MJ HARVEST, INC. Certain statements in this Report constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a differences include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; inflation, the war inUkraine , supply chain slowdowns, reoccurring Covid-19 outbreaks, both nationally and internationally, particularly inChina , and worldwide political stability and economic growth. The words "believe," "expect," "anticipate," "hope," "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Results of Operations
Three Months Ended
The narrative comparison of results of operations for the three-month periods
ended
Three Months Ended
A B A-B %
February 28, February 28,
2022 2021 Change Change
REVENUE $ 24,343 $ 14,377 $ 9,966 69 %
COST OF REVENUE 14,405 12,350 2,055 17 %Cost of revenue as a % of total revenue 59 % 86 % -27 % Gross Profit 9,938 2,027 7,911 390 % Gross profit as a % of revenue 41 % 14 % 27 % OPERATING EXPENSES Officer and director compensation 203,785 135,000 68,785 51 % General and administrative 48,771 23,027 25,744 112 % Professional fees and contract services 22,445 118,231 (95,786 ) -81 % Advertising and promotion 28,088 - 28,088 n.a. Total operating expenses 303,089 276,258 26,831 10 %
OPERATING LOSS - CONTINUING OPERATIONS (293,151 ) (274,231 ) (18,920 )
7 %
Revenues increased 69% in the quarter ended February 28, 2022 compared with the
same period in 2021. The increase in the current quarter was largely due to
direct sales efforts by our sales team. Management has remained focused on sales
efforts for the debudder products while also working to expand our relationship
with PPK Investment Group, Inc. , a vertically integrated cannabis company
selling the Country Cannabis Brand of products, and seeking other acquisitions.
We anticipate that we will maintain a marketing focus on the debudder products
in the coming periods but also expect to devote substantial attention to our
efforts at growing our presence in the cannabis industry through acquisitions.
We recently entered into an agreement to acquire a facility and cannabis
licenses for an operation in Denver Colorado , and we expect to close on a an
acquisition of a facility and licenses in California in April or May of this
year. These acquisitions will have a significant effect on the direction of
our
future operations.
2
As a percentage of sales, cost of sales decreased between periods as a result of
improved efficiencies in our fulfillment centers. In the prior period, we moved
our inventory to a new California fulfillment center and the costs of the move
impacted results in the three months ended February 28, 2021 .
Total operating expenses increased somewhat in the current period primarily due
to increased expenditures for officer and director compensation resulting from
the addition of a fourth director and payment of comensation to that director.
General and administrative expenses increased in the current period compared
with a year earlier, primarily driven by travel expenses associated with the
Company's investment in PPK Investment Group, Inc. , and other merger and
acquisition work performed during the current period. Advertising and promotion
also increased as a result of increased expenditures for investor awareness in
the current period. These increases were partially offset by a decrease in
professional fees. In the current period, costs previously categorized as
professional fees were reclassified as officer and director compensation when
one of our consultants accepted a position on the Board.
Net loss from continuing operations increased in 2022 compared with 2021 primarily due to increases in advertising and promotion expenses and consulting fees relating to the Company's investor relations efforts.
Nine Months Ended
The narrative comparison of results of operations for the nine-month periods
ended
Nine Months Ended
A B A-B %
February 28, February 28,
2022 2021 Change Change
REVENUE $ 147,395 $ 87,513 $ 59,882 68 %
COST OF REVENUE 50,774 42,484 8,290 20 %Cost of revenue as a % of total revenue 34 % 49 % -14 % Gross Profit 96,621 45,029 51,592 115 % Gross profit as a % of revenue 66 % 51 % -14 % OPERATING EXPENSES Officer and director compensation 542,570 400,000 142,570 36 % General and administrative 113,644 59,410 54,234 91 % Professional fees and contract services 176,710 358,084 (181,374 ) -51 % Advertising and promotion 375,461 - 375,461 n.a. Total operating expenses 1,208,385 817,494 390,891 48 %
OPERATING LOSS - CONTINUING OPERATIONS (1,111,764 ) (772,465 ) (339,299 )
44 %
Revenues increased 68% in the nine-month period ended February 28, 2022 compared
with the same period in 2021. Management refocused sales efforts on the debudder
products after discontinuing operations of the soils business acquired from
Elevated Ag Solutions, Inc. ("Elevated") in early October 2020 . The soils
division was discontinued in the quarter ended November 30, 2020 and is not
reflected in operating results for the periods presented above (see
"Discontinued Operations"). We anticipate that the marketing focus on the
debudder products will continue now that the soils division has been
discontinued. We also recently entered into an agreement to acquire a facility
and cannabis licenses for an operation in Denver Colorado , and we expect to
close on a an acquisition of a facility and licenses in California in April or
May. Management believes these acquisitions will have a significant effect on
the direction of our future operations.
