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: November 30, 2020
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________   Commission File Number:  333-234048

 

MJ Harvest, Inc.

 (Exact name of registrant as specified in its charter)

NEVADA		82-3400471
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation)		Identification No.)

9205 W. Russell Road, Suite 240, Las Vegas, Nevada 89139

(Address of Principal Executive Office) (Zip Code)

(954) 519-3115

(Registrant's telephone number, including area code)

 

N/A

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

———————

 

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

Title of each class	Trading Symbol	Name 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 January 14, 2021, is 22,087,731.

 

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 November 30, 2020 compared with the Three Months Ended November 30, 2019

 

The narrative comparison of results of operations for the three-month periods ended November 30, 2020 and 2019 is based on the following table.

	A		B		C
Three Months Ended	November 30, 2020		November 30, 2019		A-B            Change	C/B  Change %
REVENUE	$                 42,307		$                 67,130		$               (24,823)	-37%
COST OF REVENUE	16,953		24,626		(7,673)	-31%
Cost of revenue as a % of total revenue	40%		37%
Gross Profit	25,354		42,504		(17,150)	-40%
Gross profit as a % of revenue	60%		63%
OPERATING EXPENSES
Officer and director compensation	135,000		112,500		22,500	20%
General and administrative	17,564		17,076		488	3%
Impairment of intangible assets	-		100,000		(100,000)	-100%
Professional fees and contract services	144,171		128,393		15,778	12%
Total operating expenses	296,735		357,969		(61,234)	-17%
NET LOSS FROM CONTINUING OPERATIONS	(271,381)		(315,465)		44,084	-14%

 

Revenues decreased, primarily as a result of the limited focus on the debudder product marketing effort. In the quarter ended August 31, 2020, management expended considerable time and effort on the soils division which was acquired at the end of our last fiscal year (the “Elevated Acquisition”). We experienced unanticipated difficulties in obtaining adequate and timely sales and product purchase records from the field operator, and these difficulties diverted management attention from the debudder product marketing effort. The lack of attention to marketing in the first quarter was reflected in the decrease in sales in the second quarter. We anticipate that the marketing focus on the debudder products will increase now that the soils division has been discontinued.

 

The three-month period ended November 30, 2020 does not include any revenues or cost of sales from the Elevated Acquisition. The soils division created out of the Elevated Acquisition was discontinued during the three months ended November 30, 2020.

 

Total operating expenses decreased in the current period. No impairment expense was recognized in the current quarter compared to an impairment expense of $100,000 in the same period a year earlier. Officer and director compensation increased due to increased director fees in 2020 compared to 2019. General and administrative expenses were consistent between the periods. Professional fees and contract services increased in 2020 compared to 2019 due to expanded marketing efforts relating to the brand building efforts and improving investor awareness of the Company.

 

Net loss from continuing operations decreased in 2020 compared 2019 primarily due to the reduction of impairment of intangible assets between periods.

 

Six Months Ended November 30, 2020 compared with the Six Months Ended November 30, 2019

 

The narrative comparison of results of operations for the six-month periods ended November 30, 2020 and 2019 is based on the following table.

 

	A		B		C
Six Months Ended	November 30, 2020		November 30, 2019		A-B            Change	C/B  Change %
REVENUE	$                 73,136		$                 88,090		$               (14,954)	-17%
COST OF REVENUE	30,134		37,070		(6,936)	-19%
Cost of revenue as a % of total revenue	41%		42%
Gross Profit	43,002		51,020		(8,018)	-16%
Gross profit as a % of revenue	59%		58%
OPERATING EXPENSES
Officer and director compensation	265,000		262,500		$                   2,500	1%
General and administrative	36,383		51,932		(15,549)	-30%
Impairment of intangible assets	-		100,000		$             (100,000)	-100%
Professional fees and contract services	239,853		233,352		6,501	3%
Total operating expenses	541,236		647,784		$             (106,548)	-16%
NET LOSS FROM CONTINUING OPERATIONS	(498,234)		(596,764)		98,530	-17%

Revenues from debudder sales decreased, primarily due to the carryover impact of management’s focus in the quarter ended August 31, 2020 on establishing and building the soils division acquired from Elevated, which was subsequently discontinued. The efforts focused on the soils division diverted management’s attention from sales of the debudder products.

