UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

 

OR

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER 000-55900

 

MJ HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA		20-8235905
(State or other jurisdiction of  incorporation or organization)		(I.R.S. Employer Identification No.)

 

1300 South Jones Boulevard, Las Vegas, Nevada 89146

(Address of principal executive offices) (Zip Code)

 

(702) 879-4440

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes  þ  No  ☐

 

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	þ	Smaller reporting company	þ
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  þ

 

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

 

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock		MJNE		OTCQB

 

As of January 8, 2020, there were 65,436,449 shares of our Common Stock, par value $0.001 per share, outstanding.

  

  

    

MJ HOLDINGS, INC.

FORM 10-Q

FOR THE NINE MONTHS ENDED September 30, 2019

 

INDEX

 

	PAGE
PART I - FINANCIAL INFORMATION	1
Item 1. Consolidated Financial Statements (Unaudited)	1
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosure About Market Risk	19
Item 4. Controls and Procedures	20
PART II – OTHER INFORMATION	21
Item 1.  Legal Proceedings	21
Item 1A.  Risk Factors	21
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	21
EXHIBIT INDEX	22
SIGNATURES	23

 

    

PART I – FINANCIAL INFORMATION

  

Item 1. Consolidated Financial Statements

 

MJ HOLDINGS, INC.

Condensed Consolidated Balance Sheets

 

		September 30, 2019				December 31, 2018
		(Unaudited)
ASSETS
Current assets
Cash		$	504,677			$	56,656
Accounts receivable			22,451				-
Inventory			1,746,402				1,587,852
Prepaid expense			549,539				481,216
Other receivable			150,000				-
Prepaid inventory			150,524				337,560
Marketable securities - available for sale			150,000				150,000
Cost method investment			250,000				-
Total current assets			3,523,593				2,613,284
Property and equipment, net			4,678,133				2,628,951
Intangible assets			300,000				300,000
Deposits			1,030,875				138,634
Right to use asset			1,303,408				-
Total assets		$	10,836,009			$	5,680,869
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		$	752,102			$	619,202
Customer deposit			441,000				386,416
Current portion of long-term notes payable			127,926				312,905
Short-term notes payable			100,000				-
Operating lease obligation, short term			160,106				-
Deferred revenue			1,300				-
Total current liabilities			1,582,434				1,318,523
Non-current liabilities
Long-term notes payable, net of discount, net of current portion			1,956,887				1,036,101
Operating lease obligation, net of current portion			1,323,297				-
Deferred rent			-				204,026
Other non-current liabilities			-				-
Total non-current liabilities			3,280,184				1,240,127
Total liabilities			4,862,618				2,558,650
Stockholders’ equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized 2,500 shares authorized, 0 shares issued and outstanding at September 30, 2019 and December 31, 2018			-				-
Common stock, $0.001 par value, 95,000,000 shares authorized, 64,624,780 and 70,894,146 shares issued, issuable, and outstanding at September 30, 2019 and December 31, 2018, respectively			64,624				70,894
Additional paid-in capital			17,807,899				10,921,774
Subscription receivable			260,000				-
Common stock issuable			29				-
Accumulated deficit			(12,131,325	)			(7,870,449	)
Total stockholders’ equity			6,001,227				3,122,219
Non-controlling interest			(27,836	)			-
Total stockholders’ equity			5,973,391				3,122,219
Total liabilities and stockholders’ equity		$	10,836,009			$	5,680,869

 

See accompanying notes to unaudited consolidated financial statements.

  

MJ HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

  

		For the three months ending								For the nine months ending
		September 30,								September 30,
		2019				2018				2019				2018
Revenue, net		$	418,528			$	-			$	1,197,598			$	-
Operating expenses
Direct costs of revenue			346,367				-				885,862				-
General and administrative			1,970,751				987,258				4,212,177				1,598,256
Depreciation			104,477				-				257,834				-
Marketing and selling			34,285				63,808				30,443				248,064
Total operating expenses			2,455,880				1,051,066				5,386,316				1,846,320
Operating loss			(2,037,352	)			(1,051,066	)			(4,188,718	)			(1,846,320	)
Other income (expense)
Interest expense			(29,485	)			-				(105,995	)			-
Interest income			5,330				145				6,001				510
Total other income (expense)			(24,155	)			145				(99,994	)			510
Provision for income taxes			-				-				-				-
Net Loss			(2,061,507	)			(1,050,921	)			(4,288,712	)			(1,845,810	)
Deem dividend related to beneficial conversion feature			-				(2,500,000	)			-				(2,500,000	)
Net loss before non-controlling interest			(2,061,507	)			(3,550,921	)			(4,288,712	)			(4,345,810	)
Loss attributable to non-controlling interest			21,500				-				27,836				-
Net loss attributable to common stockholders		$	(2,040,007	)		$	(3,550,921	)		$	(4,260,876	)		$	(4,345,810	)
Net loss attributable to common stockholders per share - basic and diluted		$	(0.03	)		$	(0.06	)		$	(0.07	)		$	(0.07	)
Weighted average number of shares outstanding - basic and diluted			59,003,090				63,746,119				57,640,807				63,298,565

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

MJ HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

 

		For the nine months ending September 30, 2019				For the nine months ending September 30, 2018
Cash Flows from Operating Activities
Net loss		$	(4,288,712	)		$	(1,845,810	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of right to use asset			98,063				-
Amortization of deferred rent			-				99,188
Common stock and options issued for services			675,604				106,728
Depreciation			257,834				-
Changes in operating assets and labilities:
Accounts receivable			(22,451	)			-
Inventory			(158,550	)			-
Prepaid expenses and prepaid inventory			118,713				(2,734,583	)
Deposits			(892,241	)			(91,250	)
Accounts payable and accrued liabilities			122,180				85,177
Customer deposits			54,584				386,416
Deferred revenue			1,300				-
Deferred rent			(7,150	)			-
Operating lease liability			(114,944	)			-
Net cash used in operating activities			(4,155,770	)			(3,994,134	)
Cash Flows from Investing Activities
Payment for leasehold improvements			(1,107,016	)			(1,229,675	)
Issuance of note receivable			(150,000	)			-
Purchase of cost method investment			(250,000	)			-
Net cash used in investing activities			(1,507,016	)			(1,229,675	)
Financing activities
Proceeds from notes payable			201,000				-
Repayment of notes payable			(265,193	)			-
Proceeds from the issuance of preferred stock			-				2,500,000
Proceeds from the issuance of common stock			5,915,000				2,523,998
Proceeds from common stock to be issued			260,000				-
Repayment of convertible note due to related party			-				(900,000	)
Net cash provided by (used in) financing activities			6,110,807				4,123,998
Net change in cash			448,021				(1,099,811	)
Cash, beginning of period			56,656				2,513,863
Cash, end of period		$	504,677			$	1,414,052
Supplemental disclosure of cash flow information:
Interest paid		$	83,362.00			$	-
Income taxes paid		$	-			$	-
Non-cash investing activities:
Return and cancellation of common stock		$	20,000			$	-
Common stock issued to acquire available for sale securities		$	-			$	150,000.00
Right to use asset obtained in exchange for operating lease obligation		$	1,598,347			$	-
Common stock and debt issued for asset acquisition		$	300,000			$	-
Financing purchases of property and equipment		$	900,000			$	-
Conversion of debt and interest for common stock		$	259,280			$	-

 

See accompanying notes to unaudited consolidated financial statements.

