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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014

 

 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: 333-167824

 

MJ HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA
(State or other jurisdiction of 
incorporation or organization)

 

20-8235905
(I.R.S. Employer
Identification No.)

 

4141 NE 2nd Avenue, Suite 204-A, Miami, Florida 33137
(Address of principal executive offices) (Zip Code)

 

(305) 455-1881
(Registrant’s telephone number, including area code)

 

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

 

Yes    No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes    No 

 

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

 

Large accelerated filer

 

Accelerated filer  

 

Non-accelerated filer  

 

Smaller reporting company 

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

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

 

Yes    No 

 

APPLICABLE TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of August 11, 2014

Common Stock, $0.001

 

13,844,030

 

 

 

 

MJ HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS  
Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013 3
Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited) 4
Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited) 5
Notes to the Financial Statements (Unaudited) 6
   
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 13
   
ITEM 4.  CONTROLS AND PROCEDURES 17

 

 

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS 18
   
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES 18
   
ITEM 6.  EXHIBITS 18
   
SIGNATURES 19

 


 

PART I – FINANCIAL INFORMATION

 

ITEM  1.   FINANCIAL STATEMENTS

 

MJ HOLDINGS, INC.

Balance Sheets

As of June 30, 2014 (unaudited) and December 31, 2013

 

 

     

June 30,
2014

 

December 31,
2013

Assets

         

Current Assets:

         

Cash

    $ 1,147,129     $ 478  

Prepaid and other current assets

      21,599        

Total Current Assets

      1,168,728       478  

Property and equipment, net of accumulated depreciation of $1,924 and $0, respectively

      2,212,076        

Other assets

      9,040        

Total Assets

    $ 3,389,844     $ 478  
                   

Liabilities and Stockholders’ Equity (Deficiency)

                 

Current liabilities:

                 

Accounts payable

    $ 6,750     $ 7,665  

Accrued liabilities

      25,776        

Stockholder loans, current portion

      30,000       30,000  

Accrued interest - stockholder loans

      16,084       13,673  

Total Current Liabilities

      78,610       51,338  

Note payable

      1,800,000        

Stockholder loans

      52,562       52,362  

Total Liabilities

      1,931,172       103,700  
                   

Stockholders’ Equity (Deficiency)

                 

Common stock, par value $0.001, 95,000,000 shares authorized; 13,844,030 and 12,218,205 shares issued and outstanding, respectively

      13,844       12,218  

Additional paid-in capital

      1,947,346       57,190  

Accumulated deficit

      (502,518 )     (172,630 )

Total Stockholders’ Equity (Deficiency)

      1,458,672       (103,222 )

Total Liabilities and Stockholders’ Equity (Deficiency)

    $ 3,389,844     $ 478  
                   

 

See accompanying notes to financial statements

 

3


 

 

MJ HOLDINGS, INC.

Statement of Operations

For the three and six months ended June 30, 2014 and 2013

(unaudited)

 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 

Revenues:

                               

Lease income

  $ 4,428      $       $ 4,428     $    
                                 

Costs and Expenses

                               

General and administrative expenses

    311,205       2,923       324,064       8,284  

Depreciation expense

    1,924               1,924          

Interest expense

    7,123       1,328       8,328       2,530  

Total Costs and Expenses

    320,252       4,251       334,316       10,814  
                                 

Net Loss

  $ (315,824 )   $ (4,251 )   $ (329,888 )   $ (10,814 )
                                 

Basic and diluted net loss per common share:

                               

Weighted average shares outstanding

    13,813,403       12,218,205       13,041,482       12,218,205  

Net loss per common share

  (0.023 )   $ (0.000 )   (0.025 )   $ (0.001 )

 

 

See accompanying notes to financial statements

 

4


 

 

MJ HOLDINGS, INC.

