deposits                       -         20,000
   Inventory             28,470         32,840
    Total current assets             60,142       104,399
          
  NON-CURRENT ASSETS:       
   Fixed assets, net             14,619         15,879
   Finite-lived intangible assets, net           448,959       465,834
   Indefinite-lived intangible assets, net             25,000         25,000
    Total non-current assets           488,578       506,713
          
    Total Assets   $         548,720 $       611,112
          
    LIABILITIES AND STOCKHOLDERS’ DEFICIT 
 CURRENT LIABILITIES:       
  Accounts payable and other current liabilities   $           70,902 $         97,861
 LONG-TERM LIABILITIES:       
  Common stock payable           229,571       100,000
  Advances from related parties           895,982       829,982
    Total long-term liabilities        1,125,553       929,982
          
    Total Liabilities        1,196,455    1,027,843
          
 COMMITMENTS AND CONTINGENCIES (Note 5)       
          
 STOCKHOLDERS’ DEFICIT:       
  Preferred stock, par value $0.0001, 5,000,000 shares authorized,    
   no shares issued and outstanding                      -                   -   
  Common stock, $0.0001 par value per share, 50,000,000 shares    
   authorized, 22,892,874 and 22,892,874 issued and       
   outstanding, respectively               2,289           2,289
  Additional paid-in capital        3,763,374    3,763,374
  Accumulated deficit       (4,413,398)  (4,182,394)
   Stockholder's equity before non-controlling interest  Total stockholders' deficit          (647,735)     (416,731)
    Total Liabilities and Stockholders' Deficit   $         548,720 $       611,112

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

         
     
  August 31, May 31,
  2021 2021
ASSETS
CURRENT ASSETS:        
Cash and cash equivalents $22,377  $123,319 
Accounts receivable  38,050   —   
Vendor deposits  11,467   —   
Inventory  18,349   28,159 
Total current assets  90,243   151,478 
         
Investment in PPK  2,791,666   1,000,000 
Fixed assets, net  9,579   10,839 
Finite-lived intangible assets, net  122,084   125,834 
Indefinite-lived intangible assets, net  6,000   6,000 
Total Assets $3,019,572  $1,294,151 
         
 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
CURRENT LIABILITIES:        
Accounts payable and other current liabilities $269,312  $181,594 
Customer deposits  7,760   —   
Notes payable , net of discount  800,000   350,000 
 Total current liabilities  1,077,072   531,594 
         
LONG-TERM LIABILITIES:        
Common stock payable  214,221   100,000 
Advances from related parties  1,451,982   1,317,982 
Total long-term liabilities  1,666,203   1,417,982 
Total Liabilities  2,743,275   1,949,576 
         
COMMITMENTS AND CONTINGENCIES (Note 4 and  6)        
         
STOCKHOLDERS’ EQUITY (DEFICIT):        
Preferred stock, par value $0.0001, 5,000,000 shares authorized, 0 shares issued and outstanding  —     —   
Common stock, $0.0001 par value per share, 100,000,000 shares authorized, 31,449,344 and 25,302,122 issued and outstanding, respectively  3,145   2,530 
Additional paid-in capital  10,311,603   8,440,302 
Accumulated deficit  (10,038,451)  (9,098,257)
Total stockholders’ equity (deficit)  276,297   (655,425)
Total Liabilities and Stockholders’ Equity (Deficit) $3,019,572  $1,294,151 

 

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

FS-2

 

 MJ HARVEST, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS 
 (unaudited) 

      Three months ended
      August 31, August 31,
      2020 2019
         
 REVENUE   $        106,046 $          20,960
 COST OF REVENUE            92,549          12,444
   Gross profit            13,497            8,516
         
 OPERATING EXPENSES:      
  Officer and director compensation          130,000        150,000
  General and administrative             18,819          34,856
  Professional fees and contract services            95,682        104,959
   Total operating expenses          244,501        289,815
         
 NET LOSS FROM OPERATIONS   $     (231,004) $     (281,299)
         
 NET LOSS PER COMMON SHARE - Basic and diluted   $            (0.01) $            (0.01)
         
  WEIGHTED AVERAGE NUMBER OF COMMON      
   SHARES OUTSTANDING - Basic and diluted     22,892,874   18,777,924

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

 

MJ HARVEST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

         
  Three months ended
  August 31,
2021		 August 31,
2020
     
REVENUE $74,685  $30,829 
COST OF REVENUE  20,129   13,181 
Gross profit  54,556   17,648 
         
OPERATING EXPENSES:        
Officer and director compensation  135,000   130,000 
General and administrative  26,354   8,819 
Professional fees and contract services  74,893   95,682 
Advertising and promotion  279,857   —   
Total operating expenses  516,104   234,501 
         
NET LOSS FROM CONTINUING OPERATIONS  (461,548)  (216,853)
         
NON-OPERATING EXPENSES        
Interest expense  478,646   —   
         
LOSS FROM DISCONTINUED OPERATIONS        
Operating loss from discontinued operations  —     (4,151)
Loss on discontinued operations  —     (10,000)
Total loss from discontinued operations  —     (14,151)
         
NET LOSS $(940,194) $(231,004)
         
NET LOSS PER COMMON SHARE - Basic and diluted $(0.04) $(0.01)
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted  26,359,821   22,892,874 

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

FS-3

 

 MJ HARVEST, INC. 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT 
 (unaudited) 
 FOR THE THREE MONTH PERIODS ENDED AUGUST 31, 2020 AND 2019 

 MJ HARVEST, INC.

