Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
1 — Nature of the Business
MJ
Holdings, Inc. (OTCQB: MJNE) is a highly-diversified cannabis holding company providing cultivation management, asset and infrastructure
development – currently concentrated in the Las Vegas market. It is the Company’s intention to grow its business and
provide a 360-degree spectrum of infrastructure, including, cannabis cultivation, production of cannabis related products, management
services, dispensaries and consulting services. The Company intends to grow its business through joint ventures with existing
companies possessing complementary subject matter expertise, acquisition of existing companies and through the development of
new opportunities. The Company intends 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 was incorporated on November 17, 2006, as Securitas EDGAR Filings, Inc. under the laws of the State of Nevada. Prior to
the formation of Securitas EDGAR Filings Inc., the business was operated as Xpedient EDGAR Filings, LLC, a Florida Limited Liability
Company, formed on October 31, 2005. On November 21, 2005, Xpedient EDGAR Filings LLC amended its Articles of Organization to
change its name to Securitas EDGAR Filings, LLC. On January 21, 2009, Securitas EDGAR Filings LLC merged into Securitas EDGAR
Filings, Inc., a Nevada corporation. On February 14, 2014, the Company amended and restated its Articles of Incorporation and
changed its name to MJ Holdings, Inc.
On
November 22, 2016, in connection with a plan to divest the Company of its real estate business, the Company submitted to its stockholders
an offer to exchange (the “Exchange Offer”) its common stock for shares in MJ Real Estate Partners, LLC, (“MJRE”)
a newly formed LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, the Company accepted for
exchange 1,800,000 shares of its Common Stock in exchange for 1,800,000 shares of MJRE’s common units, representing membership
interests in MJRE. Effective February 1, 2017, the Company transferred its ownership interests in the real estate properties and
its subsidiaries, through which the Company held ownership of the real estate properties, to MJRE. MJRE also assumed the senior
notes and any and all obligations associated with the real estate properties and business, effective February 1, 2017.
Note
2 — Summary of Significant Accounting Policies
Principles
of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, Icon Management, LLC, Condo Highrise Management, LLC, Prescott Management,
LLC and its majority owned subsidiary, Alternative Hospitality, Inc. Inter-company balances and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant estimates and assumptions are required in the determination
of the fair value of financial instruments and the valuation of stock-based compensation. Some of these judgments can be subjective and
complex, and, consequently, actual results may differ from these estimates.
Cash
Cash includes cash on hand and deposits placed
with banks or other financial institutions, which are unrestricted as to withdrawal and use and with an original maturity of three months
or less. The Company maintains its cash in bank deposit accounts.
The Company, at various times throughout the year,
had cash in financial institutions in excess of Federally insured limits. However, the Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on its credit balances.
Fair
Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March
31, 2022 and December 31, 2021. The respective carrying value of certain on-balance-sheet financial instruments approximated
their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate
carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they
are payable on demand.
The
Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment
and considers factors specific to the asset or liability. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement
assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
2 — Summary of Significant Accounting Policies (continued)
Level
1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,”
with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations
of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively
few items, especially physical assets, actually trade in active markets.
Level
2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they
do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided
a second level of inputs that can be applied in these situations.
Level
3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities
are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall
be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations
in which there is little, if any, market activity for the asset or liability at the measurement date”. The FASB explains
that “observable inputs” are gathered from sources other than the reporting company and that they are expected to
reflect assumptions made by market participants.
Accounts
Receivable and Allowance for Doubtful Accounts:
Accounts
receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established,
as necessary, based on past experience and other factors which, in management’s judgment, deserve current recognition in
estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for
doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due
from customer accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts
are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process
consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition
of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific
customers and the accounts receivable portfolio as a whole.
Schedule
of Accounts Receivable and Allowance for Doubtful Accounts
| | |
March
31,
2022 | | |
December
31,
2021 | |
| Accounts
receivable | |
$ | 53,781 | | |
$ | 50,179 | |
| Less
allowance | |
| (34,932 | ) | |
| (42,190 | ) |
| Net
accounts receivable | |
$ | 18,849 | | |
$ | 7,989 | |
Debt
Issuance Costs
Costs
associated with obtaining, closing, and modifying loans and/or debt instruments are netted against the carrying amount of the
debt instrument, and charged to interest expense over the term of the loan.
Inventory
Inventory is comprised of raw materials, finished
goods and work-in-process such as pre-harvested cannabis plants and by-products to be extracted. The costs of growing cannabis, including
but not limited to labor, utilities, nutrition and supplies, are capitalized into inventory until the time of harvest. All direct and
indirect costs related to inventory are capitalized when incurred, and subsequently classified to cost of goods sold in the Consolidated
Statements of Operations. Work-in-process is stated at the lower of cost or net realizable value, determined using the weighted average
cost. Raw materials and finished goods inventory is stated at the lower of cost or net realizable value, with cost being determined on
the first-in, first-out (“FIFO”) method of accounting. Net realizable value is determined as the estimated selling price
in the ordinary course of business less estimated costs to sell. The Company periodically reviews physical inventory for excess, obsolete,
and potentially impaired items and reserves. The Company reviews inventory for obsolete, redundant and slow-moving goods and any such
inventory is written down to net realizable value. Packaging and supplies are initially valued at cost. The reserve estimate for excess
and obsolete inventory is based on expected future use. The reserve estimates have historically been consistent with actual experience
as evidenced by actual sale or disposal of the goods.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line
method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs
that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in the consolidated statements of operations.
