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EX-32.1 - EXHIBIT32 - MJ BIOTECH, INC. | exhibit32_ex32z1.htm |
EX-31.2 - EXHIBIT 31.2 - MJ BIOTECH, INC. | exhibit312_ex31z2.htm |
EX-31.1 - EXHIBIT 31.1 - MJ BIOTECH, INC. | exhibit31_ex31z1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-54616
MJ BIOTECH, INC.
(Exact name of registrant as specified in its charter)
(formerly Michael James Enterprises, Inc.)
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Wyoming | 45-2282672 |
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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109 East 17th Street, Suite 80 Cheyenne, WY | 82001 |
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(Address of principal executive offices) | (Zip Code) |
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(561) 563-3830 |
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(Registrant's telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the issuer (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 last 90 days. YES [ ] NO [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 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 [X] 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.
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Large Accelerated Filer | ¨ | | Accelerated Filer |
Non-accelerated Filer | ¨ | | Smaller Reporting Company [X] |
Emerging Growth Company
If an emerging growth company, indicate by check mark if registrant has elected not to extended transition period for complying with any new of revise financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Security Act. YES [ ] NO [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of December, 16, 2017, there were 32,703,283 shares of the registrant s $0.0001 par value common stock issued and outstanding.
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TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS (unaudited) | 4 |
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| Condensed Consolidated Balance Sheets | 4 |
| Condensed Consolidated Statements of Operations | 5 |
| Condensed Consolidated Statements of Cash Flows | 6 |
| Notes to the Condensed Consolidated Unaudited Financial Statements | 7 |
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ITEM 2. | MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 11 |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 14 |
ITEM 4. | CONTROLS AND PROCEDURES. | 14 |
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| PART II. OTHER INFORMATION |
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ITEM 1. | LEGAL PROCEEDINGS. | 15 |
ITEM 1A. | RISK FACTORS. | 15 |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 15 |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 16 |
ITEM 4. | MINE SAFETY DISCLOSURES. | 16 |
ITEM 5. | OTHER INFORMATION. | 16 |
ITEM 6. | EXHIBITS. | 17 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:
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our recent exit from shell status, lack of profitable operations and risk we will ever generate revenues or profits,
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need for additional capital, including our ability to repay $331,643 in notes to non-related parties, all of which if not paid off will convert into common stock over time causing dilution to all shareholders,
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our ability to continue as a going concern,
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the limited operating history of our business,
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our inability to manage our growth,
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potential infringement of first party intellectual property rights,
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our ability to effectively compete,
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our ability to timely and effectively scale our technology,
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the limited trading market for our common stock which is quoted on the OTC Markets,
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anti-takeover aspects of our certificate of incorporation and bylaws and the ability of our Board to issue preferred stock without stockholder consent,
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the application of penny stock rules to trading in our common stock, and
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the dilutive impact of outstanding convertible notes and warrants.
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing elsewhere in this report. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
We maintain our website at www.mjbiotech.com. Information on this website is not a part of this report
Unless specifically set forth to the contrary, when used in this report the terms MJ Biotech, Inc. (f/k/a Michael James Enterprises, Inc.), the Company, "we", "us", "our" and similar terms refer to MJ Biotech, Inc. a Wyoming Corporation (also formerly known as BullsnBears and Spicy Gourmet Manufacturing, Inc). In addition, the third quarter of 2017 refers to the three months ended September 30, 2017, the third quarter of 2016 refers to the three months ended September 30, 2016.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MJ BIOTECH, INC. | ||
(formerly Michael James Enterprises, Inc.) | ||
Condensed Consolidated Balance Sheets | ||
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| (un-audited) | |
| September 30, 2017 | December 31, 2016 |
ASSETS | | |
CURRENT ASSETS | | |
Cash | $ - | $ 26,767 |
Accounts Receivable | - | 1,000 |
Total Current Assets | - | 27,767 |
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TOTAL ASSETS | $ - | $ 27,767 |
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | | |
CURRENT LIABILITIES | | |
Accounts payable and accrued expenses | 357,101 | 247,749 |
Accounts payable related party | 92,007 | 86,030 |
Note payable related party | 290 | 240 |
Notes Payable Net of Debt Discount | 10,500 | - |
Convertible notes payable | 321,144 | 173,597 |
Derivative Liability (net) | 593,109 | 467,491 |
Total Current Liabilities | 1,374,151 | 975,107 |
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Longterm Liabilities | | |
Convertible notes payable, net | - | - |
Total longterm liabilities | - | - |
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Total Liabilities | 1,374,151 | 975,107 |
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Commitments and Contingencies | - | - |
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STOCKHOLDERS' EQUITY (DEFICIT) | | |
Preferred stock; $0.0001 par value, 20,000,000 shares authorized, 3,925,000 and 665,000 issued or outstanding respectively, as of September 30, 2017 and December 31, 2016 respectively, | 3,326 | 66 |
Common stock; $0.0001 par value, 980,000,000 shares authorized, 32,303,283 and 22,315,946 issued and outstanding as of September 30, 2017 and December 31, 2016 respectively, | 3,231 | 2,231 |
Additional paid-in capital | 18,198,717 | 12,439,406 |
Accumulated deficit | (19,579,424) | (13,389,043) |
Total Stockholders' Equity (Deficit) | (1,374,151) | (947,340) |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ - | $ 27,767 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated financial statements.