        Additional     
    Common Stock   Paid-In   Accumulated   
    Shares   Amount   Capital   Deficit   Total 
            
  BALANCES, May 31, 2019      18,758,739 $   1,876 $  1,784,486 $   (2,218,719) $            (432,357)
  Shares issued for compensation           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)
            
            
  BALANCES, May 31, 2020      22,892,874 $   2,289 $  3,763,374 $   (4,182,394) $            (416,731)
  Net loss for the three months ended August 31, 2020                       -           -                 -      (231,004)            (231,004)
  BALANCES, August 31, 2020      22,892,874 $   2,289 $  3,763,374 $   (4,413,398) $            (647,735)

 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ( DEFICIT)

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

 (unaudited)

 FOR THE THREE MONTH PERIODS ENDED AUGUST 31, 2021 AND 2020 

                     
      Additional    
  Common Stock Paid-In Accumulated  
  Shares Amount Capital Deficit Total
           
 BALANCES, May 31, 2020  22,892,874  $2,289  $3,763,374  $(4,182,394) $(416,731)
                    
Net loss for the three months ended August 31, 2020  —     —     —     (231,004)  (231,004)
 BALANCES, August 31, 2020  22,892,874  $2,289  $3,763,374  $(4,413,398) $(647,735)
                     
                     
 BALANCES, May 31, 2021  25,302,122  $2,530  $8,440,302  $(9,098,257) $(655,425)
 Stock issued for services  175,000   18   80,232   —     80,250 
 Stock issued for investment in PPK  5,972,222   597   1,791,069   —     1,791,666 
                     
Net loss for the three months ended August 31, 2021  —     —     —     (940,194)  (940,194)
 BALANCES, August 31, 2021  31,449,344  $3,145  $10,311,603  $(10,038,451) $276,297 

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

FS-4

 

 MJ HARVEST, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (unaudited) 
 
    Three months ended 
   August 31, August 31,
   2020 2019
 CASH FLOWS FROM OPERATING ACTIVITIES     
 Net loss  $       (231,004) $      (281,299)
 Adjustments to reconcile net loss to net cash     
 used in operating activities:     
  Depreciation and amortization            18,135            1,260
  Share based compensation to be issued          129,571        152,625
 Changes in operating assets and liabilities:     
  Accounts receivable            (4,924)          (3,521)
  Vendor deposits            20,000               480
  Inventory              4,370            2,642
  Accounts payable and other current liabilities          (26,959)            1,228
  NET CASH (USED IN) OPERATING ACTIVITIES          (90,811)      (126,585)
      
 CASH FLOWS FROM FINANCING ACTIVITIES     
  Proceeds from advances by related parties            66,000        124,959
  NET CASH PROVIDED BY FINANCING ACTIVITIES            66,000        124,959
      
      
 NET CHANGE IN CASH AND CASH EQUIVALENTS          (24,811)          (1,626)
      
 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           32,343          13,592
      
 CASH AND CASH EQUIVALENTS END OF PERIOD  $             7,532 $          11,966
      
 Non-cash financing and investing activities:     
  Shares issued for common stock payable  $                    - $          88,250

MJ HARVEST, INC.  

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

         
  Three months ended
  August 31,
2021		 August 31,
2020
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(940,194) $(231,004)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  5,010   18,135 
Share based compensation issued and to be issued  194,471   129,571 
Amortization of note payable discount  450,000   —   
Compensation expense included in advances from related parties  70,000     
Changes in operating assets and liabilities:        
Accounts receivable  (38,050)  (4,924)
Vendor deposits  (11,467)  20,000 
Inventory  9,810   4,370 
Accounts payable and other current liabilities  87,718   (26,959)
Customer deposits  7,760     
NET CASH (USED IN) OPERATING ACTIVITIES  (164,942)  (90,811)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from advances by related parties  64,000   66,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES  64,000   66,000 
         
NET CHANGE IN CASH AND CASH EQUIVALENTS  (100,942)  (24,811)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  123,319   32,343 
         
CASH AND CASH EQUIVALENTS END OF PERIOD $22,377  $7,532 
         
Non-cash financing and investing activities:        
Shares issued for investment in PPK $1,791,666  $—   

 

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

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

FS-5

 

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

MJ Harvest, Inc. (the “Company”), develops, acquires, and distributes agricultural and horticultural tools and implements for sale primarily to growers and operators in the hemp and cannabis retail industry. In 2017, theThe Company acquired a 51% interest inowns 100% of G4 Products LLC, (“G4”) which owns the intellectual property for a patented manual debudder product line marketed under the Original 420 Brand as the Debudder Bucket Lid and Edge. The Company organizedalso owns 100% of AgroExports LLC (“Agro”) to servewhich serves as the domestic and international distribution arm for sales of agricultural and horticultural tools and implements, and also createdimplements. The Company operates its sales portal website, www.procannagro.com, for online sales of its products.

In September 2018, the Company changed its name to MJ Harvest, Inc. The articles of incorporation with the State of Nevada were amended and restated to reflect the name change with an effective date of September 18, 2018.

On December 7, 2018, the Company acquired the remaining 51% of G4, making it a wholly owned subsidiary. On April 10, 2019, the Company formed AgroExports.CA ULC (“Agro Canada”), a wholly owned Canadian subsidiary in order to facilitate online payments from sales in Canada. Sales in Canada are currently serviced through a fulfillment center in Toronto.

On April 8, 2020,In the year ending May 31, 2021, the Company finalized acquisitionexpanded its focus to include a minority investment interest in PPK Investment Group, Inc. (“PPK”), a vertically integrated cannabis company in Oklahoma that operates as a grower, harvester, processor, manufacturer and distributor of the Country Cannabis Brand of cannabis products. The investment in PPK represents a shift in focus from Elevated Ag Solutions, Inc. (“Elevated”) of several domain names,an agricultural implements-based business to a non-compete agreement, and customer relationships and began selling a broad range of products, including soils and soil enhancements, through www.weedfarmsupply.com. The Elevated business is operated through Agro. See Note 8 – Subsequent Events.broader cannabis industry focus.