 

Other operating expenses were consistent between periods, with the exception of impairment of intangible assets which decreased in the current six-month period.

 

Net loss from operations decreased in 2020 compared 2019. The biggest driver in this improvement was from the reduction in impairment of intangible assets.

 

Discontinued Operations.

 

After operating the soils division for the three months ended August 31, 2020, management undertook an in-depth assessment of the business and concluded that the soils division was not as 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 elected to discontinue the business acquired from Elevated. Upon discontinuation of the Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. Common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, will be cancelled, and the Company agreed to pay a $10,000 walk-away fee. The $10,000 walk-away fee is payable in five installments of $2,000 each with the final payment due in early March, 2021. Cancellation of the shares will be registered once the final installment of the walk-away fee is paid. In the aggregate, the Company recognized a loss from discontinued operations of $10,000 in the three and six-month periods ended November 30, 2020.

 

Operating results for the three and six-month periods from the discontinued operations are reflected in the following table.

 

OPERATING RESULTS		Three Months				Six Months
		Ended				Ended
		November 30, 2020				November 30, 2020
Revenue		$	—			$	75,217
Cost of revenue			—				66,243
Amortization			—				13,125
Gross profit			—				(4,151	)
Loss on discontinued operations			10,000				10,000
		$	(10,000	)		$	(14,151	)

Liquidity and Capital Resources

 

Cash flow used in operating activities for the six-month period ended November 30, 2020 was $153,329 compared to $167,917 in the comparable period 2019. During the period, our total cash decreased by $27,329. Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling $126,000.

 

Our current operations are not sufficient to support the existing infrastructure, much of which is required in order to maintain public company status. We continue to seek out potential acquisition candidates with a focus on acquiring an operating company with scale sufficient to support all aspects of the company’s operations, including the public company infrastructure. The Company is currently reliant on funding through advances from related parties, but no assurances can be given that such funding will continue to be available in future periods.

 

The accompanying 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 of $512,385 and $596,764 for the six-month periods ended November 30, 2020 and 2019, respectively, and had an accumulated deficit of $4,694,779 as of November 30, 2020.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt.  It will be important for the Company to succeed in its efforts to raise capital in this manner to further its business plan in an aggressive manner.  Raising additional capital may cause dilution to current shareholders.

 

COVID-19

 

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 has not materially impacted 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’ operations due to COVID-19.

 

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

 

Off Balance Sheet Arrangements

 

None

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Control over Financial Reporting

 

There have been no changes during the quarter ended November 30, 2020 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

 

 

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 November 30, 2020, the board of directors authorized issuance of an aggregate of 454,857 shares of unregistered common stock to four non-related parties (279,857 shares) and three related parties that were officers and/or directors (175,000 shares). The shares were issued for common stock payable at August 31, 2020 (296,857 shares) and for services rendered to the Company in the period (158,000 shares).  The shares to be issued are valued at the closing price of the common stock in the OTCQB market on the date the shares became issuable.  The shares, when issued were exempt from the registration requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2) of the Act since the recipients of the shares are persons closely associated with the Company and the issuance of the shares will not involve any public offering.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5.  Other Information.

 

None.

 

 

Item 6.  Exhibits. 