MJ BIOTECH, INC. | ||||
(formerly Michael James Enterprises, Inc.) | ||||
Condensed Consolidated Statements of Operations | ||||
(unaudited) | ||||
| For the | For the | ||
| 2017 | 2016 | 2017 | 2016 |
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REVENUES | $ - | $ - | $ - | $ - |
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OPERATING EXPENSES | | | | |
Depreciation and amortization expense | - | 651 | - | 1,953 |
Shares issued for Consulting | - | 808,340 | 5,542,000 | 1,133,040 |
General and administrative | 11,369 | 91,917 | 219,972 | 214,630 |
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Total Operating Expenses | 11,369 | 900,908 | 5,761,972 | 1,349,623 |
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OPERATING LOSS | (11,369) | (900,908) | (5,761,972) | (1,349,623) |
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OTHER INCOME (EXPENSE) | | | | |
Loss on conversion of notes | | - | (127,340) | - |
Gain (loss) on derivative liability and finance fees | (210,545) | 148,762 | (158,764) | (177,574) |
Interest expense | (8,454) | (80,136) | (142,304) | (283,809) |
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Total Other Income (Expense) | (218,999) | 68,626 | (428,408) | (461,383) |
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NET LOSS | $ (230,368) | $ (832,282) | $ (6,190,380) | $ (1,811,006) |
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BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ (0.01) | $ (0.04) | $ (0.25) | $ (0.12) |
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BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 30,315,979 | 18,851,502 | 24,761,082 | 15,027,530 |
The accompanying notes are an integral part of these unaudited Condensed Consolidated financial statements.
MJ BIOTECH, INC. | ||
(formerly Michael James Enterprises, Inc.) | ||
Condensed Consolidated Statements of Cash Flows | ||
(unaudited) | ||
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| 2017 | 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES | | |
Net loss | $ (6,190,380) | $ (1,811,006) |
Items to reconcile net loss to net cash used in operating activities: | | |
Depreciation and amortization | - | 1,953 |
Change in Debt discount | 55,874 | 124,780 |
Financing fees, Shares issued and note penalties | 233,691 | - |
Shares issued for consulting | 5,542,000 | 1,133,040 |
Changes in operating assets and liabilities | | |
Change in Accounts Receivable | 1,000 | - |
Change in Derivative Liability | 110,168 | 177,574 |
Increase in accounts payable and accrued liabilities | 88,699 | 293,060 |
Increase in accounts payable and accrued liabilities - related party | 1,631 | 36,130 |
Net Cash Used in Operating Activities | (157,317) | (44,469) |
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CASH FLOWS FROM FINANCING ACTIVITIES | | |
Bank Overdraft | - | - |
Proceeds (payments) from convertible notes payable | 120,000 | 220,000 |
Proceeds (payments) from convertible notes payable | - | - |
Proceed from notes payable | 10,500 | |
Proceeds (payments) from notes payable related party | 50 | 24,209 |
Payments to notes payable, related party | - | (200,000) |
Net Cash Provided by Financing Activities | 130,550 | 44,209 |
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Increase (Decrease) in Cash | (26,767) | (260) |
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CASH AT BEGINNING OF PERIOD | 26,767 | 300 |
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CASH AT END OF PERIOD | $ (0) | $ 40 |
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Supplemental Information: | | |
Interest Paid | $ - | $ - |
Taxes | $ - | $ - |
The accompanying notes are an integral part of these unaudited Condensed Consolidated financial statements.
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MJ BIOTECH, INC.
(formerly Michael James Enterprises, Inc.)
Notes to the Condensed Consolidated Unaudited Financial Statements
1.
Nature of Operations and Continuance of Business
The unaudited interim condensed consolidated financial statements included herein have been prepared by MJ Biotech, Inc. (formerly Michael James Enterprises, Inc.) (the Company) in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the SEC). We suggest that these interim financial statements be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2016, as filed with the SEC. We believe that all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein and that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.
We were a Company focused on developing intellectual property. We have, since the beginning of the third quarter of 2017, changed our focus toward Nutraceuticals. With this change in focus we entered into a Binding Letter of Agreement on July 26, 2017 to acquire ZEN HERO, Inc. d/b/a Zens Tea House Zen. The business of Zen is a formulator of organic teas and herbs (Nutraceuticals) for sale to the public and other businesses. Zen, currently works with doctors and other health professionals to develop teas and herbs to assist in the development of alternative solutions to the current medicines offered to patients and non-patients alike.
Zen cannot make any health claims or state that green tea is possesses specific health benefits. However, Zen can offer anecdotal literature and other information on diet and health benefits others have experienced and point people to ethically sound, licensed medical physicians who can offer medical advice, diagnosis, and treatment.
Our goal is to halp Zen create a well-known brand within the Nutraceutical market segment. To accomplish this goal. Zen is currently selling their teas and herbs through three main distribution networks.
The primary distribution source is via farmers markets. Zen currently operates in over 35 farmers markets per week. Farmers markets provide a valuable sales and distribution channel for the Zens products. Private markets are solitary events held by corporations for their employees as part of their health and wellness programs. Online sales are Zens main focus for growth through Zens website www.zenstea.com
Competition
Most of Zens competitors online are well-established and have substantially greater financial resources than dozen does. Some of our online competitors are the Full Leaf Company, the Republic Coffee and Tea Company and Adagio Teas. Zen is currently working on increasing
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its online presence. Zen has little or no competitions in its current farmers markets and with the growth of the farmers markets segments across the nation this is an area Zen has the opportunity to expand.