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, 20202021 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2021.2022.

For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended May 31, 20202021 in the Form 10-K as filed with the Securities and Exchange Commission.

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries Agro, G4, and Agro Canada. All subsidiaries were wholly owned in the periods presented. All intercompany transactions have been eliminated.

Going Concern

The Company has an accumulated deficit as of $4,413,398 which, among otherAugust 31, 2021 of $10,038,451 10,038,451 as of August 31, 2021. In addition, we have notes payable aggregating $900,000 that will be due on March 22, 2022.  These factors raisesraise substantial doubt about the Company'sCompany’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.

FS-6

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

The intangible assets owned by G4, consisting of patents and other intangible assets relating to the Debudder Products, serve as a building block for the Company’s efforts to grow revenues. In the year ended 2020, the Company generated operating revenue from the Debudder Products but the level of revenue from the current product line has not been sufficient to support profitable operations to date.

On March 8, 2020, the Company closed on the acquisition of several domain names, including www.weedfarmsupply.com, and entered into distribution agreements for a range of soil and soil additive products. With this acquisition, the Company added soil products to its www.procannagro,com website and assumed operations of the new web site, www.weedfarmsupply.com. The Company distributed the soil products during the current quarter at a loss and has elected to discontinue operations of the soil distribution business in the quarter ending November 30, 2020. See Note 8 – Subsequent Events. The Company continues to seek other products to expand its product lines and build its distribution business, and is also pursuing merger and acquisition opportunities.

Additional acquisitions and business opportunities are under consideration, but the Company has not reached agreement with any other acquisition candidates or business opportunities. Management intends to finance operating costs over the next twelve months with advancescash flows from directors and/or aoperations, private placement or public offering of common stock.stock or debt instruments, and when necessary, advances from directors and officers. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

FS-6

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Share based compensation, impairment of long-lived assets, amortization of intangible assets, and income taxes are subject to estimates. Actual results could differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period presentation.

New Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update modifies the disclosure requirements for recurring and nonrecurring fair value measurements, primarily those surrounding Level 3 fair value measurements and transfers between Level 1 and Level 2. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Adoption of this update as of June 1, 2020, did not have a material impact on the Company’s consolidated financial statements.

FS-7

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

In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606 Revenue from Contracts with Customers, which clarifies when transactions between participants in a collaborative arrangement are within the scope of Topic 606. This ASU becomes effective for the Company in the year ending December 31, 2020 and early adoption is permitted. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements. 

Nonemployee compensation: In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements2020-06 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 expandsaddress issues identified as a result of the scopecomplexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of Accounting Standards Codification (ASC) 718 to include share-based payment transactions for acquiring goodsliabilities and services from nonemployees.equity. The update is effective for fiscal years beginning after December 15, 2018, and2021, including interim periods within those fiscal years. The Company adopted the new standard on June 1, 2019years and with early adoption permitted. Management is evaluating the impact of this update had no material effect on itsthe Company’s consolidated financial statements and related disclosures.statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Revenue Recognition

The Company recognizes revenue from the sale of products and services in accordance with Accounting Standards Codification (“ASC”) 606,” Revenue Recognition.” The Company operates as one reportable segment.

The Company generates revenue based on sales of products and revenue is recognized when the Company satisfies its performance obligation by shipping products to our customers. Our products consist of agricultural tools and implements, soils, and soil additives used primarily in growing and harvesting hemp and marijuana. Shipments terms are FOB origination, soand revenue is recognized when the product is delivered to the shipper by our fulfillment centers or, in the case of drop shipments of distributed products, when the products are shipped from the manufacturer. At the time the products are delivered to the shipper, no other performance obligations remain. Revenue is recognized in an amount that reflects the consideration that is received in exchange for the products shipped.

The Company accounts for shipping and handling activities as a fulfillment cost and include fees received for shipping and handling as part of the transaction price. Provision for sales incentives, discounts, and returns and allowances, if applicable, are accounted for as reductions of revenue in the period the related sales are recorded. Sales incentives, discounts and returns and allowances were not material in the periods presented in the accompanying consolidated financial statements. The Company had no warranty costs associated with the sales of its products in the periods presented in the accompanying consolidated statements of operations and no provision for warranty expenses has been included.

Inventory

Inventory consists of purchased products and areis stated at the lower of cost or net realizable value,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. Inventory consists of our debudder products

Investments

Equity securities are generally measured at fair value. Unrealized gains and losses for equity securities are included in 5-gallon bucket lid and edge models. The Companyearnings. If an equity security does not presently stock soil productshave a readily determinable fair value, the Company may elect to measure the security at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer. At the end of each reporting period, the Company reassesses whether an equity security without a readily determinable fair value qualifies to be measured at cost minus impairment, considers whether impairment indicators exist to evaluate whether the investment is impaired and, has no inventory on handif so, records an impairment loss. Upon sale of these products.an equity security, the realized gain or loss is recognized in earnings.

FS-8

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

Intangible Assets

Intangible assets are accounted for in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts representare initially recognized at the acquisition date fair values of identifiable intangible assets acquired. The Company’s finite-lived intangible assets consist of patents, a non-compete agreement, and customer relationships. The Company’s indefinite-lived intangible assets consist of acquired domain names.

Finite-lived intangible assets are amortized over their useful lives, which are currently ten years for patents, two years for the non-compete agreement, and ten years for customer relationships.lives. The carrying amounts of finite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the Company may be unable to recover the asset’s carrying amount.