Construction
in progress primarily represents the construction or the renovation costs stated at cost less any accumulated impairment loss,
which is not depreciated. Costs incurred are capitalized and transferred to property and equipment upon completion, at which time
depreciation commences.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
2 — Summary of Significant Accounting Policies (continued)
Property
and equipment are depreciated over their estimated useful lives as follows:
Schedule
of Property and Equipment Estimated Useful Lives
| Buildings |
12 years |
| Land |
Not depreciated |
| Construction in progress |
Not depreciated |
| Leasehold Improvements |
Lessor of lease term or 5 years |
| Machinery and Equipment |
5 years |
| Furniture and Fixtures |
5 years |
Long–lived
Assets
Long-lived
assets, including real estate property and intangible assets, are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their
carrying amounts to future undiscounted cash flows the assets are expected to generate. If the assets are considered to be impaired,
the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value.
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying
amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment
or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against
the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable,
an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted
cash flow analysis or appraisals. The Company recorded an impairment of its long-lived assets in the amount of $-
and $14,845
for the three months ended March 31, 2022 and year
ended December 31, 2021, respectively.
Non-
Controlling Interest
The
Company’s non-controlling interest represents the minority shareholder’s ownership interest related to the Company’s
subsidiary, Alternative Hospitality, Inc. The Company reports its non-controlling interest in subsidiaries as a separate component of
equity in the Consolidated Balance Sheets and reports both net loss attributable to the non-controlling interest and net loss attributable
to the Company’s common shareholders on the face of the Consolidated Statements of Operations. The Company’s equity interest
in Alternative Hospitality, Inc. is 51% and the non-controlling stockholder’s interest is 49%. This is reflected in the Consolidated
Statements of Equity.
Revenue
Recognition
On
January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with
Customers using the modified retrospective method. There was no impact upon adoption of ASC 606 on our consolidated financial statements.
The new revenue standard was applied prospectively in the Company’s consolidated financial statements from January 1, 2018 forward
and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting
standards in effect during those historical periods.
Generally,
the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process
outlined in the Accounting Standards Codification (“ASC”) 606:
Step
1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved
the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights
regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to
be transferred, (d) the contract has commercial substance and it is probably that the entity will collect substantially all of
the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Step
2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance
obligations each promise to transfer to the customer either (a) goods or services that are distinct, or (b) a series of distinct
goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract
includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are
capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted
for as a combined performance obligation.
Step
3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize
as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to
determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration,
the Company would determine the amount of variable consideration that should be included in the transaction price based on expected
value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable
that a significant future reversal of cumulative revenue under the contract would not occur.
Step
4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate
the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the
entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction
price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.
Step
5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – Revenue is recognized when (or as) goods
or services are transferred to a customer. The Company satisfies each of its performance obligations by transferring control of
the promised good or service underlying that performance obligation to the customer. Control is the ability to direct the use
of and obtain substantially all of the remaining benefits from an asset. It includes the ability to prevent other entities from
directing the use of and obtaining the benefits from an asset. Indicators that control has passed to the customer include: a present
obligation to pay; physical possession of the asset; legal title; risks and rewards of ownership; and acceptance of the asset(s).
Performance obligations can be satisfied at a point in time or over time.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
2 — Summary of Significant Accounting Policies (continued)
All
of the Company’s revenue, during the three months ended March 31, 2022, was derived as rental income from the Company’s THC
Park. The majority of the
Company’s revenue, during the three months ended March 31, 2021, was derived under the agreements, Consulting Agreement
and Equipment Lease Agreement, entered into with Acres Cultivation, LLC. Revenue derived from consulting services fees are recognized
over the term of the arrangement as services are provided. Revenue is presented net of discounts, fees and other related taxes. Revenue
derived from equipment leases is recognized when the
lease agreement is entered into and control of the equipment has passed to the customer. The Company’s remaining revenue is derived
from its rental property in Nye County, Nevada. Rental revenue for operating leases is recognized on a straight-line basis over the term
of the lease. Rental revenue recognition commences when the leased space is available for use by the lessee.
Schedule
of Rental Revenue Recognition
| | |
| | |
| |
| | |
For the three months ended | |
| | |
March 31, | |
| | |
2022 | | |
2021 | |
| Revenues: | |
| | | |
| | |
| Rental income (i) | |
$ | 31,841 | | |
$ | 19,861 | |
| Management income (ii) | |
| - | | |
| 202,951 | |
| Equipment lease income (ii) | |
| - | | |
| 84,563 | |
| Total | |
$ | 31,841 | | |
$ | 307,375 | |
| |
(i) |
The rental income is from the Company’s THC Park. |
| |
(ii) |
In April 2018, the Company entered into a management agreement with
Acres Cultivation, LLC, a Nevada limited liability company (the “Licensed Operator”) that holds a license for the legal
cultivation of marijuana for sale under the laws of the State of Nevada. In January of 2019, the Company entered into a revised agreement,
which replaced the April 2018 agreement, with the Licensed Operator in order to be more stringently aligned with Nevada marijuana
laws. The material terms of the agreement remain unchanged. The Licensed Operator is contractually obligated to pay over to the Company
eighty-five (85%) percent of gross revenues defined as gross proceeds from sales of marijuana products minus applicable state excise
taxes and local sales tax. The agreement is to remain in force until April 2026. In April 2019, the Licensed Operator was acquired
by Curaleaf Holdings, Inc., a publicly traded Canadian cannabis company. On January 21, 2021, the Company received a Notice of Termination,
effective immediately, from Acres Cultivation, LLC. The Company will not generate any further revenue under the Acres relationship. |
Contract
Balances
The Company receives payments for new Cultivation
and Sales Agreements (the “Agreements”) upon signing and defers revenue recognition for these payments until certain milestones
are met as per the terms of the Agreements. In addition, the Company sold its luxury suite at the Raiders Stadium and amortizes the income
from this sale at each home game. These payments represent contract liabilities and are recorded as such on the balance sheet. As of
March 31, 2022 and December 31, 2021, the Company had $1,735,000 and $1,404,444 contract liabilities, respectively.
