0001213900-18-017212.txt : 20181211 0001213900-18-017212.hdr.sgml : 20181211 20181211163706 ACCESSION NUMBER: 0001213900-18-017212 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 51 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181211 DATE AS OF CHANGE: 20181211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MJ Holdings, Inc. CENTRAL INDEX KEY: 0001456857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 208235905 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-55900 FILM NUMBER: 181229119 BUSINESS ADDRESS: STREET 1: 1300 SOUTH JONES BLVD. CITY: LAS VEGAS STATE: NV ZIP: 89146 BUSINESS PHONE: 702-879-4440 MAIL ADDRESS: STREET 1: 1300 SOUTH JONES BLVD. CITY: LAS VEGAS STATE: NV ZIP: 89146 FORMER COMPANY: FORMER CONFORMED NAME: Securitas EDGAR Filings, Inc. DATE OF NAME CHANGE: 20090223 10-Q/A 1 f10q0918a1_mjholdingsinc.htm AMENDMENT NO. 1 TO FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

(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, 2018

 

OR

 

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

 

COMMISSION FILE NUMBER 333-167824

 

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 Blvd., Las Vegas, NV 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

 

As of December 10, 2018, there were 70,957,480 shares of our Common Stock, par value $0.001 per share, outstanding.

 

 

 

 

 

  

MJ HOLDINGS, INC.

FORM 10-Q/A

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

 

INDEX

 

  PAGE
PART I - FINANCIAL INFORMATION   
   
Item 1. Consolidated Financial Statements (Unaudited)  1
   
Notes to Consolidated Financial Statements (Unaudited) 5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  12
   
Item 3. Quantitative and Qualitative Disclosure About Market Risk  15
   
Item 4. Controls and Procedures  15
   
PART II – OTHER INFORMATION   
   
Item 1.  Legal Proceedings 16
   
Item 1A.  Risk Factors  16
   
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities  16
   
Item 3. Defaults Upon Senior Securities  16
   
Item 4. Mine Safety Disclosures  16
   
Item 5. Other Information   16
   
Item 6. Exhibits  18
   
EXHIBIT INDEX
   
SIGNATURES  19

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

MJ HOLDINGS, INC.

Consolidated Balance Sheets

(Unaudited)

 

   September 30,   December 31, 
   2018   2017 
Assets        
Current Assets        
Cash  $1,414,052   $2,513,863 
Prepaid expenses   740,083    5,500 
Prepaid inventory   2,000,000    - 
Total Current Assets   4,154,135    2,519,363 
Fixed Assets          
Leasehold improvements   1,247,210    17,535 
Other Assets          
Deposits   133,633    42,383 
Intangible asset   300,000    300,000 
Available for Sale Securities   300,000    - 
Noncurrent assets held for disposition   584    584 
Total Assets  $6,135,562   $2,879,865 
           
Liabilities and Stockholders’ Equity          
Current Liabilities:          
Accounts payable and accrued liabilities  $155,559   $70,382 
Customer deposits   386,416    - 
Convertible notes payable due to related party   -    900,000 
Total Current Liabilities   541,975    970,382 
           
Noncurrent Liabilities:          
Deferred rent   203,754    104,565 
Total noncurrent liabilities   203,754    104,565 
           
Total Liabilities   745,729    1,074,947 
           
Stockholders’ Equity          
Preferred stock, par value $0.001, 5,000,000 shares authorized; 2,500 and 0 shares issued and outstanding, respectively   3    - 
Common stock, par value $0.001, 95,000,000 shares authorized; 67,297,480 and 62,675,407 shares issued and outstanding, respectively   67,297    62,675 
Additional paid in capital   10,477,864    1,704,764 
Common stock to be issued   -    400,000 
Stock subscription receivable   (597,000)   - 
Accumulated deficit   (4,708,331)   (362,521)
Accumulated other comprehensive income   150,000    - 
Total Stockholders’ Equity   5,389,833    1,804,918 
Total Liabilities and Stockholders’ Equity  $6,135,562   $2,879,865 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

1

 

 

MJ HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

  

   Three months ended   Three months ended   Nine months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2018   2017   2018   2017 
Operating Expenses                
General and administrative   987,258    73,423    1,598,256    108,902 
Sales and marketing   63,808    -    248,064    - 
Total operating expenses   1,051,066    73,423    1,846,320    108,902 
                     
Operating loss   (1,051,066)   (73,423)   (1,846,320)   (108,902)
                     
Other Expenses (Income)                    
Interest expense (income)   (145)   25,389    (510)   39,132 
Total other expenses (income)   (145)   25,389    (510)   39,132 
                     
Loss before provision for income taxes   (1,050,921)   (98,812)   (1,845,810)   (148,034)
                     
Provision for income taxes   -    -    -    - 
                     
Net Loss   (1,050,921)   (98,812)   (1,845,810)   (148,034)
                     
Deemed dividend related to beneficial conversion feature of convertible preferred stock   (2,500,000)   -    (2,500,000)   - 
                     
Net loss attributable to common shareholders  $(3,550,921)  $(98,812)  $(4,345,810)  $(148,034)
                     
Basic and diluted net loss per common share:  $(0.06)  $(0.00)  $(0.07)  $(0.00)
                     
Weighted average shares outstanding   63,746,119    52,732,969    63,298,565    52,732,969 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

2

 

 

MJ HOLDINGS, INC.

Consolidated Statement of Comprehensive Loss

(Unaudited)

 

   Three months ended   Three months ended   Nine months ended   Nine months ended 
   September 30,   September 30,   September 30,   September 30, 
   2018   2017   2018   2017 
                 
Net loss  $(1,050,921)  $(98,812)  $(1,845,810)  $(148,034)
Other comprehensive income                    
                     
Unrealized gains on securities available for sale   150,000    -    150,000    - 
Total other comprehensive income   150,000    -    150,000    - 
                     
Total comprehensive loss  $(900,921)  $(98,812)  $(1,695,810)  $(148,034)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3

 

 

MJ HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine months ended   Nine months ended 
   September 30,   September 30, 
   2018   2017 
Cash Flows from Operating Activities        
Net loss  $(1,845,810)  $(148,034)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt issuance cost   -    6,600 
Amortization of deferred rent   99,188    52,033 
Common stock and options issued for services   106,728    - 
Changes in operating assets and liabilities:          
Prepaid expenses and prepaid inventory   (2,734,583)   - 
Deposits   (91,250)   (42,383)
Accounts payable and accrued liabilities   85,177    28,571 
Customer deposits   386,416    - 
Net cash used in operating activities   (3,994,134)   (103,213)
           
Cash Flows from Investing Activities:          
Purchase of license   -    (300,000)
Payment for leasehold improvements   (1,229,675)   - 
Net cash used in investing activities   (1,229,675)   (300,000)
           
Cash Flows from Financing Activities          
Proceeds from issuance of preferred stock   2,500,000    - 
Proceeds from issuance of common stock   2,523,998    - 
Proceeds from common stock to be issued   -    20,001 
Proceeds from notes payable   -    339,440 
Repayment of convertible note due to related party   (900,000)   - 
Net cash provided by financing activities   4,123,998    359,441 
           
Net decrease in cash   (1,099,811)   (43,772)
           
Cash, beginning of period   2,513,863    - 
           
Cash, end of period  $1,414,052   $(43,772)
           
Supplemental disclosure of cash flow information:   
Interest paid  $-   $- 
Income taxes paid  $-   $- 
           
Non-cash investing activities:          
Common stock issued to acquire available for sale securities  $150,000   $- 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4

 

 

MJ HOLDINGS, INC.

Notes to the Consolidated Financial Statements

For the three and nine months ended September 30, 2018 and 2017

(Unaudited)

 

Note 1 — Nature of the Business

 

MJ Holdings, Inc. (“the Company”) is a holding company whose subsidiaries provide cultivation management, infrastructure, and consulting services to the regulated cannabis industry, in addition to holding, and managing third party Nevada state issued cultivation and production licenses.