Acquisition of RP Capital In Place Of The Proposed Acquisition of MJ Biotech Inc.
On August 4, 2016, the companys Board of Directors approved an asset purchase agreement with RP Capital Group, Ltd. to acquire all rights and title to the studies and intellectual property to a dranabinol based treatment for sleep apnea. This acquisition substituted the contemplated acquisition of MJ Biotech, Inc., a Wyoming corporation (formerly known as Michael James Enterprises, Inc) acquisition did not move forward as the acne based product it was bringing to market has experienced several significant setbacks and the Board of Directors has determined that the proposed agreement was not in the best interest of the Company and its shareholders.
Acquisition of Zen Hero, Inc., d/b/a Zens Tea House.
On July 26, 2017, the Company entered into a Binding Letter of Agreement for the acquisition of ZEN HERO, Inc. d/b/a Zens Tea House. The business of ZEN HERO is a formulator of Organic Teas for sale to the public and other businesses. The transaction is anticipated to close within ninety (90) days. The proposed purchase price is a combination of cash ($750,000) and stock. $400,000 is payable on closing with the balance to be paid based on performance milestones. Zen Hero is a company that sells its own line of medicinal teas. Based on Un-Audited financial statements, Zen Hero currently generates more than $100,000 per month in sales and is profitable. The Company is working towards auditing Zen Heros financial statements in preparation to close on the acquisition into the Company as a wholly-owned subsidiary. There is no guarantee that this acquisition will be completed.
Our History
We were organized under the laws of the State of Delaware on December 30, 2010 under the name Spicy Gourmet International, Inc. as part of the implementation of the Chapter 11 plan of reorganization of Spicy Gourmet Organics, Inc. ("SGO"), a California corporation. SGO was incorporated in the State of California in 2006 and was formed to import specialty, organic spices from South Asia and sell them in the United States. SGO was undercapitalized and sales of its spice products were slow to develop, possibly due to the recession in the 2007-2008-time period. As a result, SGO lacked sufficient cash flow to meet its current obligations and on October 1, 2010 SGO filed a voluntary petition for bankruptcy under Chapter 11 in the U.S. Bankruptcy Court for the Central District of California. SGO's plan of reorganization was confirmed by the Court on November 19, 2010.
The plan of reorganization provided for the acquisition by SGO of a new, unrelated, retail business and the spin-off of all of the various elements of SGO's spice business to four different entities. The plan of reorganization called for the spin-off of SGO's manufacturing business to our company, the incorporation of our company, and the distribution of shares of our common stock to the bankruptcy creditors. The plan required us to issue 1,180,000 shares of our common stock and distribute these to SGO's general unsecured creditors, to its administrative creditors, and to its shareholders. The shares were distributed pursuant to Section 1145 of the U.S. Bankruptcy Code.
The Court also ordered the distribution of warrants to all administrative creditors of SGO, with these creditors to receive five warrants exercisable into shares of our common stock for each $0.05 of SGO's administrative debt which they held. All warrants were exercisable at any time prior to November 19, 2017. No Warrants were exercised prior to their expiration.
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We were a shell company as that term is defined in the Securities Act of 1933 from our date of incorporation until October 2012.
On October 20, 2012, we acquired from James M. Palladino, then an unrelated third party, the URL domain name and websites of bullsnbears.com for $150,000. Following this asset purchase we were no longer considered a shell company. On October 23, 2012, our former officers and directors resigned and certain of the then officers and directors were appointed, with the balance of our directors being newly appointed in December 2012.
In November 2012 we changed our name to BullsnBears.com, Inc. Effective December 11, 2015, we changed our name to Michael James Enterprises, Inc., and entered into an Agreement for Plan of Merger and Reorganization between the Company and Michael James Enterprises, Inc., a Nevada corporation.
On December 31, 2015, the Company formed a new wholly-owned company, BullsnBears Holdings, LLC., for the purpose of holding the Companys intellectual property assets. As contractually agreed to, the Company's wholly-owned subsidiary, BullsnBears, Holdings LLC. was spun off in its entirety including all of the assets and liabilities of the subsidiary including certain liabilities of the parent company that were incurred by the previous management including BullsnBears Holdings, LLC. Intellectual Property assets, including its websites, URLs, and proprietary software, were transferred through a share dividend to MJTV shareholders of record as of the close of business on December 28, 2016, with one share of BullsnBears Holdings, LLC. Common Stock distributed for each one share of MJTV Common Stock owned as of the record date. Distribution of the shares took place on December 28, 2016.
Prior to that, effective December 11, 2015, the Company filed an Amendment to the Companys Articles of Incorporation changing the Companys name to Michael James Enterprises Inc. and filed with FINRA for a new stock ticker symbol MJTV.
On August 4, 2016, the Company changed its direction and decided to acquire RP Capital Group, Ltd. and all of its intellectual property associated with a Dronabinol based treatment for sleep apnea. Additionally, the Company decided to develop and bring to market a female sexual arousal enhancer VOLUPTAS. Trademark and patent applications were filed, and the Company is currently in the process of securing $2,500,000 of funding to manufacture and bring to market this product. There is no guarantee these funds will be raised.