Stock-Based
Compensation
The
Company’s share-based payment awards principally consist of grants of common stock. In accordance with the applicable accounting
guidance, stock-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company
measures compensation cost based on the grant date fair value and recognizes compensation expense in the consolidated statements
of operations over the requisite service or performance period the award is expected to vest. The fair value of liability-classified
awards is at each reporting date through the settlement date. Change in fair value during the requisite service period will be
remeasured as compensation cost over that period.
The
Company utilizes its historical stock price to determine the volatility of any stock-based compensation.
The
expected dividend yield is 0% as the Company has not paid any dividends on its common stock and does not anticipate it will pay
any dividends in the foreseeable future.
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a term equal to
the expected term of the stock-based award.
For
stock-based financial instruments issued to parties other than employees, the Company uses the contractual term of the financial
instruments as the expected term of the stock-based financial instruments.
The
assumptions used in calculating the fair value of stock-based financial instruments represent its best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a result, if factors change and it uses different assumptions,
its stock-based compensation expense could be materially different in the future.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
2 — Summary of Significant Accounting Policies (continued)
Operating
Leases
The Company adopted ASC Topic 842, Leases, on
January 1, 2019. The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”)
assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities
represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease
liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As
the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information
available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to
renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal
and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with
corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months.
The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized
lease incentives provided by lessors. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease
term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes
and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable
lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the
purposes of calculating ROU assets and lease liabilities.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers
it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax
benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred
as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of
the reporting periods presented.
Recent
Accounting Pronouncements
Stock
Based Compensation: In June 2018, FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718),
Improvements to Nonemployee Share Based Payment Accounting.
The
amendments in this Update expand the scope of stock compensation to include share-based payment transactions for acquiring goods
and services from nonemployees. The guidance in this Update does not apply to transactions involving equity instruments granted
to a lender or investor that provides financing to the issuer. The guidance is effective for fiscal years beginning after December
31, 2018 including interim periods within the fiscal year. The Company adopted with an effective date of January 1, 2019.
Note
3 — Going Concern
The
Company has recurring net losses, which have resulted in an accumulated deficit of $18,193,111
as of March 31, 2022. The Company
had negative cash flows from operations of $930,110
for the three months ended March 31, 2022.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for 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. Historically, the Company has financed its operations
principally through equity and debt financing.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
4 — Inventory
Inventory
at March 31, 2022 and December 31, 2021 consisted of the following:
Schedule
of Inventory
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Inventory – finished goods (i) | |
$ | 1,271,402 | | |
$ | 1,271,402 | |
| Storage inventory (ii)(iii) | |
| 498,675 | | |
| 498,675 | |
| Less reserve | |
| (1,770,077 | ) | |
| (1,770,077 | ) |
| Inventory, net | |
$ | - | | |
$ | - | |
| (i) |
On
January 21, 2021, the Company received a Notice of Termination, effective immediately, from Acres Cultivation, LLC. During the year
ended December 31, 2021, the Company relocated all of its equipment utilized on the Acres lease to its 260 Acres adjacent to the
Acres lease. As part of the termination, the Company was granted the right to retain 3,654 lbs. of cannabis from the Cultivation
Facility. |
| |
|
| (ii) |
On
April 14, 2021, the Company entered into a storage work order with TapRoot Labs (“TapRoot”). Under the terms of the work
order, the Company stored 1827 lbs. of fresh frozen flower (“Product”) with TapRoot at a rate of $6,000/ month. Rent
was payable through Product stored with TapRoot at the rate of $175/lb. The work order had a term of 5 months and then continued
on a month-to-month basis upon the same terms. At March 31, 2022, the Company had 979.41 lbs. stored with TapRoot. The Company
has elected to reserve the full amount of Product stored with TapRoot as it does not anticipate any future sales will be made. |
| |
|
| (iii) |
On
April 13, 2021, the Company entered into a Storage & Purchase Agreement (the “Agreement”) with AP Management, LLC
(“AP”). Under the terms of the Agreement, the Company stored 1827 lbs. of fresh frozen flower (“Product”)
with AP. AP was granted the exclusive right to purchase the Product at a rate of $175/lb for the first 30 days of storage. After
30 days, the Company had the right to make sales to third parties. At March 31, 2022, the Company had 1827 lbs. stored with AP.
The Company has elected to reserve the full amount of Product stored with AP as it does not anticipate any future sales will be made.
Please see Item 1. Legal Proceedings for further information. |
Note 5 — Note Receivable
Note receivable at March 31, 2022 and December
31, 2021 consisted of the following:
Schedule
of Note Receivable
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Note receivable- GeneRx (i) | |
| 500,000 | | |
| 500,000 | |
| Total | |
$ | 500,000 | | |
$ | 500,000 | |
| |
i. |
On March 12, 2021, the Company (the “Holder”)
was issued a Convertible Promissory Note (the “Note”) by GeneRx (the “Borrower”), a Delaware corporation, in
the amount of $300,000.