 

The following documents are included as exhibits to this report:

 

(a) Exhibits

 

 

Exhibit Number

SEC Reference Number

Title of Document

3.1	3	Amended and Restated Articles of Incorporation of MJ Harvest, Inc.
3.2*	3	Amended Bylaws of MJ Harvest, Inc.
10.1*	10	Independent Contractor Agreement with Patrick Bilton effective January 1, 2019
10.2*	10	Independent Contractor Agreement with Brad Herr effective January 1, 2019
10.3*	10	Securities Purchase Agreement by and between MJ Harvest, Inc. (fka EM Energy, Inc). and Original Ventures, Inc. dated November 7, 2017
10.4*	10	Securities Purchase Agreement by and between MJ Harvest, Inc. and Original Ventures, Inc. dated December 7, 2018
31.1	31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)
31.2	31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)
32.1	32	Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)
32.2	32	Certification pursuant to 18 U.S.C. Section 1350, As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

  

*

Incorporated by reference to Exhibits 3.2, 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:  January 19, 2021

By: /s/ Patrick Bilton

Patrick Bilton, Principal Executive Officer

By:  /s/ Brad E. Herr

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

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 - 14

 

MJ HARVEST, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

 

							November 30,		May 31,
							2020		2020
			ASSETS
	CURRENT ASSETS:
		Cash and cash equivalents			$		5,014	$	32,343
		Accounts receivable					13,235		19,216
		Vendor deposits					-		20,000
		Inventory					32,077		32,840
			Total current assets				50,326		104,399
	NON-CURRENT ASSETS:
		Fixed assets, net					13,359		15,879
		Finite-lived intangible assets, net					133,334		465,834
		Indefinite-lived intangible assets, net					-		25,000
			Total non-current assets				146,693		506,713
			Total Assets		$		197,019	$	611,112
			LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
	Accounts payable and other current liabilities				$		77,926	$	97,861
	Payable for discontinued operations (Note 3)						8,000		-
			Total Current Liabilities				85,926		97,861
LONG-TERM LIABILITIES:
	Common stock payable						158,571		100,000
	Payable to related parties for services						140,000		-
	Advances from related parties						955,982		829,982
			Total long-term liabilities				1,254,553		929,982
			Total Liabilities				1,340,479		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, 23,347,731 and 22,892,874 issued and
		outstanding, respectively					2,335		2,289
	Common stock subject to cancellation on dicontinued
		operations (1,300,000 shares) (Note 3)					(336,875)		-
	Additional paid-in capital						3,885,859		3,763,374
	Accumulated deficit						(4,694,779)		(4,182,394)
			Total stockholders' deficit				(1,143,460)		(416,731)
			Total Liabilities and Stockholders' Deficit		$		197,019	$	611,112

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

 

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

 

 

					Three months ended				Six months ended
					November 30,		November 30,		November 30,		November 30,
					2020		2019		2020		2019
REVENUE				$	42,307	$	67,130		73,136	$	88,090
COST OF REVENUE					16,953		24,626		30,134		37,070
		Gross profit			25,354		42,504		43,002		51,020
OPERATING EXPENSES:
	Officer and director compensation				135,000		112,500		265,000		262,500
	General and administrative				17,564		17,076		36,383		51,932
	Impairment of intangible assets				-		100,000		-		100,000
	Professional fees and contract services				144,171		128,393		239,853		233,352
		Total operating expenses			296,735		357,969		541,236		647,784
NET LOSS FROM CONTINUING  OPERATIONS					(271,381)		(315,465)		(498,234)		(596,764)
LOSS FROM DISCONTINUED OPERATIONS
		Operating loss on discontinued operations			-		-		(4,151)		-
		Loss on discontinued operations			(10,000)		-		(10,000)		-
NET LOSS FROM DISCONTINUED OPERATIONS					(10,000)		-		(14,151)		-
NET LOSS				$	(281,381)	$	(315,465)	$	(512,385)	$	(596,764)
NET LOSS PER COMMON SHARE - Basic and diluted
		From continuing operations		$	(0.01)	$	(0.02)	$	(0.02)	$	(0.03)
		From discontinued operations			(0.00)		-		(0.00)		-
		Total		$	(0.01)	$	(0.02)	$	(0.02)	$	(0.03)
WEIGHTED AVERAGE NUMBER OF COMMON
		SHARES OUTSTANDING - Basic and diluted			22,997,841		19,538,464		22,945,071		19,156,116

 

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

 

 

