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Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all liquid investments with an original maturity of three months or less to be cash equivalents.

Inventory

Inventory, comprised of marijuana oil cartridges, is valued at the lower of cost or market.  The value of inventory is determined using the first-in, first-out method.

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Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes.  Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income.  A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

ASC 740 also addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of June 30, 2016 and December 31, 2015, the Company does not have a liability for any unrecognized tax benefits.

Earnings (Loss) Per Share

Net earnings (loss) per share is calculated in accordance with FASB ASC 260, Earnings Per Share.  Basic net earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period.  Diluted net income per share is based on the assumption that all dilutive convertible shares, stock options and warrants were converted or exercised.  Dilution is computed by applying the treasury stock method.  Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  Basic and diluted loss per share are the same for the three and six months ended June 30, 2016 and 2015, because the Company had losses and has no common stock equivalents.

 

 

 

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MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

3.     RECENTLY ISSUED ACCOUNTING STANDARDS (continued)

4.     LEASES

The Company leases its office space from an unrelated third party under a one-year operating lease, commencing on April 1, 2016 and expiring on March 31, 2017.  The lease requires the Company to pay an annual rent of $3,900 with a security deposit of $325.  The Company prepaid the total amount of $4,225 in advance for one year. Rent expense for the three and six months ended June 30, 2016 and 2015 was $975, $975, $0, and $0, respectively.

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The Company's management has performed subsequent events procedures through August 26, 2016, which is the date the financial statements were available to be issued.  Except for the issue discussed below, there were no subsequent events requiring adjustment to the financial statements or disclosure as stated herein.

Mark Uren tendered his resignation letter dated August 15, 2016, to resign from the Company by reason of other than for Cause, as the Chief Executive Officer, Principal Financial Officer, Secretary, the sole Director and the Chairman of the Board of Directors and from any office he held with the Company.  Mr. Uren shall pursue new opportunities outside of MJ Pharmaceuticals, Inc. but shall remain as the largest stockholder of the Company.

As of August 15, 2016, James Liebo was appointed as the sole director and successor to Mark Uren and as the President, Secretary and Chief Executive Officer of the Company. Mr. Liebo is also the majority owner of Cutting Edge Sales and EBR Consulting in Dallas, Texas. His brings to the Company significant management experience, including employee management in excess of 25 years and his background and knowledge of sale and product distribution. Based upon the foregoing, it is believed that Mr. Liebo has sufficient management experience to serve as an officer and director of the Company.

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Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Accordingly, readers are cautioned not to place undue reliance upon forward-looking statements, which speak only as of the dates upon which they are made.  Except for our filings, we do not intend, and undertake no obligation, to update any forward-looking statement.  You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:

 

Ÿ our limited working capital;

Ÿ our ability to raise additional financing;

Ÿ the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;

Ÿ deterioration in general or regional economic conditions;

Ÿ adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

Ÿ inability to efficiently manage our operations;

Ÿ inability to achieve future sales levels or other operating results; and

Ÿ the unavailability of funds for capital expenditures.

 

Throughout this Report references to “we”, “our”, “us”, “MJ Pharmaceuticals”, “the Company”, and similar terms refer to MJ Pharmaceuticals, Inc.

 

Overview and Outlook

 

We are an “emerging growth company” (“EGC”) that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act (“the JOBS Act”), that eases restrictions on the sale of securities; and increases the number of shareholders a company must have before becoming subject to the U.S.  Securities and Exchange Commission’s (SEC’s) reporting and disclosure rules (See “Emerging Growth Companies” section above).

 

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

 

We currently engage in business activities that provide limited cash flow.

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Key Components of our Results of Operations

 

Revenue

 

We anticipate we will derive our revenue from two primary sources: the licensing or sale of Medicinal Cannabis Patented Products and Cannabis Laboratory Testing.

 

The Company commenced limited initial operations in E-commerce Software Solutions on September 1, 2014. In November 2014, the Company suspended these operations. It subsequently determined to serve as investor in and provide of e-commerce operations and other services to the marijuana pharmaceutical industry.