The Note has a term of one
year (March 12, 2022 Maturity Date) and accrues interest at two percent
(2%)
per annum. The
Note is convertible, at the option of the Holder, into shares of common stock of the Borrower at a fixed conversion price of $1.00
per
share. Upon an Event of Default, the Conversion Price shall equal the
Alternate Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings
by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The “Alternate Conversion Price” shall equal the lesser
of (i) 80%
multiplied by the average of the three lowest daily volume weighted average prices (“VWAP”) during the previous twenty (20)
Trading Days (as defined below) before the Issue Date of this Note (representing a discount rate of 20%) or (ii) 80% multiplied by the
Market Price (as defined herein) (representing a discount rate of 20%). “Market Price” means the average of the three lowest
daily VWAPs for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion
Date. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty-four percent
(24%) per annum from the due date thereof until the same is paid (the “Default Interest”). The Company funded $300,000
on March 15, 2021, $150,000
on April 2, 2021 and $50,000
on April 7, 2021. As of March 31, 2022, $500,000
principal was due on the Note. |
| |
|
|
| |
ii. |
The convertible note receivable is considered available for sale
debt securities with a private company that is not traded in active markets. Since observable price quotations were not available
at acquisition, fair value was estimated based on cost less an appropriate discount upon acquisition. The discount of each instrument
is accreted into interest income over the respective term as shown within the Company’s Condensed Consolidated Statements of
Operations. |
Note
6 — Property and Equipment
Property
and equipment at March 31, 2022 and December 31, 2021 consisted of the following:
Schedule
of Property and Equipment
| | |
March
31,
2022 | | |
December
31,
2021 | |
| Leasehold
Improvements | |
$ | 256,323 | | |
$ | 654,628 | |
| Machinery
and Equipment | |
| 646,025 | | |
| 244,583 | |
| Building
and Land | |
| 1,650,000 | | |
| 1,650,000 | |
| Furniture
and Fixtures | |
| 566,220 | | |
| 566,220 | |
| Total
property and equipment | |
| 3,118,568 | | |
| 3,115,431 | |
| | |
| | | |
| | |
| Less:
Accumulated depreciation | |
| (606,070 | ) | |
| (536,500 | ) |
| Property
and equipment, net | |
$ | 2,512,498 | | |
$ | 2,578,931 | |
Depreciation
expense for the three months ended March 31, 2022 and 2021 was $42,394 and $97,470, respectively.
Note
7 — Intangible Assets
In
October 2016, Red Earth, LLC (“Red Earth”), a Nevada limited liability 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.
The
Provisional Grow License remains in a provisional status until the Company has completed the build out of a cultivation facility and
obtained approval from the state of Nevada to begin cultivation in the approved facility. Once approval from the state of Nevada is received,
the Company begins the cultivation process.
On
December 15, 2017, the Company acquired 100% of the outstanding membership interests of Red Earth for 52,732,969 shares of common stock
of the Company, par value $0.001 and a Promissory Note in the amount of $900,000. Red Earth became a wholly owned subsidiary (the “Subsidiary”)
of the Company.
On
or about May 7, 2021, the Subsidiary, received an inquiry from the State of Nevada Cannabis Compliance Board (“CCB”) regarding
the transfer of ownership of the Subsidiary from its previous owners to the Company. The CCB has determined that the transfer was not
formally approved, thus a Category II violation.
On
July 27, 2021, the Subsidiary entered into a Stipulation and Order for Settlement of Disciplinary Action (the “Stipulation Order”)
with the CCB. Under the terms of the Stipulation Order, the Subsidiary has agreed to present to the CCB, by not later than August 31,
2021, a plan pursuant to which the ownership of the Subsidiary will be returned to the original owners. The Parties to the Stipulation
Order resolved the matter without the necessity of taking formal action. The Subsidiary agreed to pay a civil penalty of $10,000, which
was paid on July 29, 2021.
On
August 1, 2021, the Company entered into a Memorandum of Understanding and Agreement for Technical Services and Short-Term Funding (the
“Agreement”) with Red Earth, LLC (hereinafter, “Red Earth”), an entity controlled by its Chief Cultivation Officer,
Paris Balaouras. Under the terms of the Agreement, the Company will provide a short-term loan (the “Loan”) to Red Earth for
expenses related to the activation and operation of Red Earth’s cultivation license. The Loan shall bear interest at 12% per annum
and increase to 18% upon default. In addition, the Company shall provide Red Earth pre-opening technical services at a cost of $5,000
to $7,500 per month. As of March 31, 2022, the amount due the Company under the short-term loan is $40,165.
On
August 26, 2021, the Company and the Company’s Chief Cultivation Officer and previous owner of the Subsidiary, Paris Balaouras,
entered into a Termination Agreement. Under the terms of the Termination Agreement, the Purchase Agreement (the “Purchase Agreement”),
dated December 15, 2017, entered into between the Company and the Subsidiary was terminated as of the date of the Termination Agreement
resulting in the return of ownership of the Subsidiary to Mr. Balaouras. Neither party shall have any further obligation to one another
pursuant to the terms of the Purchase Agreement. Please see Note 14 — Related Party Transactions for further information.