When there is no foreseeable limit on the period of time over which an intangible asset is expected to contribute to the cash flows of the Company, an intangible asset is determined to have an indefinite life. Indefinite life intangible assets are not amortized but tested for impairment annually or more frequently when indicators of impairment exist.


Determination of acquisition date fair values and intangible asset impairment tests require judgment. Significant judgments required to estimate the fair value of intangible assets include determining the appropriate valuation method, identifying market prices for similar type items, estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates.

FS-7

Net Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, potentially dilutive common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the periodsthree months ended August 31, 2020 and May2021, the Company had 3,000,000 warrants outstanding which were anti-dilutive due to the net loss recognized in the period. In the three months ended August 31, 2020, the Company had no common stock equivalents outstanding.

Share-Based Payments

All transactions in which goods or services are received for the issuance of shares of the Company’s common stock are accounted for based on the fair value of the common stock issued and recognized when the board of directors authorizes the issuance.

FS-9

NOTE 2 – FIXED ASSETS

Fixed assets consisted of the following at August 31, 20202021 and May 31, 2020:2021:

 August 31,  May 31,
Schedule of fixed assets August 31, May 31,
Property & Equipment 2020 2020 2021 2021
Equipment - production molds $25,109  $25,109  $25,109  $25,109 
Less: Accumulated amortization  (10,490)  (9,230)  (15,530)  (14,270)
Net Equipment $14,619  $15,879  $9,579  $10,839 

Depreciation expense for the three-months ended August 31, 2021 and 2020 was $1,260and 2019 was $1,260 and $1,260,$1,260, respectively.

NOTE 3 - INTANGIBLE ASSETS

The Company’s intangible assets consist of both finite and indefinite lived assets. Finite-lived assets include patent rights acquired in the acquisition of G4, a non-compete agreement, and customer relationships acquired in the Elevated transaction. The Company’s sole indefinite lived asset are five domain names acquired in the Elevated transaction. Both acquisitions are described below. At August 31, 20202021 and May 31, 2020,2021, intangibles assets are:

Schedule of intangible assets        
Intangibles 2021 2021
Finite lived intangibles        
Patents $250,000  $250,000 
Less: Impairment of patents  (100,000)  (100,000)
   150,000   150,000 
Less: accumulated amortization  (27,916)  (24,166)
Patents, net  122,084   125,834 
         
Non-compete agreement  —     157,000 
Less: impairment of non-compete  —     (107,000)
   —     50,000 
Less: accumulated amortization  —     (6,900)
Less: adjustment for discontinued operations  —     (43,100)
Non-compete agreement, net  —     —   
         
Customer relationships  —     826,000 
Less: Impairment of relationships  —     (551,000)
   —     275,000 
Less: accumulated amortization  —     (6,225)
Less: adjustment for discontinued operations  —     (268,775)
Customer relationships, net  —     —   
Total finite lived intangibles  122,084   125,834 
         
Indefinite lived intangibles        
Domain names  6,000   31,000 
Less: adjustment for discontinued operations  —     (25,000)
Total domain names  6,000   6,000 
Total intangibles $128,084  $131,834 

 August 31, May 31,
Intangibles 2020 2020
Finite lived intangibles        
Patents $250,000  $250,000 
Less: Impairment of patents  (100,000)  (100,000)
   150,000   150,000 
Less: accumulated amortization  (12,916)  (12,916)
Patents, net  137,084   137,084 
Non-compete agreement  157,000   157,000 
Less: Impairment of non-compete  (107,000)  (107,000)
   50,000   50,000 
Less: accumulated amortization  (6,900)  —   
Non-compete agreement, net  43,100   50,000 
Customer relationships  826,000   826,000 
Less: Impairment of relationships  (551,000)  (551,000)
   275,000   275,000 
Less: accumulated amortization  (6,225)  —   
Customer relationships, net  268,775   275,000 
Total finite lived intangibles  448,959   462,084 
Indefinite lived intangibles        
Domain names  25,000   25,000 
Total intangibles $473,959  $487,084 

Amortization of intangibles for each of the next five years is:   
2021   $       67,500
2022   $       67,700
2023   $       42,600
2024   $       42,600
2025   $       42,600

FS-8

Amortization expense for the three-months ended August 31, 2021 and 2020 was $3,750and 2019 was $16,875 and $-0-$16,875, respectively. The patents are amortized over their useful lives of ten years. The intangible non-compete agreement and customer relationships are being amortized over their estimated useful livesAmortization of two years and ten years, respectively, commencing June 1, 2020. See Note 8 – Subsequent Events regarding changes in the statusintangibles is expected to be $15,000 for each of the next five years.

On May 28, 2021, the Company acquired the domain name, MJHI.com for $6,000. The new domain name matches the Company’s stock symbol and is likely to be easier for customers and other stakeholders to remember. The domain name is an indefinite lived intangible assets acquired from Elevated.asset and will not be amortized.

FS-10

NOTE 4 – RELATED PARTY TRANSACTIONSINVESTMENT IN PPK INVESTMENT GROUP, INC.

At August 31, 2020 and May 31, 2020,On March 24, 2021, the Company, had advances from related parties totaling $895,982as lender, closed a loan to PPK Investment Group, Inc. (“PPK”) in the form of a convertible note (“Note”) in the amount of $620,000. The convertible note bore interest at 6% per annum and $829,982 respectively. These amounts are classified as long-term liabilities as it is anticipated they will be settledwas due on September 1, 2021. In accordance with its terms, the Company converted the Note on May 19, 2021 into a 6.2% interest in PPK. Upon conversion, the interest accrued of $5,707 through the date of conversion was forgiven.