As of June, 2016, the Company is in the business of the sale and distribution of “pen cartridges” to the medicinal industry.  As we obtain licensing for the Medicinal Cannabis Products in various states, our primary source of revenues is and will be derived from the sale and distribution of “pen cartridges”. During the three and six months ended June 30, 2016, we had revenue of $10,000 and $18,000, respectively, from the sale of these products.

Cost of Revenue

 

Cost of revenue consists primarily of costs from manufacturers of packaged products.

Cost of revenue consists primarily of product costs, personnel costs related to our operations, support services and training and implementation services. Personnel costs will include salaries, bonuses, stock-based compensation and employee benefits. Cost of revenue will also include an allocation of facilities costs, overhead costs and depreciation, and amortization of capitalized development costs. We will primarily allocate facilities costs, overhead costs and depreciation based upon head count.

 

Operating Expenses

 

We classify our operating expenses into three categories: product distribution, sales and marketing, and general and administrative. Our operating expenses will primarily consist of personnel costs, which will include compensation, employee benefits and payroll taxes, costs for third-party contracted development, marketing, legal, accounting and consulting services and other professional service fees. Personnel costs for each category of operating expenses will include salaries, bonuses, stock-based compensation and employee benefits for employees in that category. In addition, our operating expenses will include an allocation of our facilities costs, overhead costs and depreciation based on head count for that category, as well as amortization of purchased intangible assets resulting from any acquisitions.

 

Product distribution  - Product distribution expense will consist primarily of personnel costs for product distribution employees and executives, fees to contract producers and distribution vendors and facility cost for maintaining an inventory of products. Our product distribution efforts are focused primarily on making the product available for consumption to the end-user.

 

Sales and marketing  - Sales and marketing expense will consist primarily of personnel costs for our sales, marketing and business development employees and executives, travel and entertainment and marketing programs. Marketing programs may consist of advertising, tradeshows, user conferences, public relations, industry sponsorships and affiliations and product marketing. In addition, sales and marketing expense may include amortization of certain purchased intangible assets, including customer relationships and key vendor and supplier relationship. We expect our sales and marketing expense to increase in absolute dollars.

 

General and administrative  - General and administrative expense will consist of personnel costs for our executives, finance and accounting, human resources, management information systems and legal personnel, as well as legal, accounting and other professional service fees and other corporate expenses. We expect our general and administrative expense to increase in absolute dollars.

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Income Taxes

 

Historically, we have incurred annual operating losses and have not benefited from these losses.  As of June 30, 2016, we had net operating loss carry forwards for federal and state income tax purposes of $(74,868).  Based on current period income and projected future year income, we believe that it is more likely than not that the net deferred tax assets recorded will be realized.  If not utilized, our federal net operating loss and tax credit carry forwards will begin to expire in 2033.  While not currently subject to an annual limitation, the utilization of these carry forwards may become subject to an annual limitation because of provisions in the Internal Revenue Code that are applicable if we experience an “ownership change,” which may occur, for example, as a result of an offering or other issuances of stock.

 

Critical Accounting Policies

 

Our financial statements are prepared in accordance with GAAP.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.  The preparation of our financial statements and related disclosures may require us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures.  We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances.  In some instances, we could reasonably use different accounting estimates, and in some instances results could differ significantly from our estimates.  We will evaluate our estimates and assumptions on an ongoing basis.  To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition and accounts receivable have the greatest potential impact on our financial statements.  Therefore, we believe the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our management’s judgments, assumptions and estimates.

 

Revenue Recognition

 

We currently derive our revenue from the sale and distribution of “pen cartridges” to the medicinal industry.  We will focus our efforts on the direct channel distribution of our “pen cartridges” directly to the manufacturers of the medicinal pens.

 

Revenue is recorded pursuant to FASB ASC 605, Revenue Recognition, when persuasive evidence of an arrangement exists, delivery of the product or services has occurred, the fee is fixed or determinable and collectability is reasonably assured.