On
September 2, 2021, the Company received approval of the Termination Agreement from the CCB.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
8 —Deposits
Deposits
as of March 31, 2022 and December 31, 2021 consist of the following:
Schedule
of Deposits
| | |
March
31,
2022 | | |
December 31,
2021 | |
| MJ Distributing, Inc. (i) | |
| 1,016,184 | | |
| 1,016,184 | |
| Total | |
$ | 1,016,184 | | |
$ | 1,016,184 | |
| |
(i) |
On
February 5, 2021, the Company (the “Purchaser”) executed a Membership Interest Purchase Agreement (“MIPA3”)
with MJ Distributing, Inc. (the “Seller”) to acquire all of the outstanding membership interests of MJ Distributing C202,
LLC and MJ Distributing P133, LLC, each the holder of a State of Nevada provisional medical and recreational cultivation license
and a provisional medical and recreational production license. In consideration of the sale, transfer, assignment and delivery of
the Membership Interests to Purchaser, and the covenants made by Seller under the MIPA3, Purchaser agreed to pay a combination of
cash, promissory notes, and stock in the amount of One-Million-Two-Hundred-Fifty Thousand Dollars ($1,250,000.00) in cash and/or
promissory notes and 200,000 shares of the Company’s restricted common stock, all of which constitutes the consideration agreed
to herein for (the “Purchase Price”), payable as follows: (i) a non-refundable down payment in the amount of $300,000
was made on January 15, 2021, (ii) the second payment in the amount of $200,000 was made on February 5, 2021, (iii) a deposit in
the amount of $310,000 was paid on February 22, 2021 ($210,000 was a pre-payment against future compensation due under the MIPA3),
(iv) $200,000 was deposited on June 24, 2021, (v) $200,000 shall be deposited on or before June 12, 2021, and (vi) $250,000 shall
be deposited within five (5) business days after the Nevada Cannabis Compliance Board (“CCB”) provides notice on its
agenda that the Licenses are set for hearing to approve the transfer of ownership from the Seller to the Purchaser. |
Note
9 — Notes Payable
Notes
payable as of March 31, 2022 and December 31, 2021 consist of the following:
Schedule
of Notes Payable
| | |
March
31,
2022 | | |
December
31,
2021 | |
| |
$ | 896,535 | | |
$ | 750,000 | |
| Note
payable bearing interest at 5.0%, originated January 17, 2019, due on January 31, 2022, originally $750,000 (i) | |
$ | 896,535 | | |
$ | 750,000 | |
| Note
payable bearing interest at 6.5% originated April 1, 2019, due on March 31, 2022, originally $250,000 (iv) | |
| 123,604 | | |
| 124,728 | |
| Total
notes payable | |
$ | 1,020,139 | | |
$ | 874,728 | |
| Less:
current portion | |
| (1,020,139 | ) | |
| (874,728 | ) |
| Long-term
notes payable | |
$ | - | | |
$ | - | |
| |
(i) |
On
January 17, 2019, the Company executed a promissory note for $750,000 with FR Holdings LLC (the “Holder”), a Wyoming
limited liability company. The Noted Secured by Deed of Trust (the “Secured Note”)
accrues interest at 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. As of December 31, 2021, $750,000 principal
and $0 interest remain due. On February 4, 2022, the Company entered into a Note
Modification Agreement (the “Agreement”) with the Holder amending the terms of the Secured Note. The Parties agree that
the maturity date of the Secured Note being January 31, 2022, had passed and that the balance of the Secured Note is now due (currently
Seven-Hundred and Fifty-Thousand Dollars ($750,000.00), and the parties also agree that the conditions in the Secured Note requiring
the assessment of the additional Five-Hundred Thousand Dollars ($500,000.00) consulting fee was triggered bringing the total amount
owed by the Company under the terms of the Secured Note to One-Million Two-Hundred Fifty-Thousand Dollars ($1,250,000.00). Under
the terms of the Agreement, the Company made a payment in the amount of $357,342.88 bringing the new principal balance to $900,000.
The interest rate shall be 7% per annum. Future payments shall be calculated on a 20-year amortization with a balloon payment
in three years. The first monthly payment of $6,977.69 was made on March 25, 2022 with the final balloon payment due on
February 1, 2025. As of March 31, 2022, $896,535 principal remains due. |
| |
|
|
| |
(ii) |
On
April 1, 2019, the Company executed a promissory note for $250,000 with
John T. Jacobs and Teresa D. Jacobs. The note accrues interest at 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. As of March 31, 2022, $123,604
principal remains due. |
Schedule
of Minimum Loan Payments
| | |
Amount | |
| Fiscal
year ending December 31: | |
| | |
| 2022
(excluding the three months ended March 31, 2022) | |
$ | 1,020,139 | |
| 2023 | |
| - | |
| 2024 | |
| - | |
| 2025 | |
| - | |
| Thereafter | |
| - | |
| Total
minimum loan payments | |
$ | 1,020,139 | |
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
10 — Commitments and Contingencies
Employment
Agreements
On
September 1, 2020, the Company entered into an Employment Agreement (the “Agreement”) with Paris Balaouras (the “Employee”).
Under the terms of the Agreement, the Employee shall serve as the Company’s Chief Cultivation Officer for a term of three
(3) years (the “Term”) commencing on September 15, 2020. The Employee shall receive a base salary of $105,000 annually,
shall be eligible to receive an annual discretionary bonus during the Term, based on performance criteria determined by the board
of directors of the Company in its sole discretion, in amount equal to up to 100% of Employee’s base salary for the then
current fiscal year, shall be eligible to receive an annual discretionary stock grant during the Term which shall be vested in
equal increments of 1/3rd each over a three year period beginning on the first anniversary of employment, shall be
eligible to receive a compensatory stock grant of 667,000 shares for and in consideration of past compensation ($224,000 at September
15, 2020) foregone by Employee; such grant exercisable at Employee’s option as such time as Employer is profitable at the
NOI level on a trailing twelve (12) month basis or upon other commercial reasonable terms as the Board may determine and shall
be awarded options to purchase 500,000 shares of the Company’s common stock, exercisable at a price of $.75 per share.
On
September 1, 2020, the Company entered into an Employment Agreement (the “Agreement”) with Roger Bloss. Under the
terms of the Agreement, the Employee shall serve as the Company’s Interim Chief Executive Officer for a term of six (6)
months and the Chief Executive Officer and for an additional two (2) years and six (6) months as the Chief Executive Officer for
a total of three (3) years (the “Term”) commencing on September 15, 2020. The Employee shall receive a base salary
of $105,000 annually, shall be eligible to receive an annual discretionary bonus during the Term, based on performance criteria
determined by the board of directors of the Company in its sole discretion, in amount equal to up to 100% of Employee’s
base salary for the then current fiscal year, shall be eligible to receive an annual discretionary stock grant during the Term
which shall be vested in equal increments of 1/3rd each over a three year period beginning on the first anniversary
of employment and shall be awarded options to purchase 500,000 shares of the Company’s common stock, exercisable at a price
of $.75 per share.