Since August of 2016 the Company created the alchemy of essential oils called LUNA to help a person relax and hopefully achieve better sleep. Additionally, the Companys then CEO, James M. Farinella, designed a creative noninvasive delivery system for an active ingredient which was assigned to the company by the then CEO in exchange for 2,350,000 Preferred B shares. This product VOLUPTAS, now patent pending with a filing for a trademark on the Name VOLUPTAS.
On April 12, 2017, the Company changes its name to MJ Biotech, Inc. to better represent the new direction of the Company. MJ Biotech has also changed its state of incorporation to the state of Wyoming. The change of domicile took place on August 25, 2017.
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Going Concern
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. During the period from inception through September 30, 2017, the Company has generated minimal revenues and has an accumulated deficit of ($19,579,424). The continuation of the Company as a going concern is dependent upon the continued financial support from its management, its ability to generate profits from the Company s future operations, identify future investment opportunities and obtain the necessary debt or equity financing. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Principles of Consolidation
The accompanying financial statements reflect the individual financial statements of MJ Biotech, Inc. taking into account the spinoff of BullsnBears Holdings, LLC. All significant intercompany accounts and transactions have been eliminated.
Basic and Diluted Loss Per Share
The Company presents both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method, and convertible securities, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The Company had net losses as of September 30, 2017 and September 30, 2016, so the diluted EPS excluded all dilutive potential shares in the diluted EPS because their effect is anti-dilutive. As of September, 30, 2017, the Company had outstanding warrants to purchase 5,000,000 shares of common stock. The Company also had outstanding convertible notes of $436,882 that could be converted into additional shares as of September 30, 2017.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the 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.
Fair Value of Financial Instruments
The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments. The fair value of the derivative liabilities have been valued using a Black Scholes valuation model.
Derivative Liabilities
Certain of the Companys convertible notes payable described in Note 3 contain conversion features that qualify for embedded derivative classification. The Company accounts for the embedded derivative features in its convertible debentures in accordance FASB ASC 815-10-Derivatives and Hedging, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives. The recognition of derivative liabilities related to the
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issuance of the convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as a Loss on Derivative Liability in other expense. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
New Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15 Presentation of Financial StatementsGoing Concern, outlining managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern, along with the required disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016 with early adoption permitted. The Company does not anticipate a material impact to our financial statements as a result of this change.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 changes the presentation of debt issuance costs in financial statements, by requiring them to be presented in the balance sheet as a direct deduction from the related debt liability, rather than as an asset. Amortization of the costs is reported as interest expense. There is no change to the current guidance on the recognition and measurement of debt issuance costs. For public business entities, ASU 2015-03 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company does not expect ASU 2015-03 to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which revises an entitys accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted under certain circumstances. The Company is currently assessing the impact of ASU 2016-01 on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under Accounting Standards Update 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessees obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessees right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including treatment of excess tax benefits and forfeitures, as well as consideration of minimum statutory tax withholding requirements. The ASU will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early
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application permitted in any interim or annual period. The Company is evaluating the future impact of this ASU on the consolidated financial statements.
Other relevant recently issued accounting updates are not expected to have a material impact on the Companys consolidated financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS
As of September, 30, 2017, the company owes Integrated Capital Partners, Inc. (Nevada) $70,596 in expenses paid for the Company. The Companys former CEO (James Farinella) is the controlling shareholder of Integrated Capital Partners, Inc. (Nevada).
As of September, 30, 2017, the Company owes James M. Farinella the previous CEO, $3,036 in expenses paid for the Company.
In February 2017 the Companys then CEO, James Farinella, assigned his rights to the Voluptas provisional patents that he owns and all intellectual property rights to Voluptas for 2,350,000 preferred B shares of the Company. On May 10, 2017 the provisional patent was updated and re-filed increasing the protection covering more than 10 delivery methods. Mr. Farinella surrendered 120,000 Preferred B shares to pay off loans owed to three trust accounts and those trust accounts were issued 40,000 preferred C shares each. James Farinella now owns 2,890,000 preferred B shares of the Company. James Farinella also retired 8,425,000 common shares and now owns no common shares of the Company. As of September 30, 2017, the company owes the former CEO (James Farinella) of the Company $15,434 in expenses paid for the Company.
In February 2017 the Companys then Chief Operating Officer, Gina Morreale, was issued 240,000 preferred B shares. The Company agreed to issue these shares to Ms. Morreale in 2016 for her joining the Company as an Officer and Director. Subsequently, Gina Morreale resigned as an officer and director of the Company and relinquished the 240,000 preferred B shares.
On August 4, 2016 the company issued 660,000 shares of preferred B shares to RP Capital Group. Ltd. for research and development services. Each preferred B share is convertible into 100 shares of the companys common stock. During the three months ended September 30, 2017, Maxine Person our CEO paid $1,631in miscellaneous operating expenses.
NOTE 3 - CONVERTIBLE AND PROMISSORY NOTES PAYABLE
On February 4, 2016, the Company entered into a $121,000 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate. The term is for one year, with an original issuance discount of $11,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 23, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Vista Capital Investments, LLC. a non-affiliate. The term is for two years, with an original issuance discount of $5,500 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability. In connection with the note payable the Company is obligated to issue 200,000 shares of common stock that was valued
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at $120,000. Out of the full consideration $55,000 was recorded as debt discount and the remaining $65,000 was included in interest expense.