 

 

MJ HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

For Nine Months Ending September 30, 2018

 

		Preferred Stock								Common Stock Issuable								Common Stock								Additional paid in				Subscriptions				Accumulated				Total
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Receivable				Deficit				Amount
Balance at December 31, 2017			-				-				-				400,000				62,675,407				62,675				1,704,764				-				(362,521	)			1,804,918
Issuance of common stock for services			-				-				-				-				1,448				1				1,085				-				-				1,086
Issuance of common stock for stock subscriptions payable			-				-				-				100,000				382,001				383				286,118				-				-				386,501
Net loss for the period ended March 31, 2018			-				-				-				-				-				-				-				-				(201,075	)			(201,075	)
Balance at March 31, 2018			-				-				-				500,000				63,058,856				63,059				1,991,967				-				(563,596	)			1,991,430
Issuance of common stock for stock subscriptions payable			-				-				-				100,000				418,332				418				313,332				(125,000	)			-				288,750
Net loss for the period ended June 30, 2018			-				-				-				-				-				-				-				-				(593,814	)			(593,814	)
Balance at June 30, 2018			-				-				-				600,000				63,477,188				63,477				2,305,299				(125,000	)			(1,157,410	)			1,686,366
Issuance of preferred stock for cash			2,500				3				-				-				-				-				2,499,997				-				-				2,500,000
Issuance of common stock for stock subscriptions payable			-				-				-				(600,000	)			3,820,292				3,820				5,672,568				(472,000	)			-				4,604,388
Deemed dividend related to beneficial conversion future of preferred stock			-				-				-				-				-				-				-				-				(2,500,000	)			(2,500,000	)
Net loss for the period ended September 30, 2018			-				-				-				-				-				-				-				-				(1,050,921	)			(1,050,921	)
Balance at September 30, 2018			2,500				3				-				-				67,297,480				67,297				10,477,864				(597,000	)			(4,708,331	)			5,239,833

 

 

MJ HOLDINGS, INC.

Consolidated Statements of Stockholders’ Equity

For Nine Months Ending September 30, 2019

 

		Preferred Stock								Common Stock Issuable								Common Stock								Additional paid in				Subscriptions				Non Controlling				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Payable				Interest				Deficit				Total
Balance at December 31, 2018			-				-				-				-				70,894,146				70,894				10,921,774				-				-				(7,870,449	)			3,122,219
Issuance of common stock for services			-				-				-				-				16,236				16				15,984				-				-				-				16,000
Issuance of common stock for stock subscriptions payable			-				-				-				-				-				-				-				1,350,000				-				-				1,350,000
Return of common stock for cash			-				-				-				-				(20,000,000	)			(20,000	)			-				-				-				-				(20,000	)
Net loss for the period ended March 31, 2019			-				-				-				-				-				-				-				-				-				(646,488	)			(646,488	)
Balance at March 31 , 2019			-				-				-				-				50,910,382				50,910				10,937,758				1,350,000				-				(8,516,937	)			3,821,731
Issuance of common stock for purchase of property and equipment			-				-				-				-				66,667				66				49,933				-				-				-				49,999
Issuance of common stock for stock subscriptions payable			-				-				-				-				1,390,000				1,390				693,610				3,855,000				-				-				4,550,000
Net loss for the period ended June 30, 2019			-				-				-				-				-				-				-				-				(6,336	)			(1,574,381	)			(1,580,717	)
Balance at June 30, 2019			-				-				-				-				52,367,049				52,366				11,681,301				5,205,000				(6,336	)			(10,091,318	)			6,841,013
Issuance of common stock for services			-				-				10,417				10				1,317,731				1,318				658,277				-				-				-				659,605
Issuance of common stock for stock subscriptions payable			-				-				-				-				10,440,000				10,440				5,209,560				(4,945,000	)			-				-				275,000
Issuance of common stock for conversion of debt and interest			-				-				18,562				19				500,000				500				258,761				-				-				-				259,280
Net loss for the period ended September 30, 2019			-				-				-				-				-				-				-				-				(21,500	)			(2,040,007	)			(2,061,507	)
Balance at September 30, 2019			-				-				28,979				29				64,624,780				64,624				17,807,899				260,000				(27,836	)			(12,131,325	)			5,973,391

 

See accompanying notes to unaudited consolidated financial statements.

 

   

MJ HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 — Nature of the Business

 

MJ Holdings Inc. (OTC Pink: MJNE. the “Company”, “we”, “us”) is a publicly-traded, cannabis holding company providing cultivation management, licensing support, production management and asset and infrastructure development – currently concentrating on the Las Vegas market. It is our intention to grow our business and provide a 360-degree spectrum of infrastructure (including: cultivation, production management, dispensaries and consulting services) through: the acquisition of existing companies; joint ventures with existing companies possessing complementary expertise, and/or through the development of new opportunities. (See Note 14 - Subsequent Events for highlights of major events subsequent to September 30, 2019).

 

Note 2 — Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make consolidated financial statements not misleading have been included. The balance sheet at December 31, 2018, has been derived from the Company’s audited consolidated financial statements as of that date.

 

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, that was filed with the SEC on October 16, 2019. The results of operations for the three and nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for the full year or any future periods.

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

 

The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There were no material changes to our significant accounting policies during the interim period ended September 30, 2019.

 

Note 3 — Going Concern

 

The Company has recurring net losses, which have resulted in an accumulated deficit of $12,131,325 as of September 30, 2019. The Company incurred a net loss of $4,288,712 and negative cash flows from operating activities of $4,155,770 for the period ended September 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of the financial statements. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise capital, and generate revenues. The Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The Company’s current capital resources include cash, and inventories. Historically, the Company has financed its operations principally through debt and/or equity markets.