On
September 1, 2020, the Company entered into an Employment Agreement (the “Agreement”) with Bernard Moyle. Under the
terms of the Agreement, the Employee shall serve as the Company’s Secretary/Treasurer for a term of three (3) years (the
“Term”) commencing on September 15, 2020. The Employee shall receive a base salary of $60,000 annually, shall be eligible
to receive an annual discretionary bonus during the Term, based on performance criteria determined by the board of directors of
the Company in its sole discretion, in amount equal to up to 200% of Employee’s base salary for the then current fiscal
year, shall, at commencement of the Term receive a grant of stock of 500,000 shares and shall be eligible to receive an annual
discretionary stock grant during the Term which shall be vested in equal increments of 1/3rd each over a three year
period beginning on the first anniversary of employment and shall be awarded options to purchase 500,000 shares of the Company’s
common stock, exercisable at a price of $.75 per share. On March 16, 2021, Mr. Moyle assumed the role of interim Chief Financial
Officer upon the resignation of Mr. Kelly. The terms of Mr. Moyle’s Agreement did not change.
Board
of Directors Services Agreements
On September 15, 2020, the Company entered into
a Board of Directors Services Agreement (the “Agreement”) with Messrs. Bloss, Dear and Balaouras (collectively, the “Directors”).
Under the terms of the Agreement, each of the Directors shall provide services to the Company as a member of the Board of Directors for
a period of not less than one year. Each of the Directors shall receive compensation as follows: (i) Fifteen Thousand and no/100 dollars
($), paid in four (4) equal installments on the last calendar day of each quarter, and (ii) Fifteen Thousand () shares
of the Company’s common stock on the last calendar day of each quarter. The Agreement for each of the Directors is effective as
of October 1, 2020.
On March 26, 2021, the Company’s Board of
Directors elected to revise the terms of the Board of Directors Services Agreement for each director. Section 2 (Compensation) was revised
such that the directors’ cash compensation was revised to stock compensation in the following manner: $3,750 divided by the
closing stock price on the last business day of each quarter multiplied by 1.10. The remainder of Section 2 is unchanged.
On September 30, 2021, the Company’s Board
of Directors elected to revise Section 2 (Compensation) of the Agreement back to the original terms. Each of the Directors shall receive
compensation as follows: (i) Fifteen Thousand and no/100 dollars ($15,000.00), paid in four (4) equal installments on the last calendar
day of each quarter, and (ii) Fifteen Thousand (15,000) shares of the Company’s common stock on the last calendar day of each quarter.
The revision became effective on September 30, 2021.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
10 — Commitments and Contingencies (continued)
Operating
Leases
The
Company leases a two production / warehouse facility under a non-cancelable operating lease that expires in June 2027 and September
2029, respectively.
As
of March 31, 2022, the Company recorded operating lease liabilities of $686,274
and right of use assets for operating leases
of $0.
During the three months ended March 31, 2022,
operating cash outflows relating to operating lease liabilities was $-.
As of March 31, 2022, the Company’s
operating leases had a weighted-average remaining term of 4.2
years.
Future
minimal rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of March 31, 2022,
are as follows:
Schedule
of Future Minimum Rental and Lease Commitments
| |
|
Amount |
|
| Fiscal year ending December 31: |
|
|
|
|
| 2022
(excluding the three months ended March 31,
2022) |
|
$ |
90,000 |
|
| 2023 |
|
|
120,000 |
|
| 2024 |
|
|
120,000 |
|
| 2025 |
|
|
120,000 |
|
| 2026 |
|
|
120,000 |
|
| Thereafter |
|
|
330,000 |
|
| Total minimum
lease payments |
|
$ |
900,000 |
|
Rent
expense, incurred pursuant to operating leases for the three months ended March 31, 2022 and 2021, was $30,000
and $60,937,
respectively.
Litigation
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. In 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.
MJ Holdings, Inc.
Complaint
On December 14, 2021,
MJ Holdings, Inc. (the “Plaintiff”) filed a Complaint against NCMM, LLC, AP Management, LLC and Valerie Small (collectively,
the “Defendants”). In the Complaint, the Plaintiff alleges that the Defendants have refused to return the cannabis that was
being stored for Plaintiff under a Storage and Purchase Agreement entered into with AP Management. By failing to return the cannabis
to Plaintiff, or Plaintiff’s designee, the Defendants have deprived Plaintiff of the ability to sell, transfer or market the product.
In addition, the Defendants have sought to unlawfully extort the Plaintiff for illicit payments of thousands of dollars in money and/or
cannabis in exchange for returning the cannabis.
Gappy and Shaba Compliant
On December 3, 2021,
a Complaint was filed against MJ Holdings, Inc., HDGLV, LLC, Red Earth, LLC (collectively, the “Defendants”) by Ziad Gappy
and David Shaba (collectively, the “Plaintiffs”). In the Complaint, the Plaintiffs allege the Defendants made misleading
statements and/or omissions relating to the Company in the Plaintiffs’ negotiation to purchase shares of MJ Holdings, Inc. In addition, the
Plaintiffs allege that the Defendants have not honored the 2018 Agreements negotiated between the Plaintiffs and Defendants and that
MJ Holdings, Inc. has failed to issue an additional $125,000 in stock due to the Plaintiffs as was agreed to in writing and the Defendants
have failed to start the Western Project.