Upon conversion, a Securities Purchase Agreement dated March 24, 2021 (the “PPK Agreement”) became effective and the Company acquired an additional 3.8% interest in PPK (10% in total) for payment of $380,000 by issuance of 1,520,000 shares of restricted common stock of the Company. The fair value of shares was $972,800 based on the closing price of the Company’s shares of $0.64. The Company determined that the fair value of the 3.8% interest on the conversion date was $380,000 which was the negotiated price between the two parties. Thus, the Company recorded an impairment expense of $592,800 on the conversion date.

The PPK Agreement includes a put option allowing PPK to put shares of the Company’s common stock. These amounts consistedstock received as part of the following:

  Additions During the Related Party
  Year Ended May 31, 2020 Advances at
   Advances  Expenses Total May 31, 2020
Related Parties        
  Patrick Bilton, Chief Executive Officer and Director  $   277,959  $              -     $    277,959  $           726,414
  David Tobias, Director           5,000                  -         ��     5,000                 80,553
  Jerry Cornwell, Director           6,500               819            7,319                 23,015
Total for related parties  $   289,459  $           819  $    290,278  $           829,982
         
         
         
  Additions During the Related Party
  Three Months Ended August 31, 2020 Advances at
   Advances   Expenses  Total August 31, 2020
Related Parties        
  Patrick Bilton, Chief Executive Officer and Director  $     65,000  $              -     $      65,000  $           791,414
  David Tobias, Director                 -                     -                     -                    80,553
  Jerry Cornwell, Director           1,000                  -               1,000                 24,015
  Brad Herr, Chief Financial Officer                 -                     -                     -                            -   
Total for related parties  $     66,000  $              -     $      66,000  $           895,982

IncludedCompany’s investment in PPK, back to the Company at $0.25 per share. The put option protects PPK against a drop in the market price of the Company’s common stock payablebelow $0.25 per share. The put option may be exercised after six months from the date of the investment on May 19, 2021. Not more than 5% of the total shares held by PPK can be put back to the Company in any calendar quarter. The put option had no value at August 31, 20202021 and May 31, 2020,2021 as the Company’s common stock was trading above $0.25 on that date.

The PPK Agreement gives the Company the right to increase its investment up to a 100% ownership interest in PPK, provided such increased ownership is in compliance with Oklahoma State cannabis licensing requirements. Terms of purchase for increased ownership of PPK will be similar to those as the initial acquisition with a combination of cash and shares of the Company’s common stock.

On August 26, 2021, the Company acquired an additional 15% interest in PPK (25% ownership in total) pursuant to a Securities Purchase Agreement with an effective date of May 19, 2021 through issuance of 5,972,222 shares of restricted common stock valued at $1,791,666 based on the closing price of the Company’s common stock on the of $0.30 per share as of August 16, 2021, the date fixed by agreement for pricing the issuance of the shares. The additional 15% acquisition under the Securities Purchase Agreement called for payment of $930,000 in cash and 570,000 in stock, but by supplemental agreement, PPK agreed to accept payment for 15% in the form of all common stock of the Company The Company’s shares were issued directly to Consensus Holdings, Inc., an Arizona corporation, in connection with the acquisition by PPK of a commercial kitchen operation in Tulsa Oklahoma.

The Company, pursuant to the PPK Agreement, is also obligated to pay an earnout to PPK as follows:

·The Company is required to pay additional consideration to PPK for an earnout in the event the PPK business valuation at the end of a pre-determined look back period is greater than $10,000,000. For purposes of the earnout, the valuation will be based on three times earnings before interest, taxes, depreciation, and amortization (EBITDA). If EBITDA exceeds $3,333,333 in the twelve months immediately preceding the look back date of March 31, 2023, additional consideration will be owed to PPK under the earnout in an amount sufficient to equal the earnout valuation less $10,000,000 times the percentage of PPK then owned by the Company. Such additional consideration will be paid 62% in cash and 38% in shares of the Company’s common stock.

·The Company also agreed to employ Ralph Clinton Pyatt III (“Clinton Pyatt”), President of PPK, to continue his role as Chief Executive Officer and President of PPK business for a period of at least three years effective May 22, 2022.

The Company would have an option to acquire the real estate that PPK utilizes in its operations. The real estate is currently under lease to PPK by an affiliated company owned by Clinton Pyatt, the President of PPK.

FS-9

NOTE 5 – NOTES PAYABLE

On March 22, 2021, the Company entered into agreements with AJB Capital Investments LLC (“AJB”) and SDT Holdings LLC (“SDT”) for the purchase of an aggregate of $900,000 in Promissory Notes (the “Notes”), $300,000 from AJB and $600,000 for SDT. The terms of the Notes are the same except for the dollar amounts and fees which are double for SDT compared to AJB. The terms of the Notes are described below in the aggregate.

The Notes provided for an original issue discount of 10% or $90,000, payment of legal fees of $22,500, and payment of $10,500 for due diligence fees, resulting in net proceeds to the Company of $777,000. The Notes bear interest at the rate of 12% if paid on or before September 21, 2021. On September 20, 2021, the Company extended the Notes for an additional six months at an interest rate of 15%. The Notes are now due March 21, 2022. The Notes are secured by all assets of the Company.

Interest on the notes is payable in monthly installments of $9,000 on the first of each month with the first payment due on April 1, 2021. An aggregate of $36,300 and $20,700 in interest was incurred and paid on the notes in the three months ended August 31, 2021 and the year ended May 31, 2021. The notes provide that the full amount of interest on the notes for the initial six-month term will be payable even if the notes are paid off prior to expiration of the initial term.