MJ HARVEST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(unaudited)
FOR THE THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2020 AND 2019
							Additional
			Common Stock				Paid-In		Accumulated
	Three Month		Shares		Amount		Capital		Deficit		Total
	BALANCES, August 31, 2019		19,111,739	$	1,911	$	1,872,701	$	(2,500,018)	$	(625,406)
	Shares issued for compensation		740,500		75		185,050		-		185,125
	Shares issued for common stock payable		155,500		15		38,860		-		38,875
	Net loss		-		-		-		(315,465)		(315,465)
	BALANCES, November 30, 2019		20,007,739		2,001		2,096,611		(2,815,483)		(716,871)
	BALANCES, August 31, 2020		22,892,874	$	2,289	$	3,763,374	$	(4,413,398)	$	(647,735)
	Shares issued for compensation		158,000		16		62,944		-		62,960
	Shares issued for common stock payable		296,857		30		59,541		-		59,571
	Net loss		-		-		-		(281,381)		(281,381)
	BALANCES, November 30, 2020		23,347,731		2,335		3,885,859		(4,694,779)		(806,585)
	Six Month
	BALANCES, May 31, 2019		18,758,739	$	1,876	$	1,784,486	$	(2,218,719)	$	(432,357)
	Shares issued for compensation		1,093,500		110		273,265		-		273,375
	Shares issued for common stock payable		155,500		15		38,860		-		38,875
	Net loss		-		-		-		(596,764)		(596,764)
	BALANCES, November 30, 2019		20,007,739		2,001		2,096,611		(2,815,483)		(716,871)
	BALANCES May 31, 2020		22,892,874		2,289		3,763,374		(4,182,394)		(416,731)
	Shares issued for compensation		454,857		46		122,485		-		122,531
	Net loss		-		-		-		(512,385)		(512,385)
	BALANCES, November 30, 2020		23,347,731	$	2,335	$	3,885,859	$	(4,694,779)	$	(806,585)

 

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

	MJ HARVEST, INC.
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	(unaudited)
				Six months ended
				November 30,		November 30,
				2020		2019
	CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(512,385)	$	(596,764)
	Adjustments to reconcile net loss to net cash
	used in operating activities:
		Depreciation and amortization		23,145		4,186
		Share based compensation		122,531		185,125
		Common stock payable for compensation		58,571		118,500
		Payable to related party for services		140,000		-
		Impairment of intangible asset		-		100,000
	Changes in operating assets and liabilities:
		Accounts receivable		5,981		9,091
		Vendor deposits		20,000		480
		Inventory		763		11,910
		Payable for discontinued operations		8,000		-
		Accounts payable and other current liabilities		(19,935)		(445)
		NET CASH (USED IN) OPERATING ACTIVITIES		(153,329)		(167,917)
	CASH FLOWS FROM FINANCING ACTIVITIES
		Proceeds from advances by related parties		126,000		165,959
		NET CASH PROVIDED BY FINANCING ACTIVITIES		126,000		165,959
	NET CHANGE IN CASH AND CASH EQUIVALENTS			(27,329)		(1,958)
	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			32,343		13,592
	CASH AND CASH EQUIVALENTS END OF PERIOD		$	5,014	$	11,634
	Non-cash financing and investing activities:
		Shares issued for common stock payable	$	59,571	$	127,125
		Shares payable for intangible assets	$	-	$	100,000
		Shares to be cancelled on disconitnued operations (Note 3)	$	336,875	$	-
	The accompanying notes are an integral part of these consolidated financial statements.

 

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, the Company acquired a 51% interest in G4 Products LLC, (“G4”) which owns the intellectual property for a manual debudder product line marketed under the Original 420 Brand as the Debudder Bucket Lid and Edge. The Company organized AgroExports LLC (“Agro”) to serve as the domestic and international distribution arm for sales of agricultural and horticultural tools and implements, and created www.procannagro.com for online sales.