DGMD Complaint
On March 19, 2021, a
Complaint was filed against the Company, Jim Mueller, John Mueller, MachNV, LLC, Acres Cultivation, Paris Balaouras, Dimitri Deslis,
ATG Holdings, LLC and Curaleaf, Inc. (collectively, the “Defendants”) by DGMD Real Estate Investments, LLC, ARMPRO, LLC,
Zhang Springs LV, LLC, Prodigy Holdings, LLC and Green Organics, LLC (collectively, the “Plaintiffs”) in the District Court
of Clark County, Nevada.
In the Complaint, the
Plaintiffs allege that the Defendants: (i) intended to fraudulently obtain money from the Plaintiffs in order to put that money towards
the Acres dispensary and to make Acres look more appealing to potential buyers as well as pay off Defendants’ agents, and (ii)
the Defendants acted together in order to find investors to invest money into the Acres and MJ Holdings “Investment Schemes”,
and (iii) the Defendants intended to fraudulently obtain Plaintiffs’ money for the purpose of harming the Plaintiffs to benefit
the Defendants, and (iv) the Defendants committed unlawful fraudulent misrepresentation in the furtherance of the agreement to defraud
the Plaintiffs. The Plaintiffs allege that damages are in excess of $15,000.
As
the complaint pleads only the statutory minimum of damages, the Company is unable to estimate the potential exposure, if any, resulting
from this matter but believes it is without merit as to liability and otherwise deminimis as to damages. Thus, the Company does not expect
this matter to have a material effect on the Company’s consolidated financial position or its results of operations. The Company
will vigorously defend itself against this action and has filed an appropriate and timely answer to the Complaint including
a lengthy and comprehensive series of affirmative defenses and liability and damage avoidances. As of the date of this filing, discovery
has commenced and written discovery has been exchanged between the parties.
Tierney Arbitration
On
March 9, 2021, Terrence Tierney, the Company’s former President and Secretary, filed for arbitration with the American Arbitration
Association for: (i) breach of contract, (i) breach of the implied covenant of good faith and fair dealing, and (iii) NRS 608 wage claim.
Mr. Tierney demanded payment in the amount of $501,085 for deferred business compensation, expenses paid on behalf of the Company, accrued
vacation and severance pay. On April 7, 2021, the Company made payment against the wage claim in the amount of $62,392, inclusive of
$59,583 for wages and $2,854 for accrued vacation and, as such posits that any claims that Tierney may have had have been paid in full
and that the Company otherwise has no liability. The Company filed a counterclaim in the action declaring that Tierney breached the contract
of employment, committed fraud, malfeasance and other nefarious acts causing substantial damage to the Company with estimated monetary
damages well in excess of any monetary claim made by Tierney. After recent arbitrator rulings favorable to the Company, the parties agreed
to postpone the June arbitration and have referred the matter to mediation. On June 23, 2022, the parties participated in mediation without
resolution. The parties have met and conferred and are scheduled to proceed with arbitration on November 7-10, 2022.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
11 — Stockholders’ Equity (Deficit)
General
The
Company is currently authorized to issue up to 95,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par
value $0.001 per share.
Common
Stock
Of
the 95,000,000 shares of Common Stock authorized by the Company’s Articles of Incorporation, 71,501,667 shares of Common
Stock are issued and outstanding as of March 31, 2022. Each holder of Common Stock is entitled to one vote per share on all matters
to be voted upon by the stockholders and are not entitled to cumulative voting for the election of directors. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally
available therefor subject to the rights of preferred stockholders. The Company has not paid any dividends and does not intend to pay
any cash dividends to the holders of Common Stock in the foreseeable future. The Company anticipates reinvesting its earnings, if any,
for use in the development of its business. In the event of liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled, unless otherwise provided by law or the Company’s Articles of Incorporation, including any certificate of designations
for a series of preferred stock, to share ratably in all assets remaining after payment of liabilities and the preferences of preferred
stockholders. Holders of the Company’s Common Stock do not have preemptive, conversion, or other subscription rights. There are
no redemptions or sinking fund provisions applicable to the Company’s Common Stock.
Common
Stock Issuances
For
the three months ended March 31, 2022, the Company issued and/or sold the following unregistered securities:
None
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
11 — Stockholders’ Equity (Deficit) (continued)
At March 31, 2022 and December 31, 2021,
there are 71,501,667 and 71,501,667 shares of Common Stock issued and outstanding, respectively.
Preferred
Stock
The
Board is authorized, without further approval from our stockholders, to create one or more series of preferred stock, and to designate
the rights, privileges, preferences, restrictions, and limitations of any given series of preferred stock. Accordingly, the Board
may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting, or other rights
that could adversely affect the voting power or other rights of the holders of Common Stock. The issuance of preferred stock could
have the effect of restricting dividends payable to holders of our Common Stock, diluting the voting power of our Common Stock,
impairing the liquidation rights of our Common Stock, or delaying or preventing a change in control of us, all without further
action by our stockholders. Of the 5,000,000 shares of preferred stock, par value $0.001 per share, authorized in our Articles
of Incorporation, 2,500 shares are designated as Series A Convertible Preferred Stock.
Series
A Convertible Preferred Stock
Each
share of Series A Preferred Stock is convertible, at the option of the holder, into that number of shares of Common Stock determined
by dividing the stated value of each share of Series A Preferred Stock (currently, $1,000) by the conversion price (currently,
$0.75). The stated value and the conversion price are subject to adjustment as provided for in the Certificate of Designation.
We are prohibited from effecting a conversion of the Series A Preferred Stock to the extent that, after giving effect to the conversion,
the holder (together with such holder’s affiliates and any persons acting as a group with holder or any of such holder’s
affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion. A holder, upon notice to us, may increase or decrease
this beneficial ownership limitation; provided, that, in no event can the holder increase the beneficial ownership limitation
in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon the conversion of the Series A Preferred Stock then held by holder. Such increase of the beneficial ownership
limitation cannot be effective until the 61st day after such notice is given to us and shall apply only to such holder.