In March 2021, the Company also paid a financing fee of $3,683,000 by issuance of 1,200,000 shares of its restricted common stock and 3,000,000 warrants to purchase shares that are exercisable at $0.38 per share with a three-year term expiring on March 21, 2024. The financing fee shares were valued at $1,800,000 based on the closing price of the Company’s common stock on the date of the borrowing. The warrants were valued at $1,883,000 using the Black-Scholes method based on a current stock price of $1.50 per share on the warrant issuance date, exercise price of $0.38, an expected term of three years, stock volatility of 334.5% and a discount rate of 0.32%. One half of the warrants were redeemable for an aggregate payment of $1.00 if the notes payable were paid in full by September 21, 2021. The Company extended the notes on September 22, 2021 for six months and the redemption provision has now expired.

In aggregate, financing fees and original issue discount totaled $3,806,000 which is greater than the note payable balance of $900,000. As a result, the Company recorded a full discount of $900,000 against the balance of the note payable and is amortizing the discount over the term of the note. During the year ended May 31, 2021 and the three months ended August 31, 2021, the Company recognized $350,000 and $450,000 respectively, in amortization expense leaving an unamortized discount balance of $100,000 as of August 31, 2021. This balance will be amortized in September 2021. The remaining amount of the financing fees of $2,906,000 was recognized as expense for the year ended May 31, 2021.

In an event of default, the remaining principal amount of the notes plus all accrued interest and any other fees then due may be converted at the sole election of the note holders into shares of the Company’s common stock.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Agreement with Borders Consulting LLC. On June 9, 2021, the Company entered into an agreement with Borders Consulting LLC (“Borders”), an unrelated third-party vendor, to provide consulting services in connection with corporate finance relations, introductions to funding sources, and to enhance the Company’s visibility in the financial markets. The agreement was for a three-month term at compensation of $50,000 per month payable in cash plus common stock aggregating 250,000 shares. The Company paid the first two months of the contract through cash payments of $70,000 and issuance of 175,000 shares of stock but has not paid the third month. At this time, the Company does not intend to make payment of the third month of the contract due to related partiesdisagreement with the manner in which the services were being performed, and what the Company believes were improper communications by Borders with certain investors in the Company. Borders has threatened to sue the Company for the third month compensation but as of $105,000October 19, 2021, no suit has been commenced. The Company intends to contest any suit when and $-0-, respectively. These related party amountsif filed and believes that counterclaims for damages incurred by the Company are supported by the facts. Total compensation amounting to $105,650 for the third month of the agreement is reflected in accounts payable ($50,000) and stock payable (150,000 shares valued at $55,650) as of August 31, 2020 consisted of the following: Patrick Bilton, CEO and Director - $70,000; Brad Herr, CFO - $15,000; David Tobias, Director - $10,000; and Jerry Cornwell, Director - $10,000.2021.

NOTE 57 – COMMITMENTS AND CONTINGENCIESRELATED PARTY TRANSACTIONS

The agreement for the acquisition of G4 included earn-out provisions that provide for the seller to “earn-out” additional compensation dependent upon product sales. The earn-out provisions are applicable to sales of G4’s products for calendar years 2018-2020. The earn-out compensation due is based upon a calculation of sales of G4’s products less the Company’s original investment in G4. To date, no earn out compensation has been earned by the prior owner of G4. In order for earnout compensation to be due in calendar year 2020, total sales of the debudder products would need to exceed $344,000. Total sales of debudder products from January 1, 2020 throughAt August 31, 2020 were approximately $65,0002021 and May 31, 2021, the Company had advances from and costs of services provided by related parties totaling $1,451,982 and $1,317,982 respectively. These amounts are not expected to exceed $175,000 for the calendar year. If any earnoutclassified as long-term liabilities as it is due based on sales in calendar year 2020, the earnoutanticipated they will be paid in common stock of the Company in accordancesettled with the agreement.

The G4 acquisition agreement also contained provisions for additional consideration of $100,000, payable in shares of the Company’s common stock, whenstock. These amounts consisted of the related patent become issued. On October 8, 2019 the patents were issued by the USPTO to G4 and the Company recorded $100,000 as stock payable. The amount was also added to intangible assets – patents (see Note 3). The Company expects to issue shares to satisfy the stock payable balance during the year ending May 31, 2021.following:

 Schedule of related party transactions Related Party Advances at Additions During the Three Months Ended August 31, 2021 Related Party Advances at
  May 31, 2021 Advances Services August 31, 2021
Related Parties                
Patrick Bilton, CEO and Director                
Cash Advances $928,414  $64,000  $—    $992,414 
Payable for services  280,000       70,000   350,000 
  David Tobias, Director  80,553   —     —     80,553 
  Jerry Cornwell, Director  29,015   —     —     29,015 
Total for related parties $1,317,982  $64,000  $70,000  $1,451,982 

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NOTE 5 – COMMITMENTS AND CONTINGENCIES, Continued:

  Related Party Advances at Additions During the Three Months Ended August 31, 2020 Related Party Advances at
  May 31, 2020 Advances Services August 31, 2020
Related Parties                
  Patrick Bilton, CEO and Director $726,414  $65,000  $—    $791,414 
  David Tobias, Director  80,553   —     —     80,553 
  Jerry Cornwell, Director  23,015   1,000   —     24,015 
Total for related parties $829,982  $66,000  $—    $895,982 

In connection with the acquisition of the domain names, non-competeThe Company’s Chief Financial Officer, Brad Herr, was owed $109,420 and customer relationships referred to as the Elevated acquisition, the Company agreed to adjust one half of the shares of common stock issued to Elevated (700,000) if the trading price of the Company’s common stock drops below an average of $0.25 per share during the thirty days ended January 9, 2021. Pursuant to the acquisition agreement, the initial value of the 700,000 shares was based on $0.25 per share or $175,000. If the average price is below $0.25, the Company will issue an incremental number of shares to bring the same value of the shares originally issued which was $175,000.