Statement of Cash Flows

For the six months ended June 30, 2014 and 2013

(unaudited)

   

For the Six Months Ended
June 30,

 
     

2014

     

2013

 

Cash flow from operating activities:

               

Net Loss

  (329,888 )   $ (10,814 )

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

               

Depreciation and amortization

    1,924       595  

Stock-based compensation

    269,117          

Changes in operating assets and liabilities:

               

Prepaid and other assets

    (11,437 )        

Accounts payable

    6,750       (110 )

 Accrued liabilities

    25,776          

Accrued interest

    2,411          

Net Cash Used in Operating Activities

    (35,347 )     (10,329 )
                 

Cash flow from investing activities:

               

Acquisition of property and equipment

    (2,214,000 )        

Net Cash Used in Investing Activities

    (2,214,000 )        
                 

Cash flow from financing activities:

               

Sale of common stock

    1,615,000          

Proceeds from note payable

    1,800,000          

Payment for debt issuance costs

    (19,202 )        

Proceeds from loans from stockholders

    200       10,410  

Net Cash Provided by Financing Activities

    3,395,998       10,410  
                 

Net increase in cash

    1,146,651       81  
                 

Cash at beginning of period

    478       299  

Cash at end of period

  1,147,129     $ 380  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 5,918     $    
                 

Supplemental schedule of non-cash financing activities:

               

Accounts payable paid by principal stockholders

  $ 7,665     $    

 

See accompanying notes to financial statements

 

5


MJ HOLDINGS, INC.

Notes to the Financial Statements (unaudited)

March 31, 2014

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

Business description

 

MJ Holdings acquires and leases real estate to licensed marijuana operators, including but not limited to providing complete turnkey growing space and related facilities to licensed marijuana growers and dispensary owners. Additionally, MJ Holdings plans to explore ancillary opportunities in the regulated marijuana industry.

 

The Company does not and will not, until such time as Federal law allows, grow, harvest, distribute or sell marijuana or any substances that violate the laws of the United States of America.

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the condensed consolidated financial statements not misleading have been included. The balance sheet at December 31, 2013 has been derived from the Company’s audited consolidated financial statements as of that date.

 

These unaudited financial statements for the three and six months ended June 30, 2014 and 2013, should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 31, 2014. Operating results for the three and six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014, or any other period.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accounting and reporting policies of the Company conform with GAAP. A summary of the more significant policies is set forth below:

 

Principles of Consolidation 

 

The consolidated financial statements include the accounts of the Company and 5353 Joliet LLC, its wholly owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation.

 

6  

 

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions are required in the determination of the fair value of financial instruments and the valuation of long-lived and indefinite-lived assets. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.

 

Debt Issuance Costs 

 

Costs associated with obtaining, closing, and modifying loans and/or debt instruments such as, but not limited to placement agent fees, attorney fees and state documentary fees are capitalized and expensed over the term of the loan.

 

Debt issuance costs of $19,202 and $0 were capitalized during the six months ended June 30, 2014 and 2013, respectively. Debt issuance costs amortized for the six months ended June 30, 2014 and 2013, were $301 and $0, respectively.

 

Property and Equipment 

 

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful life of the respective assets. Leasehold improvements are amortized using the straight-line method over the shorter of the related lease term or useful life. Maintenance, repairs, and minor improvements are charged to expense as incurred; major renewals and betterments that extend the useful life of the associated asset are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations for the period.

 

Long –lived Assets

 

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. We did not record any impairments of long-lived assets during the six months ended June 30, 2014.

 

Revenue Recognition 

 

Revenue related to our leased properties is recognized on a straight-line basis over the term of the lease when collectability is reasonably assured.

 

7  

 

 

Stock-Based Compensation 

 

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based financial instrument.

 

Since the number of outstanding and free-trading shares of the Company’s common stock is limited and the trading volume is relatively low, we do not have sufficient company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As a result, we use the average historical volatilities of similar entities within our industry as the expected volatility of our share price.

 

The expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future.

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

 

For stock-based financial instruments issued to parties other than employees, we use the contractual term of the financial instruments as the expected term of the stock-based financial instruments.