3
Total operating expenses increased in the current period, primarily due to increased expenditures for advertising and promotion and increases in travel related to an increased focus on acquisitions. In the nine-month period endedFebruary 28, 2022 , we retained a consultant to communicate with prospective funding sources, coordinate press releases, and in general assist with market awareness of the company. The cost of this program was paid partially in cash and partially in stock with an aggregate cost of$250,250 . Additional advertising expenses were incurred for trade show expenses in connection with our attendance at the MJBIZCON trade show inLas Vegas . Officer and director compensation increased and professional fees and contract services decreased in 2022 compared with 2021, primarily due to the appointment of one of our contractors as a director in the current period and the associated reclassification of his contract fees to "officer and director compensation." General and administrative expenses increased in the current period compared with a year earlier, primarily driven by travel expenses associated with the Company's investment inPPK Investment Group, Inc.
Net loss from continuing operations increased in 2022 compared with 2021 primarily due to the increase in advertising and promotion expenses.
Non-Operating Expenses. In the three and nine-month periods endedFebruary 28, 2022 , the Company incurred$34,134 and$645,592 , respectively, in interest and finance expense relating to notes payable from a funding transaction onMarch 22, 2021 . The nine-month amount included$550,000 in discount on notes payable. The Company had no comparable outstanding debt in the three and nine-month periods endedFebruary 28, 2021 . The notes payable were due onMarch 22, 2022 , subsequently extended toMarch 29, 2022 , and paid in full with accrued interest onMarch 29, 2022 . The source of funds for the repayment of the notes was from a new senior lender. The company expects to enter into a senor convertible debt agreement with the new senior lender in our fiscal fourth quarter. Discontinued Operations. In the prior year, after operating the soils division for the first four months of the year endedMay 31, 2021 , management undertook an in-depth assessment ofElevated Ag Solutions, Inc. ("Elevated") and concluded that the soils division was not as represented at the time of the acquisition inJanuary 2020 , was not likely to ever operate profitably without significant revisions to operating methods and changes in personnel and was likely to create significant business questions and concerns should it be continued. Accordingly, management elected to discontinue the business acquired from Elevated. Upon discontinuation of the Elevated business, the Company entered into a settlement and unwinding agreement with Elevated and returned all assets acquired in the transaction to Elevated. During the nine months endedFebruary 28, 2021 , the common stock issued in the acquisition, aggregating 1,300,000 shares out of 1,400,000 shares originally issued, were cancelled, and the Company paid a$10,000 walk-away fee. In the aggregate, the Company recognized a loss from discontinued operations of$10,000 .
Operating results for the three and nine-month periods ended
Three Month Period Nine-Month Period
Ended February 28, Ended February 28,
2021 2021
Revenue $ - $ 75,217
Cost of revenue - (66,243 )
Amortization - (13,125 )
Gross profit - (4,151 )
Loss on discontinued operations - 10,000
$ - $ (14,151 )
4
Liquidity and Capital Resources
Cash flow used in operating activities for the nine-month period endedFebruary 28, 2022 was$329,212 compared with$175,329 in the comparable period in 2021. During the period, our total cash decreased by$115,712 . Cash to fund the negative cash flow from operations was derived primarily from proceeds of advances from related parties totaling$213,500 . The Company continues to make progress in growing sales of its existing product line, but the business is not yet sufficient to support our current operating structure. Our current working capital is negative$1,237,969 , based on current assets of$122,238 and current liabilities of$1,360,207 . We continue to seek out potential acquisition candidates and distributorships and hope to see continuing growth in sales in the coming periods. The Company is currently reliant on funding through advances from related parties, but we have no binding agreements or commitments for such funding and no assurances can be given that such funding will continue to be available in future periods. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We incurred net losses from continuing operations of$327,285 and$1,757,356 for the three and nine-month periods endedFebruary 28, 2022 , respectively, and had an accumulated deficit of$10,855,613 as ofFebruary 28, 2022 . In addition, we have notes payable aggregating$900,000 plus accrued interest that are due onMarch 22, 2022 . These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company may seek to raise money for working capital purposes through a public offering of its equity capital or through a private placement of equity capital or convertible debt. It will be important for the Company to succeed in its efforts to raise capital in this manner to further its business plan in an
aggressive manner. Raising additional capital may cause dilution to current shareholders. COVID-19
We are now in the third year of the COVID-19 pandemic. While the impact of the pandemic is lessening, new COVID variants are causing continued concern and the pandemic is not over. To date, the disruption from COVID-19 did not materially impact the Company's financial statements. However, if the severity of the economic disruptions increase as the duration of the COVID-19 pandemic continues, the negative financial impact due to reduced demand could be significantly greater in future periods than in the third fiscal quarter endedFebruary 28, 2022 . The effects of the continued outbreak of COVID-19 and related government responses may include extended disruptions to supply chains and capital markets, reduced labor availability and a prolonged reduction in economic activity in our industry. These effects could have a variety of adverse impacts to the Company, including an inability to adequately staff and operate our facilities. To date, there have been no material adverse impacts to the Company's operations due
to COVID-19. The economic disruptions caused by COVID-19 could also adversely impact impairment risks for certain long-lived assets, equity method investments and goodwill. Management evaluated these impairment considerations and determined that no such impairments occurred through the date of this report.
Off Balance Sheet Arrangements
None
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