As part of the Elevated acquisition, the Company agreed to provide Elevated with additional “earn-out” compensation dependent upon gross margin dollars received from Weed Farm Supply product sales in 2020 and 2021. The earn-out compensation due is based upon a sliding scale with a minimum of $100,000 due in 2020 if gross margin dollars equal$77,779 at least $125,000 and a maximum of $400,000 due if gross margin dollars equal at least $500,000. For 2021, the minimum earn-out compensation will be $125,000 if gross margin dollars equal at least $250,000 and maximum earn-out compensation will be $500,000 if gross margin dollars exceed $1,000,000. To August 31, 20202021 and May 31, 2021, respectively, for services. These amounts are included in calendar year 2020, gross margin dollars generated from Weed Farm Supply product sales are less than $25,000. Gross margin dollars from Weed Farm Supply product sales are not expected to exceed $50,000 for calendar year 2020. If any earnout is due based on gross margin dollars in calendar years 2020 and 2021, the earn-out will be paid in common stock of the Company in accordance with the agreement. See Noteaccounts payable.

NOTE 8 – Subsequent Events regarding changes in the status of the Elevated transaction.

NOTE 6 – SHARE CAPITAL

In the three-month period ended August 31, 2020, no2021, shares were issued as compensation for services rendered duringand investment in the period. amounts set forth in the following table. The Company had an aggregate of $214,221 of common stock payable as of August 31, 2021 which is comprised of the following:

Schedule of common stock issued                
Three Months Ended August 31, 2021 Shares issued for Services & Other Shares issuable for Services & Other
  Shares Value Shares Value
Related Parties                
David Tobias, Director  —    $—     29,377  $10,000 
Jerry Cornwell, Director  —     —     29,377   10,000 
Brad Herr, CFO  —     —     44,066   15,000 
Total for related parties  —     —     102,820   35,000 
Unrelated Parties                
Services  175,000   80,250   219,245   79,221 
Patent issuance          400,000   100,000 
Investment in PPK  5,972,222   1,791,666   —     —   
Aggregate Totals May 31, 2021  6,147,222  $1,871,916   722,065  $214,221 

The Company had an aggregate of $229,571 of common stock payable as of August 31, 2020 which is comprised of the following:

Three months ended August 31, 2020 Three months ended August 31, 2020
  Shares Issuable at August 31, 2020 Shares Issuable at August 31, 2020
  Issuances Related to Prior Period Activity Current Period Services Total Issuances Related to Prior Period Activity Current Period Services Total
       Shares  Value   Shares  Value   Shares  Value  Shares Value Shares Value Shares Value
Related PartiesRelated Parties                          
Patrick Bilton Patrick Bilton             -    $           -      350,000 $     70,000      350,000 $     70,000  —    $—     350,000  $70,000   350,000  $70,000 
David Tobias David Tobias              -                 -        50,000        10,000        50,000        10,000  —     —     50,000   10,000   50,000   10,000 
Jerry Cornwell Jerry Cornwell              -                 -        50,000        10,000        50,000        10,000  —     —     50,000   10,000   50,000   10,000 
Brad Herr Brad Herr              -                 -        75,000        15,000        75,000        15,000  —     —     75,000   15,000   75,000   15,000 
Total for related partiesTotal for related parties             -    $           -      525,000 $   105,000      525,000 $   105,000  —    $—     525,000  $105,000   525,000  $105,000 
                              
Unrelated PartiesUnrelated Parties    400,000 $ 100,000   122,857 $     24,571      522,857 $   129,571  400,000  $100,000   122,857  $24,571   522,857  $124,571 
                              
Aggregate TotalsAggregate Totals   400,000 $ 100,000   647,857 $   129,571   1,047,857 $   234,571  400,000  $100,000   647,857  $129,571   1,047,857  $229,571 

In the three-month period ended August 31, 2019, shares were issued and issuable for common stock payable and services in the amounts set forth in the following table.

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NOTE 69 – SHARE CAPITAL, Continued:REVENUE FROM CONTINUING OPERATIONS

 Three months ended August 31, 2019
 Shares issued in the Period for: Shares Issuable at August 31, 2019
 Common Stock Payable Services  Total Services in Prior Period Current Period Services Total
  Shares  Value   Shares  Value    Shares  Value   Shares  Value   Shares  Value   Shares  Value 
Related Parties                  
  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 Parties  112,999 $ 28,250          -    $         -       112,999 $ 28,250     95,501 $   23,875   130,500 $   32,625      226,001 $   56,500
                   
Aggregate Totals  312,999 $ 78,250   40,001 $ 10,000    353,000 $ 88,250   195,501 $   48,875   570,499 $ 142,625      766,000 $ 191,500

NOTE 7 – REVENUE

The Company product revenue is generated though sales of its debudder products produced by third parties and since April 2020, soil products offered throughdistributed by the Weed Farm Supply division.Company. The Company’s customers, to which trade credit terms are extended, consist almost exclusively of domestic companies. The following table sets out product sales for the three-months ended August 31, 2021 and 2020, and 2019.along with customer concentration information for each period.

     
  Three-months ended August 31,
  2020 2019
Debudder Products  $             30,829  $             20,960
Soil Products                75,217                       -   
Total revenue  $           106,046  $             20,960

 Schedule of revenues Three months ended August 31,
  2021 2020
Debudder product revenues $74,685  $30,829 
Customer concentrations        
Debudder sales        
Customer A $14,680  $14,400 
Customer B  4,800   14,030 
Customer C  42,320   —   
Totals $71,400  $28,430 
% of total revenues  83%  92%

All sales were domestic except for $550$168 and $550 in the three-months ended August 31, 2021 and 2020, respectively, which were international.