 

 

Note 4 — Inventory

 

At September 30, 2019 and December 31, 2018, inventory consisted of finished goods that amounted to $1,746,402. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the first in first out method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

 

Note 5 — Prepayments, Customer Deposits and Deposits

 

Management Agreement

 

In April of 2018, the Company entered into a management agreement with the holder of a State of Nevada cultivation license (the “Licensed Operator”), so that the Company can lawfully engage in the cultivation of marijuana for sale under the laws of the State of Nevada. The term of the agreement was for eight years, pursuant to which the Licensed Operator has engaged the Company to develop, manage and operate a licensed cultivation facility on three-acres of property owned by the Licensed Operator. In January of this year the Company terminated the existing management agreement and entered into a Cultivation and Sales Agreement, Consulting Agreement and Equipment Lease Agreement with the Licensed Operator (collectively the “Agreements”).

 

Upon completion of the construction of the outdoor cultivation facility, at the Company’s sole cost and expense, and receipt of the appropriate approvals from local and state authorities, the Company began cultivating marijuana in August of 2018. Pursuant to the terms of the Agreement, the Company agreed to generate sales of at least $2,000,000 per year from product cultivated from the outdoor cultivation facility. The Licensed Operator may terminate the agreement, in accordance with the terms of the Agreements, if the Company does not generate at least $2,000,000 in annual revenues. The Company may cure a breach of this provision by paying 10% of the revenue shortfall to the Licensed Operator. Pursuant to the Agreements, the Licensed Operator will: (i) retain 15% of the net revenues generated from product cultivated from the outdoor cultivation facility and (ii) pay 85% of the net revenues to the Company. Upon execution of the initial management agreement, the Company paid $300,000 to the Licensed Operator as consideration for the opportunity to construct and manage the outdoor cultivation facility on the Licensed Operator’s property. In exchange for the initial consideration, the Licensed Operator agreed not to retain 15% of the first $2 million of net revenues generated from the outdoor cultivation facility. In addition, once the outdoor facility began cultivating in August of 2018, the Company became obligated to pay the Licensed Operator $7,000 per month for compliance, security, and other administrative costs incurred by the Licensed Operator during the term of the Agreements. The Company recorded the $300,000 paid to the Licensed Operator as prepaid expenses. The balance of the prepaid expenses as of September 30, 2019 is $68,689.

 

In order to develop and manage the three-acre outdoor facility, the Company, in March of 2018, entered into a management services agreement with a Nevada limited liability company (the “Manager”) to provide operational oversight and cultivation management for the Company’s three-acre outdoor cultivation facility. The term of the agreement was for three years. The Manager was entitled to receive compensation equal to twelve percent of the gross yield sales from each harvest with six percent payable in the form of cash and six percent payable in the form of the Company’s common stock.  In May of 2019 the Company and the Manager agreed to terminate the existing management agreement. The Company agreed to pay to the Manager total compensation equaling $318,000 upon termination of the management agreement in the form of $159,000 in cash and shares of the Company’s common stock with a value $159,000.

 

Deposits

 

As of September 30, 2019, the Company had a total of $1,030,875 on deposit. These consist of deposits on contractual obligations.

 

 

Note 6 — Property and Equipment

 

Property and equipment at September 30, 2019 and December 31, 2018 consisted of the following:

 

		September 30, 2019				December 31, 2018
Leasehold Improvements		$	323,350			$	17,535
Machinery and Equipment			1,052,204				919,782
Building and Land			3,150,000				1,500,000
Furniture and Fixtures			534,375				314,890
Total property and equipment			5,059,928				2,752,207
Less: Accumulated depreciation			(381,795	)			(123,256	)
Property and equipment, net		$	4,678,133			$	2,628,951

 

Depreciation expense for the nine months ending September 30, 2019 and 2018 was $257,834 and $3, respectively.

 

Note 7 — Intangible Assets

 

In October 2016, Red Earth, LLC (“Red Earth”) a subsidiary of the Company, entered into an Asset Purchase and Sale Agreement with the owner of a provisional Medical Marijuana Establishment Registration Certificate (the “Provisional Grow License”) issued by the state of Nevada for the cultivation of medical marijuana for $300,000. To initiate the purchase and transfer the Provisional Grow License, the Company paid a $25,000 deposit to the seller in October 2016. In February 2017, an investor advanced the Company $350,000 to fund the purchase of the Provisional Grow License.

 

In April 2018, the State of Nevada finalized and approved the transfer of the provisional cultivation license to Red Earth. In July 2018, we completed the first phase of construction on this facility and we received a City of Las Vegas Conditional Business License (the “Conditional License”) to operate a marijuana cultivation facility in a portion of our Western Avenue leasehold. In August of 2019, we entered into a membership interest purchase agreement to sell forty-nine (49%) percent of Red Earth to an unrelated third party. We expect to obtain final approvals towards perfecting the cultivation license from the State of Nevada and City of Las Vegas regulatory authorities by the end of the third quarter of 2020, but we can provide no assurances on the receipt and/or timing of the final approvals. As of the date of this filing we have not commenced operations pursuant to the terms and requirements of the Conditional License.

 

Note 8 — Investments

 

Marketable Securities – Available for Sale

 

On August 13, 2018, the Company entered into a Stock Exchange Agreement with Healthier Choices Management Corp. (HCMC) to acquire 1,500,000,000 shares of Healthier Choices’ common stock in exchange for 85,714 shares of MJ Holdings Inc. common stock. The Company entered into this transaction to bolster the strategic relationship between the Company and HCMC. The value of the stock exchanged by each party on the date of exchange was $150,000. This represents a less than 5% ownership interest for each company in the others’ Company. The shares issued in each entity were restricted pursuant to Rule 144 of the Securities Act of 1933, as of the date of filing of this periodic report the shares are eligible to have the restrictive legend removed. The Company recorded the 1,500,000,000 shares of HCMC common stock as an available for sale security and intends to mark the value to market each reporting period based on the current market value of its held shares in Healthier Choices. As of the transaction date, the price as quoted on the OTC Markets for Healthier Choices common stock was $0.0001 per share.

 

Cost Method Investments

 

On July 3, 2019, we executed an agreement effective June 25, 2019 with Innovation Labs, Ltd. (“ILL”) and Innovation Shares, LLC, (“ISL”) both Delaware entities to acquire 238,096 Series Post Seed Preferred Stock Shares in ILL and 238,096 Post Seed Preferred Units in ISL for a total sum of $250,000, collectively representing an approximate two and ½ percent (2.5%) ownership interest in the two entities. ILL developed and operates the Innovation Labs Cannabis Index (NYSEARCA: THCX) (www.thcxindex.com). The Company believes that this investment will allow us to more closely monitor market developments concerning cannabis and upon future federal regulatory changes may allow MJNE to become part of the THCX portfolio.