 

In April 2018, the State of Nevada finalized and approved the provisional Medical Marijuana Establishment Registration Certificate (the “Certificate”) held by our wholly owned subsidiary, Red Earth, LLC (“Red Earth”). The Certificate, when perfected, will allow the Company to commence legal marijuana cultivation activities in the State of Nevada. HDGLV, LLC (“HDGLV”), a wholly owned subsidiary of Red Earth, holds a triple-net leasehold interest, with an option to buy, in a 17,298 square-foot building, which we expect will be the home to our indoor cultivation facility. Phase 1 of this facility was completed in July of 2018. We received final approval from the State of Nevada, Department of Taxation with respect to the Certificate, and Red Earth was issued a Business License by the City of Las Vegas during the quarter ended September 30, 2018. We expect to complete additional modifications and open the facility in January of 2019.

 

In April 2018, the Company entered into a management agreement with a Nevada company (the “Licensed Operator”) that holds a license, for the legal cultivation of marijuana for sale under the laws of the State of Nevada. The Licensed Operator has engaged us to develop, manage, and operate a licensed cultivation facility on property owned by the Licensed Operator. At our sole cost and expense, we completed the construction of a 120,000 square-foot outdoor grow facility, including the construction of an 8,000 square-foot building and installation of required security fencing, meeting the State of Nevada building codes and regulations. Operation of this facility commenced in August, 2018. The Company will account for the biological assets at LCM (lower of cost or market) as inventory in accordance with ASC 905 Agriculture. At September 30, 2018 the seedlings were in an immature state. See Note 4 Prepayments and deposits, Management Agreement.

 

In order to develop and manage the three-acre outdoor facility, the Company 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 proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

 

In September of 2018 the Company, through its wholly owned subsidiary, Red Earth applied for five Recreational Marijuana Establishment Licenses to operate up to five retail marijuana stores within the state of Nevada. The Company’s goal is to open a store within the City of Las Vegas, as well as additional dispensaries in Washoe County near Lake Tahoe, in North Las Vegas, unincorporated Clark County and Henderson, Nevada. The Company was advised on December 6, 2018 that none of the applications resulted in the grant of a dispensary license.

 

We intend 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/production management, and consulting services in the regulated cannabis industry.

 

5

 

 

Note 2 — Summary of Significant Accounting Policies

 

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 the consolidated financial statements not misleading have been included. The balance sheet at December 31, 2017, has been derived from the Company’s audited consolidated financial statements as of that date.

 

The unaudited 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, 2017, that was filed with the SEC on July 27, 2018. The results of operations for the nine months ended September 30, 2018, are not necessarily indicative of the results to be expected for the full year or any further periods.

 

The unaudited 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, 2017. There were no material changes to our significant accounting policies during the interim period ended September 30, 2018.

 

Note 3 — Going Concern

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.

 

The Company has not generated revenue from its existing business and has an accumulated deficit of $2,208,331 from inception (October 17, 2016) to September 30, 2018. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

   

In the event the Company experiences liquidity and capital resource constraints because of unanticipated operating losses, we may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to us or at all, then we may need to curtail our operations and/or take additional measures to conserve and manage our liquidity and capital resources, any of which would have a material adverse effect on our financial position, results of operations, and our ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

Note 4 — Prepayments and Deposits

 

Prepaid Inventory

 

On August 13, 2018 (the “Effective Transaction Date”), the Company closed the transactions contemplated by an Exclusive Distribution Agreement (the “Exclusive Distribution Agreement”) dated August 13, 2018. The Exclusive Distribution Agreement is between the Company and Healthier Choices Management Corporation (“Healthier Choices”), a designer and seller of cannabis consumption Q-Cups, which are designed to consume cannabis products by vaporizing oil. The Company has the exclusive right to distribute Q-Cups in Nevada. The Exclusive Distribution Agreement further requires the Company to advertise and market Q-Cups in Nevada. 

 

Pursuant to the terms of the Agreement, the Company purchased Q-Cups from Healthier Choices and tendered the sum of two million dollars ($2,000,000). Delivery of the inventory had not been received as of September, 2018. The funds were transferred to Healthier Choices on the Effective Transaction Date. Healthier Choices has applied for and has been granted a patent with respect to the Q-Cup.  

 

6

 

 

The initial term of the Exclusive Distribution Agreement is for one year, with additional successive one-year renewals, subject to certain standard termination provisions. The Exclusive Distribution Agreement is subject to standard termination provisions; however, Healthier Choices has the option to terminate the Exclusive Distribution Agreement, on 30 days’ written notice, if the Company fails to purchase a sufficient minimum quantity of Q-Cups from Healthier Choices. The Company has met its obligations for the first year of the Exclusive Distribution Agreement through the payment of $2,000,000. Thereafter, for each renewal term, the Company’s minimum purchase obligation for Q-Cups is currently $500,000, subject to a good faith negotiation at the end of each year. Notwithstanding the exclusivity provided by the Exclusive Distribution Agreement, Healthier Choices reserves the right to sell Q-Cups, directly or indirectly, to a specific retail group (the “Excluded Account”). In such event, Healthier Choices shall pay to the Company a fee equivalent to 5% of the gross sales of Q-Cups that Healthier Choices sold to an Excluded Account in Nevada. The Company, however, does not have the right to appoint sub-distributors or sell Q-Cups through any third party. In connection with the transactions contemplated by the Exclusive Distribution Agreement, Healthier Choices granted to the Company a non-exclusive, non-transferrable, and non-sub-licensable fully paid license agreement. The Exclusive Distribution Agreement provides standard cross-indemnity provisions.

 

The Company also entered into a Stock Exchange Agreement (the “Stock Exchange Agreement”) with Healthier Choices in August 2018. Please see Note 7, Available for Sale Securities, for additional information.

 

Prepaid Expenses

 

In February 2018, the Company began discussions with an unrelated third-party regarding designing, purchasing, and reselling greenhouses. The Company provided expertise in constructing green houses, and the other party advised that it would enter into agreement to design, procure, and operate greenhouses. In April 2018, the third party notified the Company and the purchasers of the green houses that it could not continue with the construction of the green houses because of unrelated hardships. However, the Company, after subsequent conversations with the purchasers, agreed to complete the construction and installation of six (6) greenhouses to four (4) separate purchasers.

 

As of September 30, 2018, the Company had received $386,416 in deposits from the purchasers which were recorded as customer deposits on the balance sheet, and has paid $335,083 expenses related to the design, purchase and resale of green houses, which expenses were recorded as prepaid expenses.

 

As of September 30, 2018, the Company had made a Prepayment in the amount of $50,000 to an unrelated third-party for the acquisition of all of the membership units of Farm Road, LLC including 260 acres of farmland in the Amargosa Valley of Nevada and the concomitant water rights. The Prepayment is a non-refundable deposit to be held in escrow until the closing of the transaction. In the event that the transaction does not close on or before January 31, 2019 the deposit is subject to forfeiture.

 

As of September 30, 2018, the Company had made a Prepayment in the amount of $95,000 to an unrelated third-party for the acquisition of an approximately 10,000 square foot office building located at 1300 S Jones Blvd., Las Vegas, NV 89146. The Prepayment is a deposit to be held in escrow until the closing of the transaction. The transaction closed on October 18, 2018. (See Note 13, Subsequent Events, Purchase of Office Building).

 

Management Agreement

 

In March 2018, the Company 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 proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

 

On April 18, 2018, the Company entered into a management agreement with the Licensed Operator that holds a cultivation license, so that it can lawfully engage in the cultivation of marijuana for sale under the laws of the State of Nevada. The term of the agreement is for 8 years to cultivate a three-acre plot at the 37 acre facility. 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. The Company, at its sole cost and expense, has agreed to complete the construction of an outdoor cultivation facility meeting the local and state building codes and regulations to cultivate marijuana.