On March 24, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate. The term is for one year, with an original issuance discount of $5,500 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On December 5, 2016, the Company entered into a $79,000 10% Convertible Promissory Note with GHS Investments, LLC, a non-affiliate. The term is for eight months, with an original issuance discount of $9,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On December 16, 2016, the Company entered into a $63,250 12% Convertible Promissory Note with Auctus Fund, LLC, a non-affiliate. The term is for nine months, with an original issuance discount of $8,250 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On January 5, 2017, the Company entered into a $53,000 8% Convertible Promissory Note with Power Up Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible after 180days into Common Stock of the Company at a conversion price which shall be equal to 55% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability. Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.
On March 7, 2017, the Company entered into a $25,000 12% Convertible Promissory Note with Vista Capital Investments, LLC, a non-affiliate. The term of the Note is for two years, with an original issuance discount of $5,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 7, 2017, the Company entered into a $5,000,000 equity line with Tangier Investment Group, LLC which will require a registration statement to be filed. The Company no longer intends to move forward on the equity line. As part of the Equity line the Company entered into a commitment note for $29,000 with no interest. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price, which shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 13, 2017 the Company entered into a $43,000 8% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible
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after 180 days into Common Stock of the Company at a conversion price which shall be equal to 55% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability. Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.
On January 17, 2017 Vista Capital Investments, LLC converted $10,000 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01925 for 519,481 shares.
On January 24, 2017 Tangiers Investment Group, LLC converted $19,943.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0175 for 1,139,600 shares.
On January 30, 2017 Vista Capital converted $14,500 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01375 for 1,054,545 shares.
On February 22, 2017 Tangiers Investment Group, LLC converted $10,119.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0061 for 1,658,852 shares.
On March 17, 2017 Collier Investments, LLC converted $7,995.00 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.
On March 3, 2017 Vista Capital Investments, LLC converted $5,637.50 of its $60,500 note dated March 23, 2016 at a conversion price of $0.00451 for 1,250,000 shares.
On March 9, 2017 GHS Investments, LLC converted $4,100.00 of its $66,500 note it acquired from Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0041 for 1,000,000 shares.
On March 17, 2017 Collier Investments, LLC converted $7,995.00 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.
On April 7, 2017 GHS Investments, LLC. converted $3,300.00 of its note originally owned by Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0033 for 1,000,000 common shares. On May 2, 2017 the Company entered into a Securities Purchase Agreement with GPL Ventures LLC the agreement allows the Company to draw down up to $10,000,000 over the term of the agreement with a maximum drawdown of $125,000 at one time.
On May 12, 2017 the Company entered into an Agency Services Agreement with Thor Associates for an initial three months and a 5% royalty on the gross sales of Voluptas for three years starting on the date of the Voluptas market launch. Both parties to this agreement will discuss a scope of work beyond the end of the three-month contract end date and will then extend this agreement based on the agreed scope of work to be performed moving forward. The contracts start date is July 1, 2017. This agreement is no longer in effect.
On May 12, 2017 the Company entered into a Corporate Consulting Agreement with Global Discovery Group to create and compose stories and articles about the Company, its industry and competition, syndicate and distribute the stories to major financial websites and wire services to reach potential investors. The agreement runs for six months at a cost of $50,000 per month. This
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agreement was terminated by the Company in the month of July 2017. Nothing was ever paid to Global Discovery Group and no work was ever performed.
On May 16, 2017 the Company entered into a $200,000 8% Convertible Promissory Note with Tri-Bridge Ventures LLC, a non-affiliate. The term of the Note is for 9 months. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which, shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. Tri-Bridge Ventures, LLC will fund $100,000 of the $200,000 Convertible Promissory Note Upon the filing of the Companys 2016 year-end audited financial statements on Form 10K and the 2017 first quarter results on Form 10Q. Tri-Bridge Ventures, LLC will have the right to fund the remaining balance at any time during the term of the Note. This transaction never closed, and the agreement was terminated
On May 16, 2017, the Company entered into a $10,000,000 equity line with GPL Ventures, LLC, which will require a registration statement to be filed. As part of the Equity line the Company entered into a commitment note for $100,000. The term of the Note is for 6 months. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price, which shall be equal to 80% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. The company no longer plans on moving forward with GPL Ventures, LLC on the equity line.
On May 24, 2017 the Company entered into a $10,000 12% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 58% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert. Power Up Lending Group, LTD has declared the Company in default of its obligations under the Note.
On July 6, 2017 Power Up Lending Group LTD. converted $1,070.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00092 for 1,163,043 common shares.
On July 21, 2017 Power Up Lending Group LTD. converted $795.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00068 for 1,169,118 common shares.
On July 27, 2017 Power Up Lending Group LTD. converted $890.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00064 for 1,390,625 common shares.
On August 2, 2017 Power Up Lending Group LTD. converted $770.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.
On August 9, 2017 Power Up Lending Group LTD. converted $770.00 of its $53,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.
In September 2017, the Company entered two Promissory Notes for $5,000 each with an unrelated private party. The Notes bear interest at the rate of 4% per annum and are due on January 30, 2018.