 

The assumptions used in calculating the fair value of stock-based financial instruments represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the "FASB") issued guidance to clarify the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a comprehensive framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. An entity should apply the guidance either retrospectively to each prior reporting period presented or retrospectively with the cumulative adjustment at the date of the initial application. The Company has not determined the impact of adoption on its financial statements.

 

In June 2014, FASB issued guidance that eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily the presentation of inception to date financial statements. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2014. Early adoption is permitted. The Company has elected to adopt the new guidance for development stage entities for the interim period ended June 30, 2014, and accordingly, is no longer presenting the inception-to-date financial information and disclosures formerly required.

 

8  

 

 

NOTE 3 - PROPERTY ACQUISITION

 

In June 2014, through its wholly-owned subsidiary, 5353 Joliet LLC, the Company acquired an owner-occupied 22,144 square foot industrial building situated on 1.4 acres of land in Denver, Colorado for $2,214,000. The acquisition was funded with proceeds from the issuance of a secured promissory note in the amount of $1,800,000 and $414,000 of cash on-hand. The promissory note is held by Chemtov Mortgage Group ("CMG"), an entity wholly-owned by the Company's co-CEO, Shawn Chemtov. CMG derives no financial benefit in connection with the transaction, and serves solely as a pass-through entity.

 

The promissory note bears interest at 10% per annum, provides for cash interest payments on a monthly basis, matures on June 1, 2016, and is callable at the option of the Company at any time after June 19, 2015. The Company has guaranteed the promissory note and has pledged its ownership interest in 5353 Joliet LLC, and as such its fee-simple ownership interest in the property as security for the promissory note. The promissory note does not restrict the Company's ability to incur future indebtedness.

 

The Company entered into a short-term lease agreement with the previous property owner for monthly rent of $11,070. The lease expires on September 1, 2014.   

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

A summary of property and equipment at June 30, 2014, is as follows:

 

   

Estimated

   

June 30,

 
   

Life

   

2014

 

Building

    30 years     $ 1,889,088  

Land

    Not depreciated        324,912  

Total property and equipment

            2,214,000   

Less: Accumulated depreciation

            (1,924 )

Property and equipment, net

          $ 2,212,076  
                 

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

On February 10, 2014, in connection with the change in control of the Company, the principal stockholders paid $7,665 of the Company's accounts payable, which was recorded as a capital contribution to the Company.

 

During the six months ended June 30, 2014, the Company paid $5,918 for interest due pursuant to the promissory note held by CMG, an unaffiliated entity, wholly-owned by the Company's co-CEO, Shawn Chemtov.

 

During the six months ended June 30, 2014, the Company borrowed $5,277 from its principal stockholders and repaid $5,077 of the borrowings to its principal shareholders, resulting in $200 of net borrowings from related parties.

 

See Note 3 regarding promissory note held by related party.

 

9  

 

 

NOTE 6 - STOCKHOLDER LOANS PAYABLE

 

Stockholder loans payable consists of three promissory notes with two of its stockholders in which the company may borrow up to $25,000, $20,000, and $10,000, respectively.  These borrowings bear interest at 5%, 8%, and 8% per annum, respectively.  They are due in part in December of 2014 and December of 2016.  The Company has paid no interest to the stockholders as of June 30, 2014.

 

For the periods ending June 30, 2014 and 2013, the Company has accrued interest of $16,084 and $13,673, respectively.

 

On February 10, 2014, in connection with the change of control of the Company, Messrs. Chemtov and Laufer, purchased the Stock holder loans from Messrs. Peraman and Sarfoh.

 

NOTE 7 – SALE OF UNREGISTERED SECURITIES

 

The company conducted a private placement of its shares of common stock, whereby we sold 1,615,000 shares of common stock for an aggregate of $1,615,000. We began accepting subscriptions on March 24, 2014 and closed the private placement on April 9, 2014.

 

For the six months ended June 30, 2014, we received  proceeds from the private placement of $1,615,000.

 

The shares were issued pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder (“Regulation D”) since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. Offers and sales were made solely to persons qualifying as “accredited investors” (as such term is defined by Rule 501 of Regulation D).