 

7

 

 

Upon completion of the construction of the outdoor cultivation facility and receipt of the appropriate approvals from the local and state authorities, the Company began cultivating marijuana. Pursuant to the terms of the management agreement, the Company agreed to generate sales of at least $5 million per year from product cultivated from the outdoor cultivation facility. The Licensed Operator may terminate the agreement, in accordance with the terms of the management agreement, if it does not generate at least $5 million in annual revenues. Prior to the termination of the management agreement by the Licensed Operator, the Company may cure a breach of this provision by paying 10% of the revenue shortfall to the Licensed Operator.

 

Pursuant to the management agreement, 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 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 administration costs incurred by the Licensed Operator during the term of the agreement.

 

As of September 30, 2018, the Company recorded the $300,000 paid to the Licensed Operator as prepaid expenses.

 

In order to develop and manage the three-acre outdoor facility, the Company entered into a management services agreement with with a Nevada limited liability company (the “Manager”) to provide operational oversight and cultivation management for the Company’s proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

 

Note 5 — Leasehold Improvements

 

On April 18, 2018, the Company entered into a management agreement as described in Note 4, Prepayments and deposits, Management Agreement. Pursuant to that management agreement, the Company commenced construction of the outdoor cultivation facility. As of September 30, 2018, the Company had incurred and capitalized $1,154,842 in costs associated with the construction of this facility.

 

During the quarter ended September 30, 2018, the Company incurred costs associated with the construction of an indoor cultivation facility to be located at 2310 Western Avenue in Las Vegas, Nevada. The Company, through its indirect wholly owned-subsidiary, HDGLV, holds a triple net leasehold interest in a 17,298 square-foot building. In addition, in April 2018, the State of Nevada finalized and approved the Certificate held by Red Earth to grow marijuana within the City of Las Vegas in the State of Nevada, which will allow the Company to commence legal marijuana cultivation. Once ongoing construction is completed, the Company intends to operate the facility as an indoor marijuana cultivation and an agritourism destination. This facility is intended to serve as a draw for tourists who desire to visit, see, and learn about the inner-workings of a cannabis cultivation facility. Completion of this facility is expected in January 2019.

 

As of September 30, 2018, the Company had incurred and capitalized $74,833 in costs associated with the construction of this facility. 

 

As of December 31, 2017, the Company had incurred and capitalized $17,535 in costs associated with improvements to its leasehold located at 3275 S Jones, Blvd., Suite 104, Las Vegas, NV 89146.

 

8

 

 

Note 6 — Intangible Assets

 

In October 2016, Red Earth entered into an Asset Purchase and Sale Agreement to purchase the Certificate from the seller for $300,000. To initiate the purchase and transfer of the Certificate, Red Earth 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 Certificate.

 

The Nevada Department of Taxation approved the Certificate in April 2018. Once the Company completes the construction of the cultivation and agritourism destination facility, and obtains the required state and city approvals, it will begin cultivating marijuana. At that point, the intangible asset will be amortized over its useful life.

 

Note 7 — Available for Sale Securities

 

On August 13, 2018, the Company entered into a Stock Exchange Agreement with Healthier Choices to acquire 1,500,000,000 shares of Healthier Choices’ common stock in exchange for 85,714 shares of the Company’s common stock. 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, and the shares issued are restricted. The shares of common stock constitute “restricted securities” that may be eligible for resale pursuant to Rule 144 of the Securities Act of 1933. Please see note 4, Prepaid Inventory, for further discussion of the Company’s additional business interests with Healthier Choices. The Company accounted for this purchase of shares using the cost method and intends to mark the value to market each reporting period based on the then 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 and $.0002 as of September 30, 2018, resulting in a $150,000 unrealized gain.

 

Note 8 — Convertible Note Payable Due to Related Party

 

On December 15, 2017, the Company issued a convertible note payable in the amount of $900,000 to the members of Red Earth. The managing partner and 50% owner of Red Earth at the time of the transaction was Paris Balaouras, the Company’s current Chief Executive Officer. The convertible note payable was due October 15, 2018. The note was convertible into shares of the Company’s common stock at the holder’s discretion at a conversion price of $0.75 per share. The note accrues interest, commencing nine months from the issuance date, at a rate equal to one half of one percent (0.50%) per annum. Interest was payable on the maturity date or the conversion date, if applicable.

 

The Company assessed the embedded conversion feature of the note payable and determined that the fair value of the underlying common stock at inception did not exceed the conversion price of the convertible note. Since, at the time the convertible note was issued, the Company’s common stock had limited publicly traded volume, the Company based the fair value of the Company’s common stock on the sales of the Company’s common stock, which were sold at $0.75 per share.

 

The Company repaid the note in full in January 2018.

 

Note 9 — Preferred Stock

 

On August 9, 2018 (the “Transaction Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), pursuant to which the Company sold and issued 2,500 shares of its Series A Convertible Preferred Stock (the “Preferred Stock”) to a single institutional, accredited investor for $1,000 per share or an aggregate subscription of $2,500,000. Subject to a standard “4.99% Beneficial Ownership Limitation blocker,” the Preferred Stock is convertible into 3,335,000 shares of the Company’s Common Stock at a conversion price of $0.75 per share, subject to adjustment as described in the Certificate of Designation. 

 

The Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the purchaser, pursuant to which the Company is obligated to file a registration statement with the SEC within 30 calendar days of the Transaction Date, to register for resale the shares of common stock underlying the Preferred Stock. The Company filed the required registration statement on October 5, 2018. If the SEC has not declared the registration statement effective by the 60th calendar day following the Transaction Date (or, in the event of a “full review” by the SEC, the 90th calendar day following the Transaction Date), or upon the occurrence of other events, then the Company was obligated to pay to the purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 4.0% multiplied by the aggregate subscription amount paid by the purchaser pursuant to the Securities Purchase Agreement on a monthly basis until the event has been cured. On October 24, 2018 the Company was notified by the SEC that its registration was deemed effective on this date. Accordingly, the Company is not subject to any further fees or damages related to this provision.

 

On August 13, 2018, the Company filed a Certificate of Designation of its Series A Convertible Preferred Stock with the Secretary of State of the State of Nevada to designate a series of its convertible preferred stock, consisting of 2,500 shares. The stated value of each share of Preferred Stock is $1,000. Subject to a standard “4.99% Beneficial Ownership Limitation blocker,” each share of Preferred Stock is convertible into shares of the Company’s common stock at any time or from time to time at a conversion price equivalent of $0.75 per share, subject to adjustment as described in Certificate of Designation. 

 

9

 

 

Beneficial Conversion Feature

 

Pursuant to GAAP, a beneficial conversion feature (“BCF”) exists to the extent that a convertible security is issued at a price that is less than the fair value of the security into which it is convertible. This guidance applies to the Preferred Stock as these shares were issued at $1,000 per share which, based on the Conversion Rate computes to a common share equivalent price of $.75 per share, which was less than the share price of the Company’s common stock at the time of issuance of $1.90 per share. The difference between these two prices, created a BCF. The BCF is treated as a deemed dividend to the holders of Preferred Stock since the conversion feature is immediately exercisable for the Preferred Stock. The BCF is recorded as a decrease to Retained earnings and an increase to Additional paid-in capital. The deemed dividend also affects the Company’s earnings per share calculations by increasing the loss attributable to common stockholders to the extent that it is not anti-dilutive. As a result of the BCF, the Company recorded a $2,500,000 non-cash deemed dividend for the quarter ended September 30, 2018.

 

Note 10 — Capital Stock

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 4,384,664 shares of the Company’s common stock at $0.75 per share for gross proceeds of $3,288,498, $597,000 of which were received in October 2018, and $400,000 was received prior to January 1, 2018.

 

During the nine months ended September 30, 2018, the Company issued 91,177 shares of the Company’s restricted common stock for gross proceeds of $232,500 under a License agreement with the third party. (See Note 12, Commitment and Contingencies, Memorandum of Understanding).