 

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 49% 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, the Company finalized an acquisition from Elevated Ag Solutions, Inc. (“Elevated”) of several domain names, 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 Company operated the business through the end of the first quarter, but due to unforeseen difficulties in obtaining adequate transaction details, and lack of performance of the web site, the Company entered into an agreement to unwind the acquisition. No sales were generated from this acquisition in the quarter ended November 30, 2020. See Note 3 – Intangible Assets.

 

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 only of normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six -month periods ended November 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2021.

 

For further information refer to the financial statements and footnotes thereto in the Company’s audited financial statements for the year ended May 31, 2020 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 of $4,694,779 which, among other factors, raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

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 six months ended November 30, 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.

 

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

 

Use of Estimates

 

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

 

Reclassifications

 

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

 

New Accounting Standards

 

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.

 

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. Adoption of this update as of June 1, 2020 did not have a material impact on the Company’s consolidated financial 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.” At November 30, 2020, 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, so 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 are stated at the lower of cost or net realizable value, with cost being determined using the average cost method. Allowances for obsolete inventory are recognized when the inventory is determined to be unsalable through the normal course of business. Inventory consists of our debudder products in 5-gallon bucket lid and edge models. The soils business has been discontinued and the Company does not maintain and inventory of any soil products.

 

Intangible Assets

 

Intangible assets are accounted for in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent 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. 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.

 

Net Earnings (Loss) Per Share

 

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, potentially dilutive common stock equivalents, if any, are not considered, as their effect would be anti-dilutive. During the periods ended November 30, 2020 and May 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.

 

NOTE 2 – FIXED ASSETS

 

Fixed assets consisted of the following at November 30, 2020 and May 31, 2020:

 

		November 30,				May 31,
Property & Equipment		2020				2020
Equipment - production molds		$	25,109			$	25,109
Less: Accumulated amortization			(11,750	)			(9,230	)
Net Equipment		$	13,359			$	15,879

 

Depreciation expense for the three and six-months ended November 30, 2020 and 2019 were $1,260 and $2,520, respectively and for the three and six-month periods ended November 30, 2019 were $1,260 and $2,520, 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 was the five domain names acquired in the Elevated transaction. Both acquisitions are described below. At November 30, 2020 and May 31, 2020, intangibles assets are:

 

		November 30,				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			(16,666	)			(9,166	)
Patents, net			133,334				140,834
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	)			—
Less: adjustment for discontinued operations			(43,100	)			—
Non-compete agreement, net			—				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	)			—
Less: adjustment for discontinued operations			(268,775	)
Customer relationships, net			—				275,000
Total finite lived intangibles			133,334				465,834
Indefinite lived intangibles
Domain names			25,000				25,000
Less: adjustment for discontinued operations			(25,000	)			—
Total domain names			—				25,000
Total intangibles		$	133,334			$	490,834

 

Amortization of intangibles for each of the next five years is:
2021			$       15,000
2022			$       15,000
2023			$       15,000
2024			$       15,000
2025			$       15,000

 

Amortization expense for the three and six-months ended November 30, 2020 was $3,750 and $20,625, respectively. The patents are amortized over their useful lives of ten years. The intangible non-compete agreement and customer relationships were being amortized over their estimated useful lives of two years and ten years, respectively, commencing June 1, 2020.

 

After the Company acquired the assets from Elevated, the Company operated a soils division for the quarter ended August 31, 2020. During that period, the Company noted unanticipated difficulties in obtaining accurate transaction data on a timely basis, and management also estimated that the business was not properly positioned to become profitable within a reasonable time frame. Accordingly, management elected to discontinue operations of the soils division during the three months ended November 30, 2020. The Company entered into negotiations with the seller of the assets (Elevated), to unwind the acquisition and return the acquired assets to the seller. On October 30, 2020, a settlement agreement was signed that provided for a return of all acquired assets to Elevated, cancellation of employment and non-compete agreements, return of 1,300,000 shares of the Company’s common stock paid to Elevated in the acquisition, and an agreement by the Company to pay $10,000 to Elevated in $2,000 per month installments over five months. The cancellation of the common stock issued by the Company will become final upon payment of the full $10,000 which will occur on or before March 5, 2021. For purposes of these financial statements, the Company has recorded the return of the assets, a balance payable of $10,000 net of a $2,000 payment made in November, 2020, and has recorded the cancellation of the shares of stock. If the Company fails to make the payment of $10,000, both parties would be free to pursue other remedies.