 

 

Note 9 — Notes Payable

 

Notes payable as of September 30, 2019 and December 31, 2018 consist of the following:

 

		September 30, 2019				December 31, 2018
Note payable bearing interest at 6.50%, originated November 1, 2018, due on October 31, 2023 originally $1,100,000		$	1,090,854			$	1,099,006
Convertible note payable – related party bearing interest at 5.00%, originated October 17, 2018, due on October 16, 2019			-				250,000
Note payable bearing interest at 5.0%, originated January 17, 2019, due on January 31, 2022			750,000				-
Note payable bearing interest at 9.0%, originated January 17, 2019, due on January 16, 2020 originally $150,000			100,000				-
Note payable related party bearing interest at 0.0%, originated February 1, 2019, due on July 31, 2019			-				-
Note payable bearing interest at 0.0%, originated February 14, 2019, due on August 16, 2019			-				-
Note payable bearing interest at 6.5% originated April 1, 2019, due on March 31, 2022 originally $250,000			243,959				-
Total notes payable		$	2,184,813			$	1,349,006
Less: current portion			(227,926	)			(312,905	)
Long-term notes payable		$	1,956,887			$	1,036,101

 

On September 21, 2018, the Company, through its wholly-owned subsidiary Prescott Management, LLC, entered into a contract to purchase an approximately 10,000 square foot office building located at 1300 South Jones Boulevard, Las Vegas, Nevada 89146 for $1,500,000, subject to seller financing in the amount of $1,100,000, amortizing over 30 years at an interest rate of 6.5% per annum with monthly installments of $6,952.75 beginning on November 1, 2018, and continuing on the same day of each month thereafter until October 31, 2019. Upon the one-year anniversary of the note, a principal reduction payment of $50,000 is due, and provided that the monthly payments and the principal reduction payment have been made, the payments will be recalculated and re-amortized on the same terms with a new scheduled monthly payment of $6,559 beginning on November 1, 2019 and continuing until October 31, 2023, at which time the entire sum of principal in the amount of $986,438, plus any accrued interest, is due and payable. The Company closed the purchase on October 18, 2018. The building is home to the Company’s business operations. Principal payments made in 2019 is $8,152

 

On October 17, 2018, the Company executed a convertible promissory note for $250,000 with Roger Bloss, a related party. The note pays interest of 5.0% per annum at maturity. On July 15, 2019 the note was converted to common stocks.

 

On January 17, 2019, the Company executed a promissory note for $750,000 with FR Holdings LLC, a Wyoming limited liability company. The note pays interest of 5.0% per annum, payable in regular monthly installments of $3,125, due on or before the same day of each month beginning February 1, 2019 until January 31, 2022 at which the entire principal and any then accrued interest thereon shall be due and payable.

 

On January 17, 2019, the Company executed a short-term promissory note for $150,000 with Let’s Roll Holdings, LLC. The note bears an interest rate of 9.0% per annum and is due and payable in full plus accrued interest on January 16, 2020.

 

On February 1, 2019 per agreement the Company executed a short-term promissory note for $101,000 with Roll On, LLC, who is a related party. The note bears no interest. The balance as of March 31, 2019 was $85,000. The note was paid in full on April 1, 2019.

 

On February 14, 2019, the Company executed a short-term promissory note for $100,000 with Stran & Company. The note bears no interest during the first 90 days. Thereafter, interest shall accrue on the unpaid principal balance at a fixed rate of 0.5% per month. The note was paid in full on April 1, 2019.

 

On April 1, 2019, the Company executed a promissory note for $250,000 with John T. Jacobs and Teresa D. Jacobs. The note bears an interest rate of 6.5% per annum, payable in regular monthly installments of $2,178, due on or before the same day of each month beginning May 1, 2019 until March 31, 2020 at which time a principal reduction of $50,000 shall be due, the payments shall be re-amortized (15-year amortization). On or before March 31, 2021, a second principal reduction of $50,000 shall be due, the payments shall be re-amortized (15-year amortization). Payments shall continue to be paid until March 31, 2022, at which time the entire sum of principal and accrued interest shall be due and payable.

 

Note 10 — Commitments and Contingencies

  

Operating Leases

 

The Company leases a production / warehouse facility under a non-cancelable operating lease that expire in June 2027. Future minimal rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of September 30, 2019, are as follows:

 

		Amount
Fiscal year ending December 31:
2019		$	230,640
2020			230,640
2021			230,640
2022			230,755
2023			230,986
Thereafter			812,328
Less payments made thru third quarter 2019			172,980
Total minimum lease payments		$	1,793,009

 

Rental expense is accounted for on the straight-line method. Rent expense, incurred pursuant to operating leases for the nine months ended September 30, 2019 and 2018, was $323,754 and $99,188 respectively. 

 

Litigation

 

From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. I addition to the estimated loss, the liability includes probable and estimable legal cost associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company business. There is no pending litigation involving the Company at this time.

  

Note 11 — Preferred Stock

 

Preferred stock, par value $0.001, 5,000,000 shares authorized, 0 shares outstanding as of September 30, 2019.

 

Series A convertible Preferred stock $1,000 stated value, 2,500 authorized, 0 shares outstanding as of September 30, 2019.

  

Note 12 — Common Stock

 

During the nine months ended September 30, 2019, the Company issued 1,333,967 shares of Company’s common stock in exchange for professional services valued at $675,604.

 

During the nine months ended September 30, 2019, the Company had received back from a shareholder 20,000,000 shares of Company’s common stock in exchange for $20,000.

 

During the nine months ended September 30, 2019, the Company received cash proceeds related to stock subscriptions payable of $260,000. Subsequent to the period end, the Company will issue 520,000 shares of common stock in full satisfaction of the subscription payable.

 

Note 13 — Warrants and Options

 

Warrants

 

In June of 2019, in conjunction with the Company’s offering under Rule 506 of Regulation D of the Securities Act (the “Offering”), the Company granted warrants to each participant in the Offering upon the following terms and conditions: (a) each participant has the right to acquire additional shares of the Company’s Common Stock equal to ten (10%) of the shares purchased in the offering (the “Warrants”); (b) one-half of the Warrants granted to each participant have an exercise price of $0.65 and the other one-half have an exercise price of $1.00, and (c) the Warrants shall be exercisable between June 5, 2019, the date of grant and June 4, 2021 the date of expiration of the Warrants.