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 60,518 shares of the Company’s common stock in exchange for professional services valued at $99,992.

 

During the nine months ended September 30, 2018, the Company issued 85,714 shares of the Company’s restricted common stock valued at $150,000 under a Stock Exchange Agreement. For additional information, see Note 7, Available for Sale Securities, to these unaudited consolidated financial statements.

 

Note 11 — Warrants and Options

 

Warrants

 

Prior to the reverse merger with Red Earth, the Company had issued warrants as compensation for consulting services. The warrants expire between June 2019 and October 2019. The following table summarizes all stock warrant activity of the Company for the nine months ended September 30, 2018:

 

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017   166,665   $5.88 
Issued        
Exercised        
Expired        
Balance at September 30, 2018   166,665   $5.88 

 

Options

 

On July 1, 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 term of 3 years. The fair value of these stock options was determined to be $6,736 using the Black-Scholes Merton option-pricing model based on the following assumptions: (i) volatility rate of 199%, (ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 3 years. The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2018:

 

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017      $ 
Issued   10,000    1.20 
Exercised        
Expired        
Balance at September 30, 2018   10,000   $1.20 

 

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Note 12 — Commitments and Contingencies

 

Termination of Advisory Agreement

 

In September 2018, the Company terminated the Advisory Agreement pursuant to its terms and paid to the Consultant compensation consisting of 25,000 shares of the Company’s common stock and a $6,000.00 cash payment.

 

Operating Leases

 

The Company leases an office facility and a production / warehouse facility under two non-cancelable operating leases that expire in May 2019 and June 2027, respectively. Future minimum rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of September 30, 2018, are as follows:

 

   Amount 
Fiscal year ending December 31:    
2018  $69,960 
2019   249,090 
2020   230,640 
2021   230,640 
2022   230,755 
Thereafter   1,043,315 
Total minimum lease payments  $2,054,400 

 

Rental expense is accounted for on the straight-line method.  Deferred rent payable as of September 30, 2018 represents the excess of rent recognized in the financial statements over scheduled lease payments. Rent expense, including deferred rent expense of $203,754, incurred pursuant to operating leases for the nine months ended September 30, 2018 and 2017, was $99,188 and $0, respectively. 

 

Application Services Memorandum of Understanding

 

We entered into a Memorandum of Understanding (the “MOU”) with an unrelated third party (the “Party”) in September 2018. Pursuant to the MOU, the Party and we agreed that, during the application period (September 7, 2018 through September 20, 2018), the Party agreed pay us the sum of $77,500 for each medical marijuana license jointly applied for in Nevada, up to three (3) licenses. The maximum owed to be paid to us pursuant to the MOU is $232,500, which was paid during the three months ended September 30, 2018. The Party was entitled to shares of our restricted common stock with a fair market value as of the trading day immediately preceding the date the first license application was submitted equal to $232,500. The Party and we agreed that the Party would hold a ten percent (10%) interest in each license applied for and granted by Nevada. The Party has agreed that, upon Nevada granting such license or a provisional license, it shall pay us $1 million to be used to construct and operate the dispensary contemplated by the license. In exchange, we agreed to issue to the Party additional shares of restricted common stock in the fair market value of $1 million using a 30-day moving average price. The Party was also granted a ten percent (10%) ownership interest in any such dispensary and will be entitled to an annual distribution equal to ten percent (10%) of the net profits of the dispensary.

 

Litigation

 

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. 

 

Note 13 — Subsequent Events  

 

Filing of Registration Statement on Form S-1

 

On October 5, 2018, in accordance with the Company’s obligations under the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 (File No. 333-227735) (the “Registration Statement”) with the SEC to register 3,335,000 shares of the Company’s stock for resale. The Company filed Amendment No. 1 to the Registration Statement in response to comments received by the SEC. The SEC declared the Registration Statement effective on October 24, 2018.

 

Purchase of Office Building

 

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 for $1,500,000, subject to seller financing in the amount of $1,100,000, at an interest rate of 6.5% per annum, utilizing a 30 year amortization schedule, regular monthly installments of $6,952.75 shall be payable on or before the same day of each month beginning on November 1, 2018, and continuing on the same day of each month thereafter until October 31, 2023, at which time the entire sum of principal and accrued interest in the amount of $1,031,140 is due and payable. On or before the one-year anniversary, November 1, 2019, a principal reduction payment in the amount of $50,000 will be due. Upon the one-year anniversary of the note 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 $6,559.00. The Company closed the purchase on October 18, 2018. The building will be home to the Company’s business operations. In addition, the Company intends to lease the available portions of the building to other entities engaged in the regulated cannabis business. The Company moved into the building in November 19, 2018. 

 

Issuance of Common Stock

 

On October 15, 2018 the Company issued 250,000 shares of common stock for services rendered in regards to our proposed strategic partnership with an Oklahoma license holder. Between November 6, 2018 and December 3, 2018 the holders of Preferred Stock converted 2500 shares of Preferred Stock into 3,335,000 shares of the Company’s common stock. On November 28, 2018 the Company issued 75,000 shares for services rendered to a member of our Advisory Board.

 

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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. is a holding company whose subsidiaries provide infrastructure, consulting and construction services, in addition to holding, and managing third party state issued cultivation and production licenses.

 

We were originally 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, we amended and restated our Articles of Incorporation and changed our name to MJ Holdings, Inc.

 

From February 2014 to January 2017, we owned and leased real estate properties zoned for legalized marijuana operations to licensed marijuana operators.

 

On November 22, 2016, in connection with a plan to divest ourselves of our real estate business, we submitted to our shareholders an offer to exchange (the “Exchange Offer”) our common stock for shares in MJ Real Estate Partners, LLC, (“MJRE”) a newly formed limited liability company formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, the Company accepted for exchange 1,800,000 shares of the Company’s 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 holds 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.

 

Reverse Merger

 

On December 15, 2017, we acquired all of the issued and outstanding membership interests of Red Earth, which was formed in October 2016, in exchange for 52,732,969 shares of our common stock of the Company and a promissory note in the amount of $900,000. The merger was accounted for as a reverse merger, whereby Red Earth was considered the accounting acquirer and became our wholly-owned subsidiary. Upon consummation of the acquisition, the now-former members of Red Earth became the beneficial owners of approximately 88% of our common stock, obtained a controlling interest of us, and retained certain of our key management positions. In accordance with the accounting treatment for a “reverse merger” or a “reverse acquisition,” our historical financial statements prior to the reverse merger will be replaced with the historical financial statements of Red Earth prior to the reverse merger, in all future filings with the SEC. The consolidated financial statements after completion of the reverse merger will include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.

 

Our corporate headquarters is located at 1300 South Jones Blvd., Las Vegas, Nevada, 89146, and our telephone number is (702) 879-4440. Our website address is: www.MJHoldingsinc.com. No information available on or through our websites shall be deemed to be incorporated into this Form 10-Q. Our common stock, par value $0.001, is quoted on the OTC Markets Group, Inc.’s Venture Markets under the symbol “MJNE.”

 

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Our Business

 

Through our acquisition of Red Earth and its wholly-owned subsidiary, HDGLV, we expect to commence legal marijuana cultivation activities in the first quarter of 2019. The Nevada Department of Taxation approved the Certificate held by Red Earth in April 2018. We still need to obtain the required state and city approvals for our cultivation facility. 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 the Certificate, which is a 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.

 

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, 2018.

 

Please see our Annual Report on Form 10-K for the year ended December 31, 2017 filed on July 27, 2018, 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, 2018 Compared to Three Months Ended September 30, 2017

 

Revenue

 

The Company has not generated any revenues during the three months ended September 30, 2018 and 2017. During the first two quarters of 2018, the Company began accepting customer deposits for the sale, design, installation and/or construction of greenhouse solutions to be used in the cultivation process in the cannabis industry. The Company expects to generate revenues from these greenhouse projects in 2019.