 

The securities offered will not be and have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

10  

 

 

NOTE 8 - STOCK-BASED COMPENSATION

 

On May 19, 2014, the Company entered into a consulting services agreement for the generation of qualified leads and referrals  for the Company’s real estate financing products, with a  wholly-owned subsidiary of Medbox, Inc, a leader in dispensing technologies and consulting services in the regulated marijuana industry.

 

During the term of the Agreement, the Company will  pay to Medbox (i) 50% of any management fee and (ii) 50% of the Net Revenue generated by the Medbox clients. Additionally, during the term of the agreement, Medbox shall receive warrants to purchase 33,000 shares of the Company’s common stock each month until Medbox has been issued an aggregate of 600,000 warrants. The warrants have a five-year term, and an exercise price to be determined upon issuance, equal to the volume weighted average price of the common stock for the thirty days prior to the date of issuance.

 

The Agreement's initial term is for six months, and renews automatically for successive one month terms. and can be canceled by either party with 5 days written notice.

 

The fair values of the warrants granted during the six months ended June 30, 2014, were determined using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Risk-free interest rate:

    3.27 %  

Expected term:

       5 years  

Expected dividend yield:

    0.00 %  

Expected volatility:

    132.72 %  

 

For the six months ended June 30, 2014, the Company recorded $269,117 of stock-based compensation expense related to warrants issued for services, which has been classified as General and administrative expenses.

 

On May 27, 2014, Medbox exercised 33,333 shares of warrants pursuant to a cashless exercise provision, in which Medbox received 10,825 shares of the Company's common stock based on an exercise price of $6.42 per share.
 

A summary of warrants issued, exercised and expired during the six months ended June 30, 2014, is as follows:

 

         

Weighted

 
         

Avg.

 
         

Exercise

 

Warrants:

 

Shares

   

Price

 

Balance at January 1, 2014

          $    

Issued

    66,666       7.14  

Exercised

    (33,333 )     6.42  

Expired

               

Balance at June 30, 2014

    33,333     $ 7.87  
                 

 

11  

 

 

NOTE 9 - GOING CONCERN

 

The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.  During the six months ended June 30, 2014, the Company has incurred losses of $329,888.  The Company has an accumulated deficit of $502,518 since inception. The Company recorded $4,428 of revenue during the six months ended June 30, 2014.  These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing.  There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds from its stockholders.

 

The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence.  These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

12


 

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Our Management’s Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report.

 

Forward-Looking Statements

 

This quarterly report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words “believe,” “anticipate,” “expect,” “will,” “estimate,” “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve 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 these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in our subsequent filings with the SEC, and include, among others, the following: marijuana is illegal under federal law, competition, our business is dependant on laws pertaining to the marijuana industry, government regulation, our business model depends on the availability of private funding, we will be subject to general real estate risks and the availability, if debt payments to note holder are not made we could lose our investment in our real estate properties, terms and deployment of capital. The terms “MJ Holdings, Inc.,” “MJ Holdings,” “MJ,” “we,” “us,” “our,” and the “Company” refer to MJ Holdings, Inc.

 

Business Overview

 

MJ Holdings acquires and leases real estate to licensed marijuana operators, including but not limited to providing complete turnkey growing space and related facilities to licensed marijuana growers and dispensary owners.  Additionally, MJ Holdings plans to explore ancillary opportunities in the regulated marijuana industry.

 

The Company does not and will not, until such time as Federal law allows, grow, harvest, distribute or sell marijuana or any substances that violate the laws of the United States of America.

 

As a participant in the regulated marijuana industry, we intend to:

 

  • Acquire and lease real estate zoned for legalized marijuana operations;
  • Lease and manage turnkey grow, retail and commercial kitchen solutions for licensed marijuana operators;
  • Finance real estate acquisitions and facilitate loan programs backed by real estate assets;
  • Offer real estate structures that maximize working capital to legal marijuana operators;
  • Establish marijuana grow and retail operations in jurisdictions where we are legally allowed to do so, ie. Canada and Uruguay; and,
  • Position ourselves to operate legal marijuana operations in the U.S. if and when Federal laws reconcile with state laws and marijuana becomes legal under federal law.