 

Results of Elevated operations for the three and six-month periods ended November 30, 2020 are shown as discontinued operations on the consolidated statement of operations. The results from discontinued operations are as follows:

 

OPERATING RESULTS		Three Months				Six Months
		Ended				Ended
		November 30, 2020				November 30, 2020
Revenue		$	—			$	75,217
Cost of revenue			—				66,243
Amortization			—				13,125
Gross profit			—				(4,151	)
Loss on discontinued operations			10,000				10,000
		$	(10,000	)		$	(14,151	)

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

At November 30, 2020 and May 31, 2020, the Company had advances from related parties totaling $1,095,982 and $829,982 respectively. These amounts are classified as long-term liabilities as it is anticipated they will be settled with shares of the Company’s common stock. During the three and six-month periods ended November 30, 2020, the related party transactions included the following:

 

		Related Party Advances at	Additions During the Three Months Ended November 30, 2020				Related Party Advances at	Payable to Related Parties for  Services at
		August 31, 2020	Advances		Services		November 30, 2020	November 30, 2020
Related Parties
Patrick Bilton, CEO and Director		$              791,414	$     55,000		$    140,000		$                   846,414	$                   140,000
David Tobias, Director		80,553	-		-		80,553	-
Jerry Cornwell, Director		24,015	5,000		-		29,015	-
Total for related parties		$              895,982	$     60,000		$    140,000		$                   955,982	$                   140,000

 

		Related Party Advances at	Additions During the Three Months Ended November 30, 2019				Related Party Advances at	Payable to Related Parties for  Services at
		August 31, 2019	Advances		Services		November 30, 2019	November 30, 2019
Related Parties
Patrick Bilton, CEO and Director		$              573,414	$     41,000		$              -		$                   614,414	$                            -
David Tobias, Director		75,553	-		-		75,553	-
Jerry Cornwell, Director		15,696	-		-		15,696	-
Total for related parties		$              664,663	$     41,000		$              -		$                   705,663	$                            -

 

		Related Party Advances at	Additions During the Six Months Ended November 30, 2020				Related Party Advances at	Payable to Related Parties for  Services at
		May 31, 2020	Advances		Services		November 30, 2020	November 30, 2020
Related Parties
Patrick Bilton, CEO and Director		$              726,414	$   120,000		$    140,000		$                   846,414	$                   140,000
David Tobias, Director		80,553	-		-		80,553	-
Jerry Cornwell, Director		23,015	6,000		-		29,015	-
Total for related parties		$              829,982	$   126,000		$    140,000		$                   955,982	$                   140,000

 

		Related Party Advances at	Additions During the Six Months Ended November 30, 2019				Related Party Advances at	Payable to Related Parties for  Services at
		May 31, 2019	Advances		Services		November 30, 2019	November 30, 2019
Related Parties
Patrick Bilton, CEO and Director		$              448,455	$   165,959		$              -		$                   614,414	$                            -
David Tobias, Director		75,553	-		-		75,553	-
Jerry Cornwell, Director		15,696	-		-		15,696	-
Total for related parties		$              539,704	$   165,959		$              -		$                   705,663	$                            -

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

The agreement for the acquisition of G4 during the year ended May 31, 2019, 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 through November 30, 2020 were approximately $107,000 and are not expected to exceed $175,000 for the calendar year. If any earnout is due based on sales in calendar year 2020, the earnout will be paid in common stock of the Company in accordance 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, when 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.

 

In connection with the acquisition of the domain names, non-compete and customer relationships referred to as the Elevated acquisition, the Company agreed to certain contingent value shares and certain earnout shares. These agreements were cancelled when the Company and Elevated agreed to unwind the transaction as described in Note 3.