 

Prior to the Reverse Merger, the Company had issued warrants to acquire 166,665 shares of common stock as compensation for consulting services. These warrants expire between July 2019 and October 2019 and have exercise prices in excess of $2.50 per share. A summary of the warrants issued, exercised and expired are below:

 

						Weighted
						Avg.
						Exercise
		Shares				Price
Balance at December 31, 2018			166,665			$	5.88
Issued			-				-
Exercised			-				-
Expired			-				-
Balance at March 31, 2019			166,665			$	5.88
Issued			1,233,000				0.83
Exercised			-				-
Expired			-				-
Balance at June 30, 2019			1,399,665			$	1.42
Issued			-				-
Exercised			-				-
Expired			133,332				6.70
Balance at September 30, 2019			1,266,333			$	0.87

 

 

Stock Options

 

In July 2018, the Company entered into a Corporate Advisory Agreement (“Advisory Agreement”) with a New York City based consulting company (the “Consultant”) to provide business management, corporate compliance and related services to the Company and its subsidiaries. The Advisory Agreement granted to the Consultant an option to acquire up to 10,000 additional shares of the Company’s common stock at an exercise price of $1.20. The options have a term of three years. A summary of the options issued, exercised and expired are below:

 

						Weighted
						Avg.
						Exercise
		Shares				Price
Balance at December 31, 2018			10,000			$	1.20
Issued			-				-
Exercised			-				-
Expired			-				-
Balance at March 31, 2019			10,000			$	1.20
Issued			-				-
Exercised			-				-
Expired			-				-
Balance at June 30, 2019			10,000			$	1.20
Issued			-				-
Exercised			-				-
Expired			-				-
Balance at September 30, 2019			10,000			$	1.20

  

Note 14 — Subsequent Events  

 

The following material events occurred subsequent to the quarter ended September 30, 2019:

 

In April of 2019, we executed a membership interest purchase agreement (the “MIPA2”) to acquire all of the membership interests in two Nevada limited liability companies that are each a holder of a State of Nevada marijuana license. Marijuana Establishment Registration Certificate, Application No. C202 and Marijuana Establishment Registration Certificate, Application No. P133 (collectively the “Certificates”). The terms of the MIPA2 require the Company to purchase the licenses for the total sum of $1,250,000 each, $750,000 in cash and $500,000 per license in the Company’s common stock.  The Sellers, in exchange for a 4.99% ownership interest retention in each license have agreed to waive $45,000 in accrued interest and extend the term of both the short term note and long term note pursuant to the MIPA2. The terms of the MIPA2 provide for a $250,000 non-refundable down payment and include a short term note in the amount of $500,000 carrying an annual interest rate of two percent (2%) which, together with accrued interest, is due and payable on or before April 18, 2020, extended from October 18, 2019. The Company has made non-refundable deposits totaling $550,000 and has reduced the principal of the aforementioned note to $200,000. The Company is obligated to issue $1,000,000 worth of our common stock in fulfillment of our obligations in the MIPA2 and has executed a $750,000 long term note (the “LT Note”) in favor of the current license holders that becomes due and payable upon the earlier of a) six months after the transfer of the Certificates to the Company, or b) six months after the production/cultivation is declared fully operational by the applicable regulatory agencies, or c) December 312020, extended from March 10, 2020. The LT Note carries an 8% annual interest rate and there is no penalty for any prepayments of the LT Note. Additionally, the sellers shall receive, at closing, warrants to purchase up to 1,500,000 additional shares of the Company’s common stock; 1,000,000 warrants shall be exercisable for a period of three years from the closing date at an exercise price of $2.00 per share and 500,000 warrants shall be exercisable for a period of two years from the closing date at an exercise price of $1.50 per share (collectively the “MJ Warrants”). The LT Note, MJ Warrants and the common shares issued will be held in escrow until the transaction closes upon the terms of the MIPA2. On November 21, 2019 the Company received a SUP from the Nye County Nevada Board of Commissioners to operate a Marijuana processing facility at our leasehold in Pahrump, NV, subsequently on November 25, 2019 we also received a SUP to operate a cultivation facility at our Pahrump location. Upon receipt of all necessary regulatory approvals, we plan to move the cultivation license to the Company’s 260-acre facility in the Amargosa Valley of Nevada and move the production license into our recently Pahrump, NV facility.

 

  

In June of 2019, Coachill-Inn, LLC, a subsidiary of Alternative Hospitality, Inc. (collectively “AHI”) executed a purchase and sale agreement with Coachill Holdings, LLC (“CHL”) to acquire a parcel of land located within a 100-acre industrial cannabis park near Desert Hot Springs, CA (the “Property”) to develop AHI’s first hotel project. The purchase price for the property is $5,125,000. CHL is contributing $3,000,000 toward the purchase price of this property in exchange for a twenty-five percent ownership interest in Coachill-Inn, LLC. AHI has made an initial non-refundable deposit of $150,000 toward the purchase of the Property and will make an additional $1,975,000 in equity contribution at closing own and thereby 51% of Coachill-Inn, when the transaction closes. The transaction is expected to close in the first quarter of 2020.

 

On August 28, 2019 we entered into a material definitive agreement with an Ohio limited liability company (the “Buyer”) to sell forty-nine percent (49%) of the membership interests in the Company’s wholly owned subsidiary Red Earth for $441,000. The membership interest purchase agreement (the “MIPA3”) requires the Buyer to make an additional $3,559,000 payment into an execution fund (the “Fund”) to be utilized for the improvement and build-out of the Company’s Western Avenue leasehold in Las Vegas, Nevada. The payment was due within ten (10) business days of the receipt by Red Earth of a special use permit (“SUP”) from the City of Las Vegas for our Western Avenue facility. The Company received notice from the Las Vegas City Council on October 18, 2019 that the SUP was granted effective October 9, 2019. We immediately provided notice to the Buyer of the granting of the SUP; and, per the terms of the MIPA3 the Fund was to be established on or before November 1, 2019. As of the date of this filing of this periodic report the Buyer has not provided requested documentation that the Fund has been established and the Company does not consider the transaction closed. The Buyer, in conjunction with the Company, will jointly manage and operate the facility upon completion. The MIPA3 also requires the Buyer to make a final payment to the Company of $1,000,000 between 90 and 180 days after issuance of the SUP, which is no later than April 7, 2020. Additionally, the Buyer has a first refusal right to fund and build a 40,000 sq. ft. greenhouse facility at the Company’s Amargosa Valley Farm the terms of which are to be negotiated in good faith upon the exercise of any rights granted to the Buyer in the MIPA3.