13


 

We have devised our current business strategy based on certain limitations related to the legal status of marijuana under federal law and the fact that we are a public company and make certain representations and warranties in connection with our public filings with the United States Securities and Exchange Commission. We recognize the significant opportunities in the legalized marijuana space and believe that using our current business model, we can position ourselves to not only develop a significant business along our current path, but be able to leverage our position, relationships and assets to capitalize on additional opportunities in the future, if and when federal law reconciles with state law; resulting in the federal legalization of marijuana.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

 

Stock-Based Compensation 

 

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based financial instrument.

 

Since the number of outstanding and free-trading shares of the Company’s common stock is limited and the trading volume is relatively low, we do not have sufficient company specific information regarding the volatility of our share price on which to base an estimate of expected volatility. As a result, we use the average historical volatilities of similar entities within our industry as the expected volatility of our share price.

 

The expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay any dividends in the foreseeable future.

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

 

For stock-based financial instruments issued to parties other than employees, we use the contractual term of the financial instruments as the expected term of the stock-based financial instruments.

 

The assumptions used in calculating the fair value of stock-based financial instruments represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.


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Results of Operations For the Three and Six Months Ended June 30, 2014, Compared to the Three and Six Months Ended June 30, 2013

 

Revenue for the three and six months ended June 30, 2014, was $4,428 compared with revenue of $0 for the three and six months ended June 30, 2013. Revenue during the three and six months ended June 30, 2014, was generated as a result of a short-term leasing arrangement made with the previous owner of property acquired by the Company on June 19, 2014. The short-term lease expires on September 1, 2014.

 

General and administrative expenses for the three months ended June 30, 2014, increased by $308,282 to $311,205 compared with general and administrative expenses of $2,923 for the three months ended June 30, 2013. For the six months ended June 30, 2014, general and administrative expenses increased by $315,780 to $324,064 compared with general and administrative expenses of $8,284 for the six months ended June 30, 2013. The increases in general and administrative expenses were attributed to increases in professional fees and overhead expenses, of which $269,117 was associated with stock-based compensation for consulting services.

 

Depreciation expense for the three and six months ended June 30, 2014, was $1,924 compared with depreciation expense of $0 for the three and six months ended June 30, 2013. Depreciation expense for the three and six months ended June 30, 2014, was associated with the purchase of a 22,144 square foot industrial building situated on 1.4 acres of land in Denver, Colorado for $2,214,000.

 

Interest expense for the three months ended June 30, 2014, increased by $5,795 to $7,123 compared with interest expense of $1,328 for the three months ended June 30, 2013. Interest expense for the six months ended June 30, 2014, increased by $5,798 to $8,328 compared with interest expense of $2,530 for the six months ended June 30, 2013. The increases in interest expense for the three and six months ended June 30, 2014, was primarily the result of interest expense incurred on a $1.8 million promissory note used to  fund the acquisition of $2.2 million of property in June 2014.  

 

We had a net loss of $315,824, or a basic and diluted loss per share of $0.023, for the three months ended June 30, 2014, compared with a net loss of $4,251, or a basic and diluted loss per share of $0.000, for the three months ended June 30, 2013. We had a net loss of $329,888, or a basic and diluted loss per share of $0.025, for the six months ended June 30, 2014, compared with a net loss of $10,814, or a basic and diluted loss per share of $0.001, for the six months ended June 30, 2013. The increase in net loss was primarily due to an increases in general and administrative expenses, depreciation expense, and interest expense during the three and six months ended June 30, 2014.

 

Liquidity and Capital Resources

 

The Company had cash of $1,147,129 at June 30, 2014, compared with cash of $478 at December 31, 2013, an increase of $1,146,651. The increase in cash for the six months ended June 30, 2014, was primarily attributed to proceeds of $1,800,000 received from a promissory note and proceeds of $1,615,000 received from the sale of common stock, offset by the purchase of an industrial building for $2,214,000, debt issuance costs of $19,202 and cash used in operating activities of $35,347.