Accrued interest on all outstanding non-related-party Notes was $41,941 at September 30, 2017 and $16,266 as for December 31, 2016.
| |
Debt Discount | |
Balance as of December 31, 2015 | $ - |
Initial recognition of debt discount for derivative liability and share issuance 2016 | 242,000 |
Amortization of Debt Discount 2016 | (70,387) |
Debt Discount Balance as of December 31, 2016 | 171,613 |
Initial recognition of debt discount for derivative liability and share issuance 2017 | 196,000 |
Amortization of Debt Discount 2017 | (251,874) |
Debt discount Balance as of September 30, 2017 | $ 115,739 |
Balance of December 31, 2016 | $ 345,210 |
Notes Payable recorded in 2017 | 175,995 |
Notes converted in 2017 | (73,823) |
Total Notes payable at, 2017 | 447,382 |
Debt discount | (115,738) |
Notes Payable, net at September 30, 2017 | $ 331,644 |
NOTE 4 DERIVATIVE LIABILITY
The Company issued financial instruments in the form of convertible notes with embedded conversion features. The convertible notes payable has conversion rates which are indexed to the market value of the Companys common stock price.
During the Nine months ending September 30, 2017, the company issued four convertible promissory notes totaling $125,000.
The following table represents the Companys derivative liability and debt discount activity for the embedded conversion features discussed above:
Derivative Liability | |
Balance as of December 31, 2016 | $ 467,492 |
Initial recognition of additional derivative liability | 259,697 |
Change in the fair value | (134,080) |
Balance as of September 30, 2017 | $ (593,109) |
NOTE 5 - COMMON STOCK AND COMMON STOCK WARRANTS
Common Stock Warrants
In December 2010, the Company issued a total of 5,000,000 Common Stock Purchase Warrants. Pursuant to an extension approved by the Board of Directors in June 2015, all Warrants expired on November 19, 2017.
The following table summarizes the outstanding warrants and associated activity for the nine months ended September 30, 2017:
| Number of | Weighted | Weighted |
| Warrants | Average | Average |
| Outstanding | Price | Remaining |
| | | Contractual |
| | | Life |
Balance, December 31, 2016 | 5,000,000 | $ 0.25 | 0.84 |
Granted | - | - | |
Exercised | - | - | |
Expired | - | - | |
Balance, September 30, 2017 | 5,000,000 | $ 0.25 | 0.14 |
NOTE 6 COMMITMENTS AND CONTINGENCIES
On June 1, 2015, the Company received notice of an Administrative Complaint filed by the State of Florida Office of Financial Regulation (OFR) concerning certain private placement investments received by the Company during the period from 2011 to 2013 and the applicability of the registration exemption provisions of the Florida Statutes to said investments. The Company vigorously disputes the legal basis for this Administrative Complaint. However, given the cost of continued litigation, the Board of Directors of the Company has agreed to enter into a settlement agreement with the OFR and pay a nominal fine of $25,000. The settlement payment must be made on or before June 23, 2017. The payment was not made and on July 3, 2017 a final Order was entered in the amount of $980,000. The Company is hopeful that when resources permit the Company can settle the Final Order for an amount similar to the $25,000 previously agreed to, this is included in our accrued expenses.
NOTE 7 SUBSEQUENT EVENTS
In October the Company entered into a Promissory Note for $29,500 with an unrelated private Party. The Note bears interest at the rate of 4% per annum and has a due date of April 30, 2018.
In December the Company entered into a Promissory Note for $9,000 with an unrelated private Party. The note bears interest at the rate of 4% per annum and has a due date of April 30, 2018.
On or about October 18, 2017, KLJ & Associates LLP (KLJ) withdrew as the Companys independent registered public accounting firm as it has sold its audit practice. During the period from August 18, 2016 (the date of KLJs appointment as the Companys independent registered public accounting firm) through the effective date of KLJs withdrawal, there were no disagreements with KLJ on any matter of accounting principles or practices, or financial statement disclosure, which disagreements, if not resolved to the satisfaction of KLJ, would have caused it to make reference to the subject matter of such disagreements in any future report on our financial statements for any periods during which KLJ was engaged.
The Companys Board of Directors appointed Fruci & Associates II, PLLC (Fruci) as the Companys new independent registered public accounting firm effective as of October 23, 2017.
The Company has appointed Mountain Share Transfer LLC. (Mountain) as its transfer agent and registrar effective on or about November 10, 2017. All of the Companys registered shares of common stock have been transferred from Platinum Stock Transfer Inc. to Mountain in accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2017 thru December 18, 2017 issued, and has determined that it does not have any material
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subsequent events to disclose in these financial statements other than the events described above.
All outstanding common stock warrants expired on November 19, 2017.
ITEM 2.
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Working Capital
| Unaudited | |
| September 30, 2017 | December 31, 2016 |
Current Assets | $ - | $ 27,767 |
Current Liabilities | 1,374,151 | 975,107 |
Working Capital Deficit | (1,374,151) | (947,340) |
Cash Flows
| For the | |
| 2017 | 2016 |
Net Cash Used in Operating Activities | $ (157,317) | $ (44,469) |
Net Cash Provided by Financing Activities | 130,550 | 44,209 |
Increase (decrease) in Cash | (26,767) | (260) |
Cash at end of Period | $ (0) | $ 40 |
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Balance Sheet
At September 30, 2017, the Company had total assets of $0 compared with total assets of $27,767 as at December 31, 2016.