 

The Company made the following issuances subsequent to September 30, 2019:

 

		Shares				Fair Value				Average Price per Share
Common stock issued for services			311,668			$	83,367			$	0.27
Common stock issued for stock subscriptions payable			520,000				260,000				0.50
Total			831,668			$	343,367			$	0.41

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein. 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

  

Forward-Looking Statements

 

This Quarterly Report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words “believe,” “anticipate,” “expect,” “will,” “estimate,” “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and in our subsequent filings with the SEC, and include, among others, the following: marijuana is illegal under federal law, the marijuana industry is subject to strong competition, our business is dependent on laws pertaining to the marijuana industry, the marijuana industry is subject to government regulation, our business model depends on the availability of private funding, we will be subject to general real estate risks, if debt payments to note holder are not made we could lose our investment in our real estate properties, terms and deployment of capital. The terms “MJ Holdings, Inc.,” “MJ Holdings,” “MJ,” “we,” “us,” “our,” and the “Company” refer to MJ Holdings, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.   

 

Company Background

 

MJ Holdings Inc. (OTC Pink: MJNE) is a highly-diversified, publicly-traded, cannabis holding company providing cultivation management, licensing support, production management, asset and infrastructure development – currently concentrating on the Las Vegas market. It is our intention to grow our business and provide a 360-degree spectrum of infrastructure (including: cultivation, production management, dispensaries and consulting services) through: the acquisition of existing companies; joint ventures with existing companies possessing complementary expertise, and/or through the development of new opportunities. We intend to “prove the concept” profitably in the rapidly expanding Las Vegas market and then use that anticipated success as a template for replicating the concept in other developing states through a combination of strategic partnerships, acquisitions and opening new operations.

 

The Company’s assets and operations have expanded significantly over the past year; and, the Company has raised more than $6,000,000 as of September 30, 2019 from the sale of common stock returned to the Company by our largest shareholder during the first quarter of 2019. The funds are being utilized to facilitate expansion of our cultivation footprint, the acquisition of a marijuana production license and additional cultivation license and the purchase other supporting assets.

 

Under the leadership of our CEO, Paris Balaouras, the Company has assembled a senior management team possessing significant experience in building, acquiring and operating high-growth, multi-division businesses in a public company setting. The Company also has retained operating level employees, directly and through strategic relationships, possessing significant experience in marijuana cultivation and production.

 

Current Initiatives include:

 

●

a three-acre, hybrid, outdoor, marijuana-cultivation facility (the “Three Acre Facility”) in the Amargosa Valley of Nevada. We have the contractual right to cultivate marijuana on this property until 2026, for which we receive eighty-five percent (85%) of the net revenues realized from our management of this facility. The Company recently completed its second harvest on that land.

 

 

●

260 acres of farmland for the purpose of cultivating additional marijuana (the “260 Acres”) purchased in January of 2019. This property, on which we intend to utilize a state-of-the-art cultivation system for growing, an additional five acres of marijuana in 2020, is contiguous to the property that we manage in Amargosa.  The land also has more than 180-acre feet of permitted water rights, which will provide more than sufficient water to markedly increase the Company’s marijuana cultivation capabilities.

 

●

a nearby commercial trailer and RV park (THC Park – Tiny Home Community) that can supply necessary housing for our farm employees. After our 2018 harvest, we came to realize that we would need to find a more efficient method of housing and bringing our cultivation team to our facilities. In April of 2019, we consummated the purchase of the 50-acre plus THC Park for $600,000 in cash and $50,000 of the Company’s restricted common stock (see further description of this transaction hereinbelow).

  

●

a definitive agreement to acquire an additional cultivation license and production license, both currently located in Nye County Nevada. On April 2, 2019 we executed a membership interest purchase agreement to acquire all of the outstanding membership interests of MJ Distributing C202, LLC and MJ Distributing P133, LLC, the holders of a State of Nevada provisional cultivation license and provisional production license, respectively. The State of Nevada has placed a moratorium on the transfer of all licenses within the state, we do not know when this moratorium will be lifted. We are in negotiations with the Seller to enter into a management and operating agreement to allow us to utilize and benefit from these licenses. We have named two additional managers to the two LLC’s, both of whom are senior executives of the Company.

  

●

indoor cultivation facility build-out in the City of Las Vegas (the “Indoor Facility”). Through our subsidiary, Red Earth, LLC, we hold Medical Marijuana Establishment Registration Certificate, Application No. C012. In cooperation with our joint venture partners, Element NV, LLC we expect to invest more than $3,500,000.00 in the build-out of this 17,000+ square foot state-of-the-art facility, which should be fully operational in the second quarter of 2020 (see hereinabove for additional information). We presently have approximately eight years remaining on our lease on this building with two additional five-year options, as well as an option to purchase the property for $2,607,880.

 

	●	a wellness hotel concept (the “Alternative Hospitality”). In November of 2018 the Company formed Alternative Hospitality, Inc., a joint venture with a successful hotel operator, is developing hotel properties with a focus on the wellness aspects of cannabis and cannabis related products.
	●	exploration of cannabis-related opportunities in the European Union, with a particular focus on Greece - In December of 2018 we established MJ International Research Company, Ltd., headquartered in Dublin, Ireland. We have established two wholly owned subsidiaries in Greece, Gioura International Single Member Private Company for the acquisition of land and MJ Holdings International Single Member S.A. for the required licenses.

  

We also continue to identify potential acquisition of revenue producing assets and licenses within legalized cannabis markets both nationally and internationally that can maximize shareholder value while providing a 360-degree spectrum of infrastructure, cultivation, production, management, dispensaries and consulting services in the regulated cannabis industry.

 

We may face substantial competition in the operation of cultivation facilities in Nevada. Numerous other companies have also been granted cultivation licenses, and, therefore, we anticipate that we will face competition from these other companies. Our management team has experience in successfully developing, implementing, and operating marijuana cultivation and related businesses in other legal cannabis markets. We believe our experience in cultivation and facility management will provide us with a competitive advantage over our competitors. Senior management now also includes a number of executives possessing significant experience with public companies, in mergers and acquisitions, and with raising public and private equity and debt financing.

 

The Company occupies the entire second floor of an approximately 10,000 sq. ft. office building, located in the City of Las Vegas. This properly was acquired in October of 2018.

  

 

Our Business

 

We commenced cultivation activities on our three-acre managed cultivation facility in August of 2018, harvesting two grows to-date, the most recent of which yielded more than 3,000 pounds of marijuana flower and trim with THC yields on products tested ranging from 19-27%. It is our intention to grow our business through the acquisition of existing companies and/or through the development of new opportunities that can provide a 360-degree spectrum of infrastructure (dispensaries), cultivation and production management, and consulting services in the regulated cannabis industry.