Sales of product to significant customers were as follows for the three month periods ended August 31, 2020 and 2019:

   Three-months ended August 31, 
Customer Concentrations 2020 2019
Debudder sales    
Customer A  $             14,030  $                   -   
Customer B                14,400                       -   
Customer C                  14,750
Soil sales    
Customer D                44,197                       -   
Totals  $             72,627  $             14,750
% of Total Revenues 53% 70%

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NOTE 7 – REVENUE, Continued:

As of August 31, 20202021 and 2019,2020, there were $24,140$47,650 and $9,875,$24,140, respectively, of accounts receivable from the Company’s primary customers.

Pursuant toNOTE 10 – DISCONTINUED OPERATIONS

In the agreementyear ended May 31, 2021, the Company unwound its acquisition of assets from Elevated Ag Solutions, Inc. As a result of the unwinding, the net income (loss) from the Elevated business segment is included in Discontinued Operations in the statements of operations for all periods presented. As a result of the unwinding in the year ended May 31, 2021, the Company reversed the acquisition of intangible assets, cancelled 1,300,000 out of the Elevated assets (Note 3), the Company is obligated to pay Elevated a percentage1,400,000 shares of monthly gross profit earned on the sale of products includedcommon stock that were issued in the Elevated asset acquisition. The percentage payable is based onacquisition, and paid a sliding scale. During$10,000 walk-away fee to the three-month periodprior owners.

Discontinued operations operating results for the three months ended August 31, 2021 and 2020 are reflected in the following table.

OPERATING RESULTS        
  Three Months Ended Three Months Ended
  August 31, 2021 August 31, 2020
Revenue $—    $75,217 
Cost of revenue $—     66,243 
Amortization $—     13,125 
Gross profit  —     (4,151)
Loss on discontinued operations  —     10,000 
  $—    $(14,151)

NOTE 11 – IMPACT OF COVID-19

In March 2020, COVID-19 was declared a totalpandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions significantly disrupted economic activity in the United States and Worldwide. As of $66,242 was recognizedAugust 31, 2021 and through the date of filing of this Form 10-K, the disruption did not materially impact the Company’s financial statements.

The effects of the continued outbreak of COVID-19 and related government responses could include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts to the Company, including our ability to operate. As of August 31, 2021 there were no material adverse impacts to the Company’s operations due to COVID-19.

The economic disruptions caused by COVID-19 could also adversely impact the impairment risks for certain long-lived assets. Management evaluated these impairment considerations and determined that no such impairments occurred as cost of sales under this agreement. During the three-month ended August 21, 2020, no amounts were earned by Elevated pursuant to this agreement. See Note 8 – Subsequent Events.May 31, 2021.

NOTE 812 – SUBSEQUENT EVENTS

As previously disclosed,After August 31, 2021, the Company acquired certain assets consistingissued 219,245 shares of domain names,common stock to non-related parties and 102,820 shares to officers and directors for stock payable at August 31, 2021 relating to services rendered in the quarter ended August 31, 2021. The shares were issued authorized for issuance on October 15, 2021.

The Desert Hot Springs management agreement which was noted as a covenant not to compete, and other intangible assets from Elevated. The acquisition closed on April 8, 2020 and sincesubsequent event in the closing,financial statements for the year ended May 31, 2021, was abandoned in the September 2021 after the Company has been pursuing sales and distribution of soil products throughwas unable to reach agreement with the acquired website, weedfarmsupply.com. In late September 2020, management reviewed the progressowner of the weedfarmsupply.com business generated to date and the prospectsproperty for future success. Management also reviewed the representations made by Elevated at the time of the acquisition, and the manner in which the transactions were carried out in the Quarters ending May 31, 2020 and August 31, 2020. Baseda transaction on this review and evaluation, management has concluded that the weedfarmsupply.com business acquired was not what was represented at the time of the acquisition, was not likely to ever operate profitably without significant revisions to operating methods and changes in personnel, and was likely to create significant business questions and concerns should it be continued. Accordingly, management has elected to cease doing the weedfarmsupply.com business and the Company has tendered all of the domain names and intangible assets acquired back to Elevated effective October 15, 2020. The Company and Elevated are currently discussing resolution of the matter, including taking steps to cancel some or all of the shares issued by the Company to Elevated for the acquisition, return by the Company of domains and intangible assets to Elevated, release of the covenant not to compete, assignment of an exclusive distributorship obtained by the Company after the acquisition over to Elevated, and mutual releases of any further obligations by each party to the other. An initial offer of settlement from the Company to Elevated was rejected by Elevated and it is uncertain if a settlement agreement can be reached.acceptable terms. The Company is evaluating its options should settlement not be possible. There is a possibility thatno longer moving forward with the Desert Hot Springs transaction.

On October 8, 2021, the Company will recognize a write off or an impairmententered into to two brand development agreements with WDSY, LLC (“WDSY”) and Blip Holdings, LLC (“BLIP”) for expansion of the intangible assets, which have“WEEDSY” and “BLVK” brands into Oklahoma and South Dakota. Under the agreements, PPK will manufacture and distribute these brands in Oklahoma and South Dakota and will pay the respective companies 10% royalties on all sales of the branded products in those territories. The Company has acquired a total balance10% interests WDSY in exchange for 377,358 shares of $336,875the Company’s common stock and a 10% interest in BLIP in exchange for 188,679 shares of the Company’s common stock. The shares to be issued were valued at August 31, 2020, in the three month period ending November 30, 2020.closing price of the common stock, $0.53 per share, on October 8, 2021. Additional shares may be due to WDSY and BLIP based on lookback valuations of both companies. The lookback valuations will be based on trailing twelve months sales for WDSY and trailing three-month sales for BLIP on the second anniversary of each agreement, or sooner if the agreements are terminated before the second anniversaries.

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