 

Operating Expenses

 

General and administrative expenses were $987,258 for the three months ended September 30, 2018, as compared to $73,423 during the three months ended September 30, 2017. The general and administrative expenses for the three months ended September 30, 2018 consisted mainly of professional fees of $551,096, payroll expenses of $98,804 and rent expense of $75,259. The general and administrative expenses for the three months ended September 30, 2017 consisted of professional fees of $9,580 and rent expense of $52,033.

 

Sales and marketing expenses were $63,808 for the three months ended September 30, 2018, as compared to $0 during the three months ended September 30, 2017.

 

Interest Expense / (Income)

 

The Company recorded $145 of interest income during the three months ended September 30, 2018, as compared to $ 25,389 of interest expense during the three months ended September 30, 2017. The interest expense was associated with an investor’s advance of $350,000 to fund the acquisition of the Certificate in February 2017.

 

Net Loss

 

For the three months ended September 30, 2018, we recorded a net loss of $1,050,921 compared to a net loss of $98,812 for the three months ended September 30, 2017.

 

Nine months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

 

Revenue

 

The Company has not generated any revenues during the nine months ended September 30, 2018 and 2017. During the first two quarters of 2018, the Company began accepting customer deposits for the sale, design, installation and/or construction of greenhouse solutions to be used in the cultivation process in the cannabis industry. The Company expects to generate revenues from these greenhouse projects in 2019.

 

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Operating Expenses

 

General and administrative expenses were $1,598,256 for the nine months ended September 30, 2018, as compared to $108,902 during the nine months ended September 30, 2017. The general and administrative expenses consisted mainly of professional fees of $808,560, payroll expenses of $98,804 and rent expense of $246,360. The general and administrative expenses for the nine months ended September 30, 2017 consisted of professional fees of $45,059 and rent expense of $52,033.

 

Sales and marketing expenses were $248,064 for the nine months ended September 30, 2018, as compared to $0 during the nine months ended September 30, 2017.

 

Interest Expense (Income)

 

We recorded $510 of interest income during the nine months ended September 30, 2018, as compared to $39,132 of interest expense during the nine months ended September 30, 2017. The interest expense was associated with an investor’s advance of $350,000 to fund the acquisition of the Certificate in February 2017.  

 

Net Loss

 

As a result of the foregoing, for the nine months ended September 30, 2018, we recorded a net loss of $1,845,810 compared to a net loss of $148,034 for the nine months ended September 30, 2017.

 

Liquidity and Capital Resources

 

The Company had cash of $1,414,052 at September 30, 2018, compared with cash of $2,513,863 at December 31, 2017.

 

Operating Activities

 

During the nine months ended September 30, 2018, we used $3,994,134 of cash in operating activities primarily as a result of our net loss of $1,845,810, offset by amortization of deferred rent expense of $99,188, common stock issued for services valued at $106,728, and net changes in operating assets and liabilities of $(2,354,240).

 

During the nine months ended September 30, 2017, we used $103,213 of cash in operating activities primarily as a result of our net loss of $148,034, offset by amortization of debt discount of $6,600, amortization of deferred rent expense of $52,033, and net changes in operating assets and liabilities of $13,812.

 

Investing Activities

 

Net cash used in investing activities during the nine months ended September 30, 2018, was $1,229,675, which consisted of the payments for leasehold improvements.

 

Net cash used in investing activities during the nine months ended September 30, 2017, was $300,000, which consisted of the purchase the Certificate issued in the State of Nevada.

 

Financing Activities

 

During the nine months ended September 30, 2018, financing activities provided $2,523,998 in proceeds from the issuance of common stock, and $2,500,000 in proceeds from the issuance of Preferred Stock. The Company used $900,000 in repayments of convertible notes payable.

 

During the nine months ended September 30, 2017, financing activities provided $339,440 in proceeds from notes payable, and $20,001 in proceeds from common stock to be issued.

 

We expect to begin generating revenues during the fourth quarter of 2018 but will likely incur additional net losses during this time period. Although we can provide no assurances, we believe our cash on hand and our ability to raise additional capital will provide sufficient liquidity and capital resources to fund our business for the next twelve months.

  

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Seasonality

 

We do not consider our business to be seasonal.

 

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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, 2018 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, 2018, 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, 2018 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 in an effort to remediate the deficiency described above.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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.

 

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

 

Employment Agreement

 

On October 15, 2018, we entered into an Employment Agreement (the “Employment Agreement”) with Terrence M. Tierney. Pursuant to the Employment Agreement, we appointed Terrence M. Tierney, to the additional position of Chief Administrative Officer, in addition to his current role as Secretary. The initial term of employment is for a three-year period (or until September 30, 2021), unless extended or otherwise terminated in accordance with its terms. The effective date of the Employment Agreement is October 15, 2018, and continues until the earlier of: (i) the effective date of any subsequent employment agreement between Mr. Tierney and us; (ii) the effective date of any termination of employment as provided for in the Employment Agreement; or (iii) three (3) years from the effective date; provided, that the Employment Agreement automatically renews for successive periods of three (3) years unless either party gives written notice to the other party that it does not wish to automatically renew the Employment Agreement, which written notice must be received by the other party no less than ninety (90) days and no more than one hundred eighty (180) days prior to the expiration of the applicable term. Mr. Tierney will report to the Chief Executive Officer and the Board of Directors.

 

Mr. Tierney’s annual salary shall be equal to or greater than any other senior executive of the Company with the exception of the Chief Executive Officer. Mr. Tierney is entitled to the benefits other employees are entitled to, including medical, dental, and vision insurance; life and disability insurance; retirement and profit-sharing programs; paid holidays; and such other benefits and perquisites as are approved by the Board of Directors. In addition, the Company agreed to issue 500,000 shares of common stock pursuant to a stock award agreement within thirty (30) days of adoption of an omnibus benefit plan. Mr. Tierney’s employment may be terminated for cause or without cause. In addition, in the event of disability, the Company is entitled to terminate Mr. Tierney if he is unable to perform his duties without reasonable accommodation for a period of more than thirty (30) consecutive days. Upon such termination, Mr. Tierney is entitled to all accrued but unpaid salary and vacation. In the event of a “total disability,” as defined in the Employment Agreement, Mr. Tierney is also entitled to receive his normal monthly salary for the shorter of the first three (3) months of disability or until any disability insurance policy (offered as part of his employment) begins to pay benefits. After three (3) months, Mr. Tierney is only entitled to receive amounts under the disability insurance coverage, if any. In the event of partial disabilities, Mr. Tierney is entitled to that portion of his normal monthly salary that bears the same ratio to his normal monthly salary as the amount of time which the Executive is able to devote to the usual performance of duties during such period bears to the total time Mr. Tierney devoted to performing such services prior to the time the partial disability commenced. In the event of a combination of total and partial disability, the maximum total disability compensation Mr. Tierney shall be entitled to cannot exceed an amount equal to one (1) times his normal monthly compensation.

 

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Termination of Advisory Agreement

 

In September 2018, the Company terminated the Advisory Agreement pursuant to its terms and paid to the Consultant compensation consisting of 25,000 shares of the Company’s common stock and a $6,000.00 cash payment.

 

MOU

 

We entered into the MOU with the Party in September 2018. Pursuant to the MOU, the Party and we agreed that during the application period (September 7, 2018 through September 20, 2018), the Party agreement to pay us the sum of $77,500 for each medical marijuana license jointly applied for in Nevada, up to three (3) licenses. The maximum owed to be paid to us pursuant to the MOU is $232,500, which was paid during the three months ended September 30, 2018. The Party was entitled to shares of our restricted common stock with a fair market value as of the trading day immediately preceding the date the first license application was submitted equal to $232,500. The Party and we agreed that the Party would hold a ten percent (10%) interest in each license applied for and granted by Nevada. The Party has agreed that upon Nevada granting such license or a provisional license, it shall pay us $1 million to be used to construct and operate the dispensary contemplated by the license. In exchange, we agreed to issue to the Party additional shares of restricted common stock in the fair market value of $1 million using a 30-day moving average price. The Party was also granted a ten percent (10%) ownership interest in any such dispensary and will be entitled to an annual distribution equal to ten percent (1%) of the net profits of the dispensary.