NOTE 6 – SHARE CAPITAL

 

In the three and six-month periods ended November 30, 2020 and 2019, the Company issued shares of stock for various purposes as described in the following tables. In addition, the Company had obligations to issue shares of stock at the end of each period as reflected in the following tables.

 

		Six Months Ended November 30, 2019
		Shares issued in the Period for:																								Shares Issuable at November 30, 2019
		Common Stock Payable								Services								Total								Patent Issuance Bonus Shares								Current Period Services								Total
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value
Related Parties
Patrick Bilton			26,667			$	6,667				513,333			$	128,333				540,000			$	135,000				—			$	—				260,000			$	65,000				260,000			$	65,000
David Tobias			26,666				6,667				33,334				8,334				60,000				15,001				—				—				20,000				5,000				20,000				5,000
Jerry Cornwell			26,666				6,666				33,334				8,333				60,000				14,999				—				—				20,000				5,000				20,000				5,000
Brad Herr			—				—				120,000				30,000				120,000				30,000				—				—				60,000				15,000				60,000				15,000
Total for related parties			79,999			$	20,000				700,001				175,000				780,000			$	195,000				—			$	—				360,000			$	90,000				360,000			$	90,000
Unrelated Parties			75,501			$	18,875				393,499			$	98,375				469,000			$	117,250				400,000			$	100,000				114,000			$	28,500				514,000			$	128,500
Aggregate Totals			155,500			$	38,875				1,093,500			$	273,375				1,249,000			$	312,250				400,000			$	100,000				474,000			$	118,500				874,000			$	218,500

 

		Three Months Ended November 30, 2019
		Shares issued in the Period for:																								Shares Issuable at November 30, 2019
		Common Stock Payable								Services								Total								Patent Issuance Bonus Shares								Current Period Services								Total
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value
Related Parties
Patrick Bilton			26,667			$	6,667				340,000			$	85,000				366,667			$	91,667				—			$	—				260,000			$	65,000				260,000			$	65,000
David Tobias			26,666				6,667				20,000				5,000				46,666				11,667				—				—				20,000				5,000				20,000				5,000
Jerry Cornwell			26,666				6,666				20,000				5,000				46,666				11,666				—				—				20,000				5,000				20,000				5,000
Brad Herr			—				—				80,000				20,000				80,000				20,000				—				—				60,000				15,000				60,000				15,000
Total for related parties			79,999			$	20,000				460,000				115,000				539,999			$	135,000				—			$	—				360,000			$	90,000				360,000			$	90,000
Unrelated Parties			75,501			$	18,875				280,500			$	70,125				356,001			$	89,000				400,000			$	100,000				114,000			$	28,500				514,000			$	128,500
Aggregate Totals			155,500			$	38,875				740,500			$	185,125				896,000			$	224,000				400,000			$	100,000				474,000			$	118,500				874,000			$	218,500

 

		Six Months Ended November 30, 2020
		Shares issued in the Period for:																								Shares Issuable at November 30, 2020
		Common Stock Payable								Services & Other								Total								Patent Issuance Bonus Shares								Current Period Services								Total
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value
Related Parties
Patrick Bilton			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
David Tobias			—				—				50,000				10,000				50,000				10,000				—				—				28,571				10,000				28,571				10,000
Jerry Cornwell			—				—				50,000				10,000				50,000				10,000				—				—				28,571				10,000				28,571				10,000
Brad Herr			—				—				75,000				15,000				75,000				15,000				—				—				42,857				15,000				42,857				15,000
Total for related parties			—			$	—				175,000			$	35,000				175,000			$	35,000				—			$	—				99,999			$	35,000				99,999			$	35,000
Unrelated Parties			—			$	—				279,857			$	87,531				279,857			$	87,531				400,000			$	100,000				67,346			$	23,571				467,346			$	123,571
Aggregate Totals			—			$	—				454,857			$	122,531				454,857			$	122,531				400,000			$	100,000				167,345			$	58,571				567,345			$	158,571