  

Through Red Earth, we hold a conditional State of Nevada issued cannabis cultivation license, and through HDGLV, we hold a triple-net leasehold, with an option to buy, on a 17,298 square-foot building, which we expect will be home to our indoor cultivation facility.

 

The Company currently operates through the following entities:

  

MJ Holdings, Inc.	This entity, the Parent, serves as a holding company for all the operating businesses/assets.
Alternative Hospitality. Inc	Alternative Hospitality is a Nevada corporation formed in November of 2018. MJ Holdings owns fifty-one percent (51%) of the company and the remaining forty-nine percent (49%) is owned by TVK, LLC, an unrelated third-party, is a Florida limited liability company. Mr. Roger Bloss, a member of the Board of Directors of MJ Holdings, Inc., is a managing member of TVK, LLC.
Farm Road, LLC	Farm Road, LLC, is a Wyoming limited liability company that owns 260 acres of farmland in Amargosa, NV. The Company acquired all the membership interests of Farm Road in January of 2019.
Icon Management, LLC	Icon is a wholly owned subsidiary of the Company that provides Human Resource Management (“HR”) services to MJ Holdings. Icon is responsible for all payroll activities and administration employee benefit plans and programs.
HDGLV, LLC	HDGLV is a wholly owned subsidiary of Red Earth, LLC and is the holder of a triple net lease on a commercial building in Las Vegas, Nevada which is being developed to house our indoor grow facility.
Condo Highrise Management, LLC	Condo Highrise Management is a wholly owned subsidiary of the Company that manages the Company owned THC Park in Amargosa, Nevada.

 

MJ International Research Company Limited	MJ International is a wholly owned subsidiary of the Company that is headquartered in Dublin, Ireland. MJ International is the sole shareholder of MJ Holdings International Single Member S.A. and Gioura International Single Member Private Company, both Greek entities.
Prescott Management, LLC	Prescott Management is a wholly owned subsidiary of the Company that provides day-to-day management and operational oversight to the Company’s operating subsidiaries.
Red Earth, LLC	Red Earth, established in 2016, was a wholly owned subsidiary of the Company from December 15, 2017 until August 28, 2019 when we sold a forty-nine percent (49%) interest in Red Earth to Element NV, LLC, an unrelated third party. Red Earth’s assets consist of: (i) a cultivation license to grow marijuana within the City of Las Vegas in the State of Nevada and (ii) all of the outstanding membership interests in HDGLV, which holds a triple net leasehold interest in a 17,298 square-foot building in Las Vegas, Nevada, which we expect to operate as an indoor marijuana cultivation facility. We expect to complete construction of this facility in the second quarter of 2020.

 

 

	In April 2018, the State of Nevada finalized and approved the transfer of the provisional cultivation license from Acres Medical, LLC, an unrelated third-party, to Red Earth. In July 2018, we completed the first phase of construction on this facility and we received a City of Las Vegas Conditional Business License to operate a marijuana cultivation facility. We expect to obtain final approvals towards perfecting the cultivation license from the State of Nevada regulatory authorities in the second quarter of 2020, but we can provide no assurances on the receipt and/or timing of the final approvals.
Red Earth Holdings, LLC	It is anticipated that this recently formed (June 2019) subsidiary of the Company will eventually be the holder of the Company’s primary cannabis license assets. As of the date of this report Red Earth Holdings has no operations and holds no assets.

  

On July 15, 2019 our Board of Directors appointed Richard S. Groberg to be the President of the Company. Mr. Groberg replaces Paris Balaouras, who was interim President from January 1, 2019 until July 15, 2019. Mr. Balaouras will continue in his role as the Company’s CEO and Chairman of the Board. Mr. Groberg shall initially serve a three-year term effective July 15, 2019 pursuant to a written employment agreement (the “RSG Employment Agreement”) with an annual base compensation of $180,000, of which $5,000 per month shall be deferred until January 15, 2020 or such earlier date pursuant to the terms of the RSG Employment Agreement and then shall be payable in cash or shares of the Company’s common stock (the “Stock”). The Employment Agreement provides for a restricted stock award of 400,000 shares of the Company’s Stock to vest: 25% six months after the effective date of the Employment Agreement; 25% on the first anniversary after the effective date of the Employment Agreement, 25% on the second anniversary after the effective date of the Employment Agreement and 25% on the third anniversary after the effective date of the Employment Agreement.

 

Effective August 1, 2019 we entered into an agreement to lease an approximately 17,000 sq. ft. commercial building in Pahrump, NV. The lease is for a term of ten years at an initial monthly rent of $10,000 per month with rent increases each August 1^st during the term of the lease equal to the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPI W (Urban Wage Earners and Clerical Workers) for Las Vegas, Nevada. The Company paid the property owner a security deposit in the amount of $20,000. While the Company took possession of the premises on August 1, 2019, the monthly rent did not commence until October 1, 2019. The Company has an option, exercisable between July 1, 2020 and July 1, 2024, to purchase the property for $1,800,000. The leasehold has previously been utilized as a fully-licensed, State of Nevada approved marijuana cultivation facility; and, it is the Company’s intention to move our marijuana processing license into this facility upon receipt of all required regulatory approvals – anticipated in the first quarter of 2020. 

 

Critical Accounting Policies, Judgments and Estimates

 

There were no material changes to our critical accounting policies and estimates during the interim period ended September 30, 2019.

 

Please see our Annual Report on Form 10-K for the year ended December 31, 2018 filed on October 16, 2019, for a discussion of our critical accounting policies and estimates and their effect, if any, on the Company’s financial results.

  

 

Results of Operations

 

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

 

Revenues 

 

Our revenue was $418,528 for the three months ended September 30, 2019, compared to $0 for the three months ended September 30, 2018. Revenue, by class, is as follows:

  

		For the three months ended
		September 30,
Revenues:		2019				2018
Rental income		$	25,246			$	-
Sale of products			393,282				-
Total		$	418,528			$	-

  

The revenues from the sale of product is derived from our expertise in constructing greenhouses. The majority of rental income is from THC Park.

 

Operating Expenses

 

Direct costs of revenues were $346,367 and $0 for the three months ended September 2019 and 2018, respectively. Direct costs of revenues, by class, is as follows:

  

		For the three months ended
		September 30,
Direct costs of revenue:		2019				2018
Rental income		$	-			$	-
Sale of products			346,367				-
Total		$	346,367			$	-

 

The direct costs of revenue of $346,367 is attributable to the construction of greenhouses.