 

Purchase of Office Building

 

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 for $1,500,000, subject to seller financing in the amount of $1,100,000, at an interest rate of 6.5% per annum, utilizing a 30 year amortization schedule, regular monthly installments of $6,952.75 shall be payable on or before the same day of each month beginning on November 1, 2018, and continuing on the same day of each month thereafter until October 31, 2023, at which time the entire sum of principal and accrued interest in the amount of $1,031,140 is due and payable. On or before the one-year anniversary, November 1, 2019, a principal reduction payment in the amount of $50,000 will be due. Upon the one-year anniversary of the note 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 $6,559.00. The Company closed the purchase on October 18, 2018. The building will be home to the Company’s business operations. In addition, the Company intends to lease the available portions of the building to other entities engaged in the regulated cannabis business. The Company intends to occupy the premises beginning in the middle of the fourth quarter of 2018.  

 

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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***   Employment Agreement dated October 15, 2018, by and between MJ Holdings, Inc. and Terrence M. Tierney
     
10.2***   Corporate Advisory Agreement dated June 22, 2018, by and among MJ Holdings, Inc., Profesco, Inc., and Terrence M. Tierney
     
10.3***   Termination of Agreement and Release dated September 30, 2018, by and between MJ Holdings, Inc. and Profesco, Inc.
     
10.4***   Memorandum of Understanding by and between MJ Holdings, Inc. and Andy Zhang, dated September 7, 2018
     
10.5***   Management Agreement dated April 18, 2018, by and between MJ Holdings, Inc. and Acres Cultivation LLC
     
10.6***   Management Services Agreement dated March 5, 2018, by and between MJ Holdings, Inc. and DM Enterprises LLC
     
10.7***   Share Exchange Agreement dated August 13, 2018, by and between MJ Holdings, Inc. and Healthier Choices Management Corporation
     
10.8***   Deed of Trust with Assignment of Rents; Grant, Bargain, Sale Deed; and Note Secured by Deed of Trust, by and between Felix DeHerrera Living Trust and Prescott Management, LLC dated October 17, 2018 and recorded in the office of the Clark County Recorder; and Purchase Agreement dated September 21, 2018 related to the building located at 1300 S Jones Blvd., Las Vegas, Nevada 89146
     
31.1*   Rule 13a14(a)/15d-14(a) Certification of Chief Executive Officer
     
31.2*   Rule 13a14(a)/15d-14(a) Certification of Chief Financial Officer
     
32.1*   Section 1350 Certification of Chief Executive Officer
     
32.2*   Section 1350 Certification of Chief Financial Officer
     
101.INS**   XBRL Instance Document
     
101.SCH**   XBRL Taxonomy Extension Schema Document
     
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF**   XBRL Taxonomy Definition Linkbase Document

  

* Filed herewith
** Furnished herewith (not filed).
*** Previously filed

 

18

 

 

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: December 11, 2018 By: /s/ Paris Balaouras
    Paris Balaouras
   

Chief Executive Officer

(Principal Executive Officer)

 

  By: /s/ John R. Wheeler
   

Chief Financial Officer

(Principal Accounting Officer)

 

19

  

EX-31.1 2 f10q0918a1ex31-1_mjhold.htm CERTIFICATION

Exhibit 31.1

 

CHIEF EXECUTIVE OFFICER CERTIFICATION

 

I, Paris Balaouras, certify that:

 

1.   I have reviewed this Quarterly Report on Form 10-Q/A of MJ Holdings, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

Dated: December 11, 2018  
   
/s/ Paris Balaouras  
Name: Paris Balaouras  
Title: Chief Executive Officer  

 

EX-31.2 3 f10q0918a1ex31-2_mjhold.htm CERTIFICATION

Exhibit 31.2

 

CHIEF FINANCIAL OFFICER CERTIFICATION

 

I, John R. Wheeler, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q/A of MJ Holdings, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

Dated: December 11, 2018  
   
/s/ John R. Wheeler  
Name: John R. Wheeler  
Title: Chief Financial Officer  

 

EX-32.1 4 f10q0918a1ex32-1_mjhold.htm CERTIFICATION

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Paris Balaouras, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of MJ Holdings, Inc. on Form 10-Q/A for the period ended September 30, 2018, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of MJ Holdings, Inc.

 

Dated: December 11, 2018  
   
/s/ Paris Balaouras  
Name: Paris Balaouras  
Title: Chief Executive Officer  

 

A signed original of this written statement required by Section 906 has been provided to MJ Holdings, Inc. and will be retained by MJ Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

EX-32.2 5 f10q0918a1ex32-2_mjhold.htm CERTIFICATION

Exhibit 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, John R. Wheeler, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of MJ Holdings, Inc. on Form 10-Q/A for the period ended September 30, 2018, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of MJ Holdings, Inc.

 

Dated: December 11, 2018  
   
/s/ John R. Wheeler  
Name: John R. Wheeler  
Title: Chief Financial Officer  

 

A signed original of this written statement required by Section 906 has been provided to MJ Holdings, Inc. and will be retained by MJ Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