 

		Three Months Ended November 30, 2020
		Shares issued in the Period for:																								Shares Issuable at November 30, 2020
		Common Stock Payable								Services								Total								Patent Issuance Bonus Shares								Current Period Services								Total
		Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value				Shares				Value
Related Parties
Patrick Bilton			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—
David Tobias			50,000				10,000				—				—				50,000				10,000				—				—				28,571				10,000				28,571				10,000
Jerry Cornwell			50,000				10,000				—				—				50,000				10,000				—				—				28,571				10,000				28,571				10,000
Brad Herr			75,000				15,000				—				—				75,000				15,000				—				—				42,857				15,000				42,857				15,000
Total for related parties			175,000			$	35,000				—			$	—				175,000			$	35,000				—			$	—				99,999			$	35,000				99,999			$	35,000
Unrelated Parties			121,857			$	24,571				158,000			$	62,960				279,857			$	87,531				400,000			$	100,000				67,346			$	23,571				467,346			$	123,571
Aggregate Totals			296,857			$	59,571				158,000			$	62,960				454,857			$	122,531				400,000			$	100,000				167,345			$	58,571				567,345			$	158,571

 

NOTE 7 – REVENUE

 

Company product revenue is generated though sales of its debudder products and, from April 2020 through August 31, 2020, soil products offered through the Weed Farm Supply division acquired from Elevated. The Weed Farm Supply division was discontinued on September 1, 2020 (see Note 3). Revenue from this division are not included in the tables below.

 

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 and six-month periods ended November 30, 2020 and 2019. Tables also reflect customer concentrations for the same three and six-month periods.

 

Three Months

 

		Three-months ended November 30,
		2020				2019
Debudder Products		$	42,307			$	67,130

 

		Three-months ended November 30,
Customer Concentrations		2020				2019
Debudder sales
Customer A		$	12,100			$	—
Customer B			19,885				—
Customer C			—				30,226
Totals		$	31,985			$	30,226
% of Total Revenues			76	%			45	%

 

Six Months

 

		Six-months ended November 30,
		2020				2019
Debudder Products		$	73,136			$	88,090

 

		Six-months ended November 30,
Customer Concentrations		2020				2019
Debudder sales
Customer A		$	26,130			$	—
Customer B			34,285				—
Customer C			—				30,226
Totals		$	60,415			$	30,226
% of Total Revenues			83	%			34	%

 

 

NOTE 7 – REVENUE, Continued:

 

All sales were domestic except for $3,471 and $4,021 in the three and six-month periods ended November 30, 2020 which were international. There were $1,700 in international sales in the three and six-month periods ended November 30, 2019.

 

As of November 30, 2020 and 2019, there were $13,235 and $19,216, respectively, of accounts receivable from the Company’s primary customers.

 

Pursuant to the agreement for the acquisition of the Elevated assets (Notes 3 and 5), the Company was obligated to pay Elevated a percentage of monthly gross profit earned on the sale of products included in the Elevated asset acquisition. During the three-month period ended August 31, 2020, a total of $66,242 was recognized as cost of sales under this agreement. During the three-month period ended November 30, 2020, no amounts were earned by Elevated pursuant to this agreement. The Elevated Agreement has subsequently been unwound and no payments are due Elevated under the percentage of gross profit allocation formula contained in the original agreement.

 

NOTE 8 – SUBSEQUENT EVENTS

 

In connection with unwinding the Elevated acquisition, the Company agreed to pay Elevated $10,000 in five installments of $2,000 each. An initial payment of $2,000 was made in November. Subsequent to November 30, 2020, the Company made the monthly payments for December and January, leaving a balance due on the settlement of $4,000. It is anticipated that this amount will be paid in full on or before March 5, 2021.

 

On December 10, 2020, the Company filed Amended and Restated Articles of Incorporation with the Nevada Secretary of State to increase the authorized common stock to 100,000,000 shares. No changes were made to shares outstanding, and no other rights of the existing shareholders were affected by this change.