 

As of June 30, 2014, we had an accumulated deficit $502,518. This was an increase of $329,888 since December 31, 2013.


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Operating Activities

 

We had net cash used in operating activities of $35,347 for the six months ended June 30, 2014, which consisted of a net loss of $329,888 and an increase of $11,437 in prepaid and other assets, partially offset by non-cash charges of $271,041 and an increase of $34,937 in accounts payable, accrued liabilities, and accrued interest.

 

The net cash used in operating activities of $35,347 for the six months ended June 30, 2014, represented an increase of $25,018, compared with net cash used in operating activities of $10,329 for the six months ended June 30, 2013.

 

Investing Activities

 

In June 2014, we purchased a 22,144 square foot industrial building situated on 1.4 acres of land in Denver, Colorado for $2,214,000.

 

Financing Activities

 

We had $3,395,998 in net cash provided by financing activities for the six months ended June 30, 2014. This was an increase of $3,385,588 as compared to net cash provided by financing activities of $10,410 for the six months ended June 30, 2013. The increase in net cash provided by financing activities was primarily due to due to proceeds of $1,800,000 from the issuance of a promissory note and proceeds of $1,615,000 received from the sale of common stock, partially offset by debt issuance costs of $19,202 during the six months ended June 30, 2014.

 

Although we can provide no assurances, we believe our cash on hand will provide sufficient liquidity and capital resources to fund our business for the next twelve months. At June 30, 2014, we had working capital of $1,090,118. In the event we experience liquidity and capital resources constraints because of unanticipated operating losses, we may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to us or at all then we may need to curtail our operations and/or take additional measures to conserve and manage our liquidity and capital resources, any of which would have a material adverse effect on our business, results of operations and financial condition.

 

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Seasonality

We do not consider our business to be seasonal.

Inflation and Changing Prices

Neither inflation or changing prices for the three months ended March 31, 2014 had a material impact on our operations.


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ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2014. Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2014.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter ended June 30, 2014, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

 

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PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

There are no legal proceedings, which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES

 

Reference is made to the Form 8-K, as filed by the registrant, on April 9, 2014, the contents of which are incorporated hereto.

 

 

ITEM 6.  EXHIBITS

 

The documents set forth below are filed, incorporated by reference or furnished herewith as indicated.

Index to Exhibits

 

Exhibit No,

Description of Exhibit

31.1*

Rule 13a14(a)/15d-14(a) Certification of co-Chief Executive Officer

31.2*

Rule 13a14(a)/15d-14(a) Certification of Chief Financial Officer

31.3*

Rule 13a14(a)/15d-14(a) Certification of co-Chief Executive Officer

32.1*

Section 1350 Certification of Chief Executive Officer

32.2*

Section 1350 Certification of Chief Financial Officer

32.3*

Section 1350 Certification of Chief Executive Officer

101.INS**

XBRL Instance Document

101.SCH**

XBRL Taxonomy Extension Schema Document

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**

XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF**

XBRL Taxonomy Definition Linkbase Document

 

 

*

Filed Herewith

**

Furnished herewith (not filed).

 

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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 HOLDINGS, INC.

 

 

        

      

      

     

Date: August 14, 2014

By:  

/s/ Adam Laufer

 

 

 

Adam Laufer

 

 

 

Co-Chief Executive Officer (co-Principal Executive Officer )

 

 

 

 

     

     

     

     

     

     

     

   

   

MJ HOLDINGS, INC.

 

 

        

      

      

     

Date: August 14, 2014

By:  

/s/ Shawn Chemtov

 

 

 

Shawn Chemtov

 

 

 

Co-Chief Executive Officer and Chief Financial Officer (co-Principal Executive Officer,  Principal Financial Officer and Principal Accounting Officer )

 

 

 

 

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