The Series A Preferred Stock has no voting rights; however, as long as any shares of Series A Preferred Stock are outstanding,
we are not permitted, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A
Preferred Stock to (i) alter or change adversely the powers, preferences, or rights given to the Series A Preferred Stock or alter
or amend the Series A Preferred Stock Certificate of Designation, (ii) amend our Articles of Incorporation or other charter documents
in any manner that adversely affects any rights of the holders, (iii) increase the number of authorized shares of Series A Preferred
Stock, or (iv) enter into any agreement with respect to any of the forgoing.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
11 — Stockholders’ Equity (Deficit) (continued)
Preferred
Stock Issuances
For
the three months ended March 31, 2022
None
At
March 31, 2022 and December 31, 2021, there were 0 and 0 shares of Series A Preferred Stock issued and outstanding, respectively.
Note
12 — Basic and Diluted Earnings (Loss) per Common Share
Basic
earnings (loss) per share is computed by dividing the net income or net loss available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated using the treasury
stock method and reflects the potential dilution that could occur if warrants were exercised and were not anti-dilutive.
For
the three months ended March 31, 2022, basic and diluted loss per common share were the same since there were no potentially dilutive
shares outstanding during the respective periods. The outstanding options as of March 31, 2022, to purchase 1,500,000
shares of common stock were not included in the calculations of diluted loss per share because the impact would have been anti-dilutive.
Note
13 — Stock Based Compensation
Warrants
and Options
A
summary of the warrants and options issued, exercised and expired are below:
Stock
Options
On
September 15, 2020, the Company issued an option to purchase 500,000 shares of common stock to each of Messrs. Balaouras, Bloss and Moyle
as per the terms of their employment agreements. The options have a strike price of $0.75 and expire on the three-year anniversary date.
A
summary of the options issued, exercised and expired are below:
Schedule
of Options Issued, Exercised and Expired
| Options: | |
Shares | | |
Weighted
Avg.
Exercise Price | | |
Remaining
Contractual Life in Years | |
| Balance
at December 31, 2021 | |
| 1,500,000 | | |
$ | 0.75 | | |
| 1.68 | |
| Issued | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | |
| Balance
at March 31, 2022 | |
| 1,500,000 | | |
$ | 0.75 | | |
| 1.33 | |
| Exercisable
at March 31, 2022 | |
| 1,500,000 | | |
$ | 0.75 | | |
| 1.33 | |
Options
outstanding as of March 31, 2022 and December 31, 2021 were 1,500,000 and 1,500,000, respectively.
Warrants
On
January 11, 2021, the Company issued an accredited investor a Common Stock Purchase Warrant Agreement in conjunction with the July 2020
Securities Purchase Agreement granting the holder the right to purchase up to 250,000 shares of
the Company’s common stock at an exercise price of $0.10 for a term of 4-years.
A
summary of the warrants issued, exercised and expired are below:
Schedule
of Warrants Issued, Exercised and Expired
| Warrants: | |
Shares | | |
Weighted Avg.
Exercise Price | | |
Remaining
Contractual
Life in Years | |
| Balance at December 31, 2021 | |
| 250,000 | | |
$ | 0.10 | | |
| 3.3 | |
| Issued | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Expired | |
| - | | |
| - | | |
| - | |
| Balance at March 31,
2022 | |
| 250,000 | | |
$ | 0.10 | | |
| 3.0 | |
Warrants
outstanding as of March 31, 2022 and December 31, 2021 were 250,000 and 250,000, respectively.
MJ
HOLDINGS, INC. and SUBSIDIARIES
Notes
to the Condensed Consolidated Financial Statements
For
the Three Months Ended March 31, 2022 and 2021
(Unaudited)
Note
14 — Related Party Transactions
On August 1, 2021, the Company entered into a
Memorandum of Understanding and Agreement for Technical Services and Short-Term Funding (the “Agreement”) with Red Earth,
LLC (hereinafter, “Red Earth”), an entity controlled by its Chief Cultivation Officer, Paris Balaouras. Under the terms of
the Agreement, the Company will provide a short-term loan (the “Loan”) to Red Earth for expenses related to the activation
and operation of Red Earth’s cultivation license. The Loan shall bear interest at 12% per annum and increase to 18% upon default.
In addition, the Company shall provide Red Earth pre-opening technical services at a cost of $5,000 to $7,500 per month. As of March
31, 2022, the amount due the Company under the short-term loan is $138,316.
Note
15 — Subsequent Events
On
April 18, 2022, the Company issued a total of 45,000 shares of common stock with a fair market value of $13,500 to three directors for
services rendered during the first quarter of 2022.
On
July 8, 2022, MJ Holdings, Inc. (the “Buyer”) entered into a Common Stock Purchase Agreement (the “Agreement”)
with MJH Research, Inc. (the “Company”), a Florida corporation, and Sunstate Futures, LLC (the “Seller”), a Florida
limited liability company. Under the terms of the Agreement, the Seller agreed to sale all issued and outstanding shares of common stock
(100,000 shares) (the “Common Stock”) of the Company to the Buyer. In consideration of the purchase of the shares of Common
Stock, the Buyer agreed to issue the Seller seven million (7,000,000) shares of its common stock. The transaction closed on July 11,
2022. Net assets and liabilities of MJH Research, Inc. were approximately $5,000
and consideration on the acquisition date equated to approximately $1,955,000, most of which would be applied to intellectual property
related to research of MJH Research, Inc.
On
July 15, 2022, the Company issued a total of 45,000 shares of common stock with a fair market value of $12,128 to three directors for
services rendered during the second quarter of 2022.