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Liquidity is a measure of a company’s ability to meet potential cash requirements.  We have historically met our capital requirements through the issuance of stock, which has been invested in us by Uren Enterprises, LLC, our controlling shareholder, or Mark Uren, our sole officer, director, or other investors.  In the future, we anticipate we will be able to provide the necessary liquidity needed from the revenues generated from operations but there is no assurance that this will happen.

 

As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations.  Additionally we anticipate obtaining additional financing to fund operations through additional common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.

 

Operating activities

 

Net cash used in operating activities was $(129,014) for the six months ended June 30, 2016, as compared to $(1,577) for the six months ended June 30, 2015.  The increase in net cash used in operating activities was primarily due to increased operating expenses related to product distribution, organizational costs and general and administrative expenses.

 

Financing and Investing activities

 

Net cash provided by financing activities for the six months ended June 30, 2016, was $186,551, as compared to $50 for the six months ended June 30, 2015.  The increase of net cash provided by financing activities was mainly attributable to an increase in capital provided through the issuance of common stock.

 

We hope that cash flow from operations will meet our present and near-term cash needs; however, we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months.  We will require additional cash resources due to changed business conditions, maintenance of our website, implementation of our strategy to expand our sales and marketing initiatives, increase brand and services awareness.  If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities.  The sale of additional equity securities will result in dilution to our stockholders.  Incurring indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business.  Financing may not be available in amounts or on terms acceptable to us, if at all.  Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Significant Accounting Policies

 

The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

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Changes in Internal Controls over Financial Reporting

 

There have been no significant changes to the Company’s internal controls over financial reporting that occurred during our last fiscal quarter, that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.

 

 

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Item 1.  Legal Proceedings.

 

There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.

 

Item 1A.  Risk Factors.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

 

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

 

On October 31, 2013, the initial owner of the Company transferred his 31,390,000 shares, which constituted 100% of the issued and outstanding shares of common stock of the Company to a new owner, Uren Enterprises, LLC, which is solely owned by Mr. Mark Uren.

On December 31, 2013, the Company issued 8,500,000 shares of common stock in exchange for filing fees of $187, courier fees of $163, and payment made for audit fees of $500.00 by the sole owner, Uren Enterprises, LLC.  The total amount was $850.

On March 31, 2014, the Company issued 61,730,000 shares of common stock in exchange for cash of $3500, filing fees of $979, courier fees of $194, and payment made for audit fees of $1500 by the sole owner, Uren Enterprises, LLC.  The total amount was $6173.

On June 30, 2014, the Company issued 58,500,000 shares of common stock in exchange for franchise tax of $1654, filing fees of $500, office expenses of $98, travel expenses of $3581 and payment made for domain registration of $17 by the sole owner, Uren Enterprises, LLC.  The total amount was $5850.

On September 30, 2014, the Company issued 25,620,000 shares of common stock in exchange for cash of $2,062 and filing fees of $500 by the sole owner, Uren Enterprises, LLC.  The total amount was $2,562.

During the period between January 26, 2016 and April 25, 2016, the Company sold a total of 4,364,000 shares of common stock at prices ranging from $0.02 to $0.50 per share to a number of investors pursuant to a private offering.

Such shares listed above were issued pursuant to an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a “public offering” due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.

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The balance of the proceeds were used for travel expenses for the promotion and sale of the Company’s “pen cartridges” and future products.

 

Item 3.  Defaults Upon Senior Securities.

 

The Company currently does not have senior securities

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5.  Other Information.

 

Mark Uren tendered his resignation letter dated August 15, 2016, to resign from the Company by reason of other than for Cause, as the Chief Executive Officer, Principal Financial Officer, Secretary, the sole Director and the Chairman of the Board of Directors and from any office he held with the Company. Mr. Uren shall pursue new opportunities outside of MJ Pharmaceuticals, Inc. but shall remain as the largest stockholder of the Company.

As of the 15^th day of August, 2016, James Liebo was appointed as the sole director and successor to Mark Uren and as the President, Secretary and Chief Executive Officer of the Company.

 

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