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Exercise Price, Beginning Balance Weighted Avg. Exercise Price, Issued Weighted Avg. Exercise Price, Exercised Weighted Avg. Exercise Price, Expired Weighted Avg. Exercise Price, Ending Balance Warrants And Options Option acquire upto additional shares of common stock Strike price Term of options Fair value of stock options Volatility rate Method used Discount rate Expected dividend yield Expected life Summary of future minimum lease obligation 2018 2019 2020 2021 2022 Thereafter Total minimum lease payments Commitments and Contingencies (Textual) Deferred rent expense Operating leases rent expense Description of operating lease expiration Memorandum of understanding, description Application services issued, value Common stock consultant compensation, shares common stock consultant compensation, value Party agreed to pay license amount Between November 6, 2018 and December 3, 2018 [Member] Annual interest rate Purchase price Seller financing amount Resale of shares Deposits Description of subsequent event Shares of common stock, services Converted preferred stock Preferred stock shares Advanced received from investor. Construction of area. Disclosure of going concern. The entire disclosure for going concern. Lease expiration period description. It represents about proceeds from common stock to be issued. Share based compensation arrangements by share based payment award options issued in period weighted average exercise price. The entire disclosure for warrants and options. Term of agreement. Prepaid inventory. Exclusive distribution agreement renewals description. Securities purchase agreement. Annual interest rate. Term of options. Fair value of stock options. Capitalized costs of construction. Description of bonus compensation to manager. Common stock issued to acquire available for sale securities. The entire disclosure for prepayments and deposits. Amount of party agreed to pay license. Assets, Current Assets Liabilities, Current Liabilities, Noncurrent Liabilities Stockholders' Equity Note, Subscriptions Receivable Stockholders' Equity Attributable to Parent Liabilities and Equity Operating Expenses Operating Income (Loss) Interest Income (Expense), Net Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent Comprehensive Income (Loss), Net of Tax, Attributable to Parent Increase (Decrease) in Prepaid Expense Increase (Decrease) in Deposit Assets Increase (Decrease) in Accounts Payable and Accrued Liabilities Increase (Decrease) in Customer Deposits Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Payments for Capital Improvements Net Cash Provided by (Used in) Investing Activities Repayments of Related Party Debt Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block] Prepaid Expense Class of Warrant or Right, Number of Securities Called by Warrants or Rights Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Operating Leases, Future Minimum Payments Due Payments for Deposits EX-101.PRE 11 mjne-20180930_pre.xml XBRL PRESENTATION FILE XML 12 R1.htm IDEA: XBRL DOCUMENT v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Dec. 10, 2018
Document And Entity Information    
Entity Registrant Name MJ Holdings, Inc.  
Entity Central Index Key 0001456857  
Trading Symbol MJNE  
Amendment Flag true  
Amendment Description Amendment No. 1  
Current Fiscal Year End Date --12-31  
Document Type 10-Q/A  
Document Period End Date Sep. 30, 2018  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2018  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Transition Period false  
Entity Common Stock, Shares Outstanding   70,957,480
XML 13 R2.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Balance Sheets (Unaudited) - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Current Assets    
Cash $ 1,414,052 $ 2,513,863
Prepaid expenses 740,083 5,500
Prepaid inventory 2,000,000
Total Current Assets 4,154,135 2,519,363
Fixed Assets    
Leasehold improvements 1,247,210 17,535
Other Assets    
Deposits 133,633 42,383
Intangible asset 300,000 300,000
Available for Sale Securities 300,000
Noncurrent assets held for disposition 584 584
Total Assets 6,135,562 2,879,865
Current Liabilities:    
Accounts payable and accrued liabilities 155,559 70,382
Customer deposits 386,416  
Convertible notes payable due to related party 900,000
Total Current Liabilities 541,975 970,382
Noncurrent Liabilities:    
Deferred rent 203,754 104,565
Total noncurrent liabilities 203,754 104,565
Total Liabilities 745,729 1,074,947
Stockholders' Equity    
Preferred stock, par value $0.001, 5,000,000 shares authorized; 2,500 and 0 shares issued and outstanding, respectively 3
Common stock, par value $0.001, 95,000,000 shares authorized; 67,297,480 and 62,675,407 shares issued and outstanding, respectively 67,297 62,675
Additional paid in capital 10,477,864 1,704,764
Common stock to be issued 400,000
Stock subscription receivable (597,000)
Accumulated deficit (4,708,331) (362,521)
Accumulated other comprehensive income 150,000
Total Stockholders' Equity 5,389,833 1,804,918
Total Liabilities and Stockholders' Equity $ 6,135,562 $ 2,879,865
XML 14 R3.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 2,500 0
Preferred stock, shares outstanding 2,500 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 95,000,000 95,000,000
Common stock, shares issued 67,297,480 62,675,407
Common stock, shares outstanding 67,297,480 62,675,407
XML 15 R4.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Operating Expenses        
General and administrative $ 987,258 $ 73,423 $ 1,598,256 $ 108,902
Sales and marketing 63,808 248,064
Total operating expenses 1,051,066 73,423 1,846,320 108,902
Operating loss (1,051,066) (73,423) (1,846,320) (108,902)
Other Expenses (Income)        
Interest expense (income) (145) 25,389 (510) 39,132
Total other expenses (income) (145) 25,389 (510) 39,132
Loss before provision for income taxes (1,050,921) (98,812) (1,845,810) (148,034)
Provision for income taxes
Net Loss (1,050,921) (98,812) (1,845,810) (148,034)
Deemed dividend related to beneficial conversion feature of convertible preferred stock (2,500,000) (2,500,000)
Net loss attributable to common shareholders $ (3,550,921) $ (98,812) $ (4,345,810) $ (148,034)
Basic and diluted net loss per common share: $ (0.06) $ 0 $ (0.07) $ 0
Weighted average shares outstanding 63,746,119 52,732,969 63,298,565 52,732,969
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Statement of Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]        
Net loss $ (1,050,921) $ (98,812) $ (1,845,810) $ (148,034)
Other comprehensive income        
Unrealized gains on securities available for sale 150,000 150,000
Total other comprehensive income 150,000 150,000
Total comprehensive loss $ (900,921) $ (98,812) $ (1,695,810) $ (148,034)
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.10.0.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash Flows from Operating Activities    
Net loss $ (1,845,810) $ (148,034)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization of debt issuance cost 6,600
Amortization of deferred rent 99,188 52,033
Common stock and options issued for services 106,728
Changes in operating assets and liabilities:    
Prepaid expenses and prepaid inventory (2,734,583)
Deposits (91,250) (42,383)
Accounts payable and accrued liabilities 85,177 28,571
Customer deposits 386,416
Net cash used in operating activities (3,994,134) (103,213)
Cash Flows from Investing Activities:    
Purchase of license   (300,000)
Payment for leasehold improvements (1,229,675)
Net cash used in investing activities (1,229,675) (300,000)
Cash Flows from Financing Activities    
Proceeds from issuance of preferred stock 2,500,000
Proceeds from issuance of common stock 2,523,998
Proceeds from common stock to be issued 20,001
Proceeds from notes payable 339,440
Repayment of convertible note due to related party (900,000)
Net cash provided by financing activities 4,123,998 359,441
Net decrease in cash (1,099,811) (43,772)
Cash, beginning of period 2,513,863
Cash, end of period 1,414,052 (43,772)
Supplemental disclosure of cash flow information:    
Income taxes paid
Non-cash investing activities:    
Common stock issued to acquire available for sale securities $ 150,000
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.10.0.1
Nature of the Business
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of the Business

Note 1 — Nature of the Business

 

MJ Holdings, Inc. (“the Company”) is a holding company whose subsidiaries provide cultivation management, infrastructure, and consulting services to the regulated cannabis industry, in addition to holding, and managing third party Nevada state issued cultivation and production licenses.

 

In April 2018, the State of Nevada finalized and approved the provisional Medical Marijuana Establishment Registration Certificate (the “Certificate”) held by our wholly owned subsidiary, Red Earth, LLC (“Red Earth”). The Certificate, when perfected, will allow the Company to commence legal marijuana cultivation activities in the State of Nevada. HDGLV, LLC (“HDGLV”), a wholly owned subsidiary of Red Earth, holds a triple-net leasehold interest, with an option to buy, in a 17,298 square-foot building, which we expect will be the home to our indoor cultivation facility. Phase 1 of this facility was completed in July of 2018. We received final approval from the State of Nevada, Department of Taxation with respect to the Certificate, and Red Earth was issued a Business License by the City of Las Vegas during the quarter ended September 30, 2018. We expect to complete additional modifications and open the facility in January of 2019.

 

In April 2018, the Company entered into a management agreement with a Nevada company (the “Licensed Operator”) that holds a license, for the legal cultivation of marijuana for sale under the laws of the State of Nevada. The Licensed Operator has engaged us to develop, manage, and operate a licensed cultivation facility on property owned by the Licensed Operator. At our sole cost and expense, we completed the construction of a 120,000 square-foot outdoor grow facility, including the construction of an 8,000 square-foot building and installation of required security fencing, meeting the State of Nevada building codes and regulations. Operation of this facility commenced in August, 2018. The Company will account for the biological assets at LCM (lower of cost or market) as inventory in accordance with ASC 905 Agriculture. At September 30, 2018 the seedlings were in an immature state. See Note 4 Prepayments and deposits, Management Agreement.

 

In order to develop and manage the three-acre outdoor facility, the Company 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 proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

 

In September of 2018 the Company, through its wholly owned subsidiary, Red Earth applied for five Recreational Marijuana Establishment Licenses to operate up to five retail marijuana stores within the state of Nevada. The Company’s goal is to open a store within the City of Las Vegas, as well as additional dispensaries in Washoe County near Lake Tahoe, in North Las Vegas, unincorporated Clark County and Henderson, Nevada. The Company was advised on December 6, 2018 that none of the applications resulted in the grant of a dispensary license.

 

We intend 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/production management, and consulting services in the regulated cannabis industry.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 2 — Summary of Significant Accounting Policies

 

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 the consolidated financial statements not misleading have been included. The balance sheet at December 31, 2017, has been derived from the Company’s audited consolidated financial statements as of that date.

 

The unaudited 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, 2017, that was filed with the SEC on July 27, 2018. The results of operations for the nine months ended September 30, 2018, are not necessarily indicative of the results to be expected for the full year or any further periods.

 

The unaudited 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, 2017. There were no material changes to our significant accounting policies during the interim period ended September 30, 2018.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.10.0.1
Going Concern
9 Months Ended
Sep. 30, 2018
Going Concern [Abstract]  
Going Concern

Note 3 — Going Concern

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business.