The Company had total liabilities of $1,374,151 at September 30, 2017 compared with $975,107 at December 31, 2016. The increase was due to the issuance of additional convertible notes and accrued expenses.
Income Statement
Revenues
Revenue remained unchanged at $0 during the nine months ended September 30, 2017 and 2016.
Operating Expenses
During the three months ended September 30, 2017, the Company incurred operating expenses totaling $11,369 compared with $900,908 for the three months ended September 30, 2016 due to the issuance of stock for consulting.
During the nine months ended September 30, 2017, the Company incurred operating expenses totaling $5,761,972 compared with $1,349,623 for the nine months ended September 30, 2016 due to the issuance of stock for consulting
Net Loss
During the three months ended September 30, 2017 and 2016, the Company realized net loss of $(230,368) compared with a net loss of $(832,282). The loss in 2017 and 2016 was mainly due to due to shares issued for consulting.
During the nine months ended September 30, 2017 and 2016, the Company realized net loss of $(6,190,380) compared with a net loss of $(1,811,006). The loss in 2017 was mainly due to change in derivative liability and financing fees. The loss in 201 was mainly due to shares issued for consulting.
Liquidity and Capital Resources
As of September 30, 2017, the Company had a cash balance of $0 and a working capital deficit of $(1,374,151), compared with a cash balance of $26,767 and working capital deficit of $(947,340) at December 31, 2016.
We do not have sufficient capital to pay our operating expenses. In addition, as of September 30, 2017, there was $448,277 in notes payable which mature over the next 2 years. These notes are unsecured. We do not have sufficient working capital to repay these obligations. In the absence of the note holders converting to common stock the Company will need to raise additional capital to satisfy these obligations. If we are unable to raise the additional capital necessary to pay our
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operating expenses and satisfy our obligations, we may be unable to continue as a going concern. In that event, investors could lose their entire investment in our company.
Cash Flows from Operating Activities
During the nine months ended September 30, 2017, the Company used ($157,317) of cash from operating activities compared with use of ($44,469) of cash flow during the nine months ended September 30, 2016.
Cash Flows from Financing Activities
During the nine months ended September 30, 2017, the Company received $130,550 of cash flow from financing activities compared to $44,209 of cash flow from financing activities during the nine months ended September 30, 2016.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We will continue to rely on the issuance of debt and equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the Exchange Act) and are not required to provide the information under this item.
ITEM 4.
CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive who also serves as our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints
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and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer who also serves as our chief financial officer concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer who also serves as our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure as a result of continuing weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2016.
Changes in internal control over financial reporting
There were no changes in internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
On June 1, 2015, the Company received notice of an Administrative Complaint filed by the State of Florida Office of Financial Regulation (OFR) concerning certain private placement investments received by the Company during the period from 2011 to 2013 and the applicability of the registration exemption provisions of the Florida Statutes to said investments. The Company vigorously disputes the legal basis for this Administrative Complaint. However, given the cost of continued litigation, the Board of Directors of the Company has agreed to enter into a settlement agreement with the OFR and pay a nominal fine of $25,000. The settlement payment must be made on or before June 23, 2017. The payment was not made and on July 3, 2017 a final Order was entered in the amount of $980,000. The Company is hopeful that when resources permit the Company can settle the Final Order for an amount similar to the $25,000 previously agreed to.
In August 2017, the Companys former CEO was served with a Summons and Complaint from the Superior Court of the State of New Jersey, Camden County (Docket No. CAM-L-2600-17) seeking payment of an unpaid invoice to the Companys former auditors Friedman LLP in the amount of $8,240. On or about October 20, 2017the Plaintiff improperly obtain a Judgment by default. The Company will make a motion to vacate the default, seek sanctions against Plaintiff and its counsel, and contest the amount allegedly due.
On or about November 21, 2017 Power Up Lending Group, LTD filed a Complaint against the Company in the Federal District Court for the Eastern District of New York alleging the Companys default under various Convertible Promissory Notes. The Company has not yet been served with the Summons and Complaint and will vigorously defend this action.
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ITEM 1A.
RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On February 4, 2016, the Company entered into a $121,000 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate. The term is for one year, with an original issuance discount of $11,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 23, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Vista Capital Investments, LLC. a non-affiliate. The term is for two years, with an original issuance discount of $5,500 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability. In connection with the note payable the Company is obligated to issue 200,000 shares of common stock that was valued at $120,000. Out of the full consideration $55,000 was recorded as debt discount and the remaining $65,000 was included in interest expense.
On March 24, 2016, the Company entered into a $60,500 10% Convertible Promissory Note with Tangiers Investment Group, LLC, a non-affiliate. The term is for one year, with an original issuance discount of $5,500 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On December 5, 2016, the Company entered into a $79,000 10% Convertible Promissory Note with GHS Investments, LLC, a non-affiliate. The term is for eight months, with an original issuance discount of $2,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 55% of the lowest trading price of the Companys Common Stock during the 20 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On December 16, 2016, the Company entered into a $63,250 12% Convertible Promissory Note with Auctus Fund, LLC, a non-affiliate. The term is for nine months, with an original issuance discount of $8,250 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to the lower of $.09 or 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On January 5, 2017, the Company entered into a $53,000 8% Convertible Promissory Note with Power Up Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible after 180 days into Common Stock of the Company at a conversion price which shall be equal to
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55% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 17, 2017 Collier Investments, LLC converted $7,995.00 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.