 

General and administrative

 

For the three months ended September 30, 2019, our general and administrative expenses were $1,970,751 compared to $987,258 for the three months ended September 30, 2018, resulting in an increase of $983,493 The increases were largely attributable to expanding employee-related expenses and professional fees associated with the Company’s various business development activities.

 

Other Income/(Expense)

 

For the three months ended September 30, 2019, our other income/(expense) were ($24,155) compared to $145 for the three months ended September 30, 2018, resulting in a decrease of $24,300. The decrease was largely attributable to interest expense on loans related for the corporate office and the farm.

 

Net Loss

 

Net loss attributable to common shareholders was $2,040,007 for the three months ended September 30, 2019, compared to net loss of $3,550,921 for the three months ended September 30, 2018. The decrease in net loss for the three months ended September 30, 2019 as compared to the same period in 2018 is largely attributable to employee related expenses, professional fees and a deemed dividend related to beneficial conversion.

 

 

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

 

Revenues 

 

Our revenue was $1,197,598 for the nine months ended September 30, 2019, compared to $0 for the nine months ended September 30, 2018. Revenue, by class, is as follows:

  

		For the nine months ended
		September 30,
Revenues:		2019				2018
Rental income		$	60,046			$	-
Sale of products			1,137,552				-
Total		$	1,197,598			$	-

  

The revenues from the sale of product is derived from our Agreement with the Licensed Operator and our expertise in constructing greenhouses. The majority of rental income is from THC Park.

 

Operating Expenses

 

Direct costs of revenues were $885,862 and $0 for the nine months ended September 2019 and 2018, respectively. Direct costs of revenues, by class, is as follows:

  

		For the nine months ended
		September 30,
Direct costs of revenue:		2019				2018
Rental income		$	-			$	-
Sale of products			885,862				-
Total		$	885,862			$	-

 

The direct costs of revenue of $885,862 is attributable to labor, compliance testing and other related expenses – all of which are directly related to the sale of marijuana pursuant to our Agreements with the Licensed Operator as well as the construction of greenhouses.

 

General and administrative

 

For the nine months ended September 30, 2019, our general and administrative expenses were $4,212,177 compared to $1,598,256 for the nine months ended September 30, 2018, resulting in an increase of $2,613,921. The increases were largely attributable to expanding employee-related expenses and professional fees associated with the Company’s recently completed harvest and various business development activities.

  

Other Income/(Expense)

 

For the nine months ended September 30, 2019, our other income/(expense) were ($99,994) compared to $510 for the nine months ended September 30, 2018, resulting in an increase of $105,485. The decrease was largely attributable to interest expense on loans related for the corporate office and the farm.

 

Net Loss.

 

Net loss attributable to common shareholders was $4,260,876 for the nine months ended September 30, 2019, compared to net loss of $4,345,810 for the nine months ended September 30, 2018. The decrease in net loss for the nine months ended September 30, 2019 as compared to the same period in 2018 is largely attributable to employee related expenses and professional fees and a deemed dividend related to beneficial conversion.

 

Liquidity and Capital Resources

 

As of September 30, 2019, the Company had $504,677 in cash. We used cash in operations of $4,155,770 for the nine months ended September 30, 2019, compared to cash used in operations of $3,994,134 for the nine months ended September 30, 2018. The positive cash flow from nine months ended September 30, 2019 was attributable to financing activities.

 

We used cash in investing activities of $1,507,016 and $1,229,675 for the nine months ended September 30, 2019 and 2018, respectively

 

 

We had cash provided by financing activities of $6,110,807 and $4,123,998 for the nine months ended September 30, 2019 and 2018, respectively of which $6,175,000 was from the proceeds of the sale of common stock subscriptions compared to $2,523,998 for the same period in 2018.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Seasonality

 

We do not consider our business to be seasonal.

  

Commitments and Contingencies

 

We are subject to the legal proceedings described in “Part II, Item 1. Legal Proceedings” of this report. There are no legal proceedings which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.

 

Inflation and Changing Prices

 

Neither inflation nor changing prices for the nine months ended September 30, 2019 had a material impact on our operations.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

   

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2019, our disclosure controls and procedures were not effective.

 

Due to resource constraints, material weaknesses are evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchanges Commission, which is due to the lack of resources and segregation of duties. We lack sufficient personnel with the appropriate level of knowledge, experience and training in GAAP to meet the demands for a public company, including the accounting skills and understanding necessary to fulfill the requirements of GAAP-based reporting. This weakness causes us to not fully identify and resolve accounting and disclosure issues that could lead to a failure to perform timely internal control and reviews. In addition, the Company has not established an audit committee, does not have any independent outside directors on the Company’s Board of Directors, and lacks documentation of its internal control processes.

 

Changes in Internal Control over Financial Reporting

 

There was no change to our internal controls or in other factors that could affect these controls during the period ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our Board is currently seeking to improve our controls and procedures to remediate the deficiency described above.

 

   

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. I addition to the estimated loss, the liability includes probable and estimable legal cost associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company business. There is no pending litigation involving the Company at this time.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

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

 

None

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

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

 

 

Index to Exhibits

 

Exhibit No,		Description of Exhibit
10.1		Richard S. Groberg Employment Agreement (1)
10.2		Purchase and Sale Agreement between Coachill-Inn and Coachillin Holdings, LLC (2)
10.3		Membership Interest Purchase Agreement between MJ Distributing, Inc. and MJ Holdings, Inc. (2)
10.4*		Lease agreement and addendum between Prescott Management, LLC and Oakridge Enterprises, LLC
32.1*		Rule 13a14(a)/15d-14(a) Certification of Chief Executive Officer
32.2*		Rule 13a14(a)/15d-14(a) Certification of Chief Financial Officer
32.3*		Section 1350 Certification of Chief Executive Officer
32.4*		Section 1350 Certification of Chief Financial Officer

  

*

Attached herewith

(1)	Incorporated by reference to the Registrant’s periodic report on Form 8-K as filed with the SEC on July 18, 2019.

(2)	Incorporated by reference to the Registrant’s periodic report on Form 10-Q as filed with the SEC on December 13, 2019.

 

   

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	MJ HOLDINGS, INC.
Dated: January 08, 2020	By:	/s/ Paris Balaouras
		Paris Balaouras
		Chief Executive Officer (Principal Executive Officer)

 

Dated: January 08, 2020	By:	/s/ Laurence Ruhe
		Chief Financial Officer (Principal Accounting Officer)

 

 

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