On March 13, 2017 the Company entered into a $43,000 8% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible after 180 days into Common Stock of the Company at a conversion price which shall be equal to 55% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 7, 2017, the Company entered into a $25,000 12% Convertible Promissory Note with Vista Capital Investments, LLC, a non-affiliate. The term of the Note is for two years, with an original issuance discount of $5,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On March 7, 2017, the Company entered into a $5,000,000 equity line with Tangier Investment Group, LLC which will require a registration statement to be filed. The Company no longer intends to move forward on the equity line. As part of the Equity line the Company entered into a commitment note for $29,000. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 50% of the lowest trading price of the Companys Common Stock during the 25 trading days prior to the election to convert. See Note 4 for discussion of the derivative liability.
On January 17, 2017 Vista Capital Investments, LLC converted $10,000 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01925 for 519,481 shares.
On January 24, 2017 Tangiers Investment Group, LLC converted $19,943.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0175 for 1,139,600 shares.
On January 30, 2017 Vista Capital converted $14,500 of its $60,500 note dated March 23, 2016 at a conversion price of $0.01375 for 1,054,545 shares.
On February 22, 2017 Tangiers Investment Group, LLC converted $10,119.00 of its $121,000 note dated February 4, 2016 at a conversion price of $0.0061 for 1,658,852 shares.
On March 3, 2017 Vista Capital Investments, LLC converted $5,637.50 of its $60,500 note dated March 23, 2016 at a conversion price of $0.00451 for 1,250,000 shares.
On March 9, 2017 GHS Investments, LLC converted $4,100.00 of its $66,500 note it acquired from Tangiers Investment Group, LLC dated March 24, 2016 at a conversion price of $0.0041 for 1,000,000 shares.
On March 17, 2017 Collier Investments, LLC converted $7,995.00 of its $75,000 note it acquired from Tangiers Investment Group, LLC dated February 4, 2016 at a conversion price of $0.00410 for 1,950,000 shares.
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On May 24, 2017 the Company entered into a $10,000 12% Convertible Promissory Note with PowerUp Lending Group, LTD, a non-affiliate. The term of the Note is for 9 months, with an original issuance discount of $3,000 for due diligence and legal costs. The Note is convertible at the option of the Holder into Common Stock of the Company at a conversion price which shall be equal to 58% of the average of the three lowest trading prices of the Companys Common Stock during the 10 trading days prior to the election to convert.
On May 2, 2017 the Company entered into a Securities Purchase Agreement with GPL Ventures LLC the agreement allows the Company to draw down up to $10,000,000 over the term of the agreement with a maximum drawdown of $125,000 at one time.
In the third quarter the Company entered into a Binding Letter of Intent to acquire Zen Hero, Inc based in Southern California as a wholly owned subsidiary. A portion of the Purchase Pice will be pai in stock. Zen Hero is a company that sells its own line of medicinal teas. Based on Un-Audited numbers Zen Hero Currently generates more than $100,000 per month in sales and is profitable. The Company is working towards auditing Zen Heros financials in preparation to close on the acquisition into MJ Biotech as a wholly-owned subsidiary. There is no guarantee that this acquisition will be completed. MJ Biotech has also changed its state of incorporation to the state of Wyoming. The change of domicile took place on August 25, 2017.
On July 6, 2017 Power Up Lending Group LTD. converted $1,070.00 of its $80,000 note dated January 5, 2017 at a conversion price of $0.00092 for 1,163,043 common shares.
On July 21, 2017 Power Up Lending Group LTD. converted $795.00 of its $80,000 note dated January 5, 2017 at a conversion price of $0.00068 for 1,169,118 common shares.
On July 27, 2017 Power Up Lending Group LTD. converted $890.00 of its $80,000 note dated January 5, 2017 at a conversion price of $0.00064 for 1,390,625 common shares.
On August 2, 2017 Power Up Lending Group LTD. converted $770.00 of its $80,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.
On August 9, 2017 Power Up Lending Group LTD. converted $770.00 of its $80,000 note dated January 5, 2017 at a conversion price of $0.00055 for 1,400,000 common shares.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable to our company s operations.
ITEM 5.
OTHER INFORMATION.
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None
ITEM 6.
EXHIBITS.
The following exhibits are filed as part of this Quarterly Report:
| | |
| | |
Exhibit Number |
| Description |
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer * |
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of principal financial and accounting officer* |
32.1 |
| Section 1350 Certification of Chief Executive Officer and principal financial and accounting officer* |
101.INS |
| XBRL INSTANCE DOCUMENT ** |
101.SCH |
| XBRL TAXONOMY EXTENSION SCHEMA ** |
101.CAL |
| XBRL TAXONOMY EXTENSION CALCULATION LINKBASE ** |
101.DEF |
| XBRL TAXONOMY EXTENSION DEFINITION LINKBASE ** |
101.LAB |
| XBRL TAXONOMY EXTENSION LABEL LINKBASE ** |
101.PRE |
| XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE ** |
* filed herewith.
** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this report shall be deemed furnished and not filed.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 29th day of December 2017.
| | |
| | |
| MJ BIOTECH, INC. (formerly Michael James Enterprises, Inc.) | |
| (the Registrant ) | |
|
|
|
| BY: | /s/ Maxine Pierson |
|
| Maxine Pierson, Chief Executive Officer, Chief Financial Officer |
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