 

The Company has not generated revenue from its existing business and has an accumulated deficit of $2,208,331 from inception (October 17, 2016) to September 30, 2018. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

   

In the event the Company experiences liquidity and capital resource constraints because of unanticipated operating losses, we may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to us or at all, then we may need to curtail our operations and/or take additional measures to conserve and manage our liquidity and capital resources, any of which would have a material adverse effect on our financial position, results of operations, and our ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.10.0.1
Prepayments and Deposits
9 Months Ended
Sep. 30, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepayments and Deposits

Note 4 — Prepayments and Deposits

 

Prepaid Inventory

 

On August 13, 2018 (the “Effective Transaction Date”), the Company closed the transactions contemplated by an Exclusive Distribution Agreement (the “Exclusive Distribution Agreement”) dated August 13, 2018. The Exclusive Distribution Agreement is between the Company and Healthier Choices Management Corporation (“Healthier Choices”), a designer and seller of cannabis consumption Q-Cups, which are designed to consume cannabis products by vaporizing oil. The Company has the exclusive right to distribute Q-Cups in Nevada. The Exclusive Distribution Agreement further requires the Company to advertise and market Q-Cups in Nevada. 

 

Pursuant to the terms of the Agreement, the Company purchased Q-Cups from Healthier Choices and tendered the sum of two million dollars ($2,000,000). Delivery of the inventory had not been received as of September, 2018. The funds were transferred to Healthier Choices on the Effective Transaction Date. Healthier Choices has applied for and has been granted a patent with respect to the Q-Cup.  

 

The initial term of the Exclusive Distribution Agreement is for one year, with additional successive one-year renewals, subject to certain standard termination provisions. The Exclusive Distribution Agreement is subject to standard termination provisions; however, Healthier Choices has the option to terminate the Exclusive Distribution Agreement, on 30 days’ written notice, if the Company fails to purchase a sufficient minimum quantity of Q-Cups from Healthier Choices. The Company has met its obligations for the first year of the Exclusive Distribution Agreement through the payment of $2,000,000. Thereafter, for each renewal term, the Company’s minimum purchase obligation for Q-Cups is currently $500,000, subject to a good faith negotiation at the end of each year. Notwithstanding the exclusivity provided by the Exclusive Distribution Agreement, Healthier Choices reserves the right to sell Q-Cups, directly or indirectly, to a specific retail group (the “Excluded Account”). In such event, Healthier Choices shall pay to the Company a fee equivalent to 5% of the gross sales of Q-Cups that Healthier Choices sold to an Excluded Account in Nevada. The Company, however, does not have the right to appoint sub-distributors or sell Q-Cups through any third party. In connection with the transactions contemplated by the Exclusive Distribution Agreement, Healthier Choices granted to the Company a non-exclusive, non-transferrable, and non-sub-licensable fully paid license agreement. The Exclusive Distribution Agreement provides standard cross-indemnity provisions.

 

The Company also entered into a Stock Exchange Agreement (the “Stock Exchange Agreement”) with Healthier Choices in August 2018. Please see Note 7, Available for Sale Securities, for additional information.

 

Prepaid Expenses

 

In February 2018, the Company began discussions with an unrelated third-party regarding designing, purchasing, and reselling greenhouses. The Company provided expertise in constructing green houses, and the other party advised that it would enter into agreement to design, procure, and operate greenhouses. In April 2018, the third party notified the Company and the purchasers of the green houses that it could not continue with the construction of the green houses because of unrelated hardships. However, the Company, after subsequent conversations with the purchasers, agreed to complete the construction and installation of six (6) greenhouses to four (4) separate purchasers.

 

As of September 30, 2018, the Company had received $386,416 in deposits from the purchasers which were recorded as customer deposits on the balance sheet, and has paid $335,083 expenses related to the design, purchase and resale of green houses, which expenses were recorded as prepaid expenses.

 

As of September 30, 2018, the Company had made a Prepayment in the amount of $50,000 to an unrelated third-party for the acquisition of all of the membership units of Farm Road, LLC including 260 acres of farmland in the Amargosa Valley of Nevada and the concomitant water rights. The Prepayment is a non-refundable deposit to be held in escrow until the closing of the transaction. In the event that the transaction does not close on or before January 31, 2019 the deposit is subject to forfeiture.

 

As of September 30, 2018, the Company had made a Prepayment in the amount of $95,000 to an unrelated third-party for the acquisition of an approximately 10,000 square foot office building located at 1300 S Jones Blvd., Las Vegas, NV 89146. The Prepayment is a deposit to be held in escrow until the closing of the transaction. The transaction closed on October 18, 2018. (See Note 13, Subsequent Events, Purchase of Office Building).

 

Management Agreement

 

In March 2018, the Company 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 proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

 

On April 18, 2018, the Company entered into a management agreement with the Licensed Operator that holds a cultivation license, so that it can lawfully engage in the cultivation of marijuana for sale under the laws of the State of Nevada. The term of the agreement is for 8 years to cultivate a three-acre plot at the 37 acre facility. 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. The Company, at its sole cost and expense, has agreed to complete the construction of an outdoor cultivation facility meeting the local and state building codes and regulations to cultivate marijuana.

 

Upon completion of the construction of the outdoor cultivation facility and receipt of the appropriate approvals from the local and state authorities, the Company began cultivating marijuana. Pursuant to the terms of the management agreement, the Company agreed to generate sales of at least $5 million per year from product cultivated from the outdoor cultivation facility. The Licensed Operator may terminate the agreement, in accordance with the terms of the management agreement, if it does not generate at least $5 million in annual revenues. Prior to the termination of the management agreement by the Licensed Operator, the Company may cure a breach of this provision by paying 10% of the revenue shortfall to the Licensed Operator.

 

Pursuant to the management agreement, 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 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 administration costs incurred by the Licensed Operator during the term of the agreement.

 

As of September 30, 2018, the Company recorded the $300,000 paid to the Licensed Operator as prepaid expenses.

 

In order to develop and manage the three-acre outdoor facility, the Company entered into a management services agreement with with a Nevada limited liability company (the “Manager”) to provide operational oversight and cultivation management for the Company’s proposed three-acre outdoor cultivation facility. The term of the agreement is for three years. The Manager is 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. The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.10.0.1
Leasehold Improvements
9 Months Ended
Sep. 30, 2018
Leases [Abstract]  
Leasehold Improvements

Note 5 — Leasehold Improvements

 

On April 18, 2018, the Company entered into a management agreement as described in Note 4, Prepayments and deposits, Management Agreement. Pursuant to that management agreement, the Company commenced construction of the outdoor cultivation facility. As of September 30, 2018, the Company had incurred and capitalized $1,154,842 in costs associated with the construction of this facility.

 

During the quarter ended September 30, 2018, the Company incurred costs associated with the construction of an indoor cultivation facility to be located at 2310 Western Avenue in Las Vegas, Nevada. The Company, through its indirect wholly owned-subsidiary, HDGLV, holds a triple net leasehold interest in a 17,298 square-foot building. In addition, in April 2018, the State of Nevada finalized and approved the Certificate held by Red Earth to grow marijuana within the City of Las Vegas in the State of Nevada, which will allow the Company to commence legal marijuana cultivation. Once ongoing construction is completed, the Company intends to operate the facility as an indoor marijuana cultivation and an agritourism destination. This facility is intended to serve as a draw for tourists who desire to visit, see, and learn about the inner-workings of a cannabis cultivation facility. Completion of this facility is expected in January 2019.

 

As of September 30, 2018, the Company had incurred and capitalized $74,833 in costs associated with the construction of this facility. 

 

As of December 31, 2017, the Company had incurred and capitalized $17,535 in costs associated with improvements to its leasehold located at 3275 S Jones, Blvd., Suite 104, Las Vegas, NV 89146.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.10.0.1
Intangible Assets
9 Months Ended
Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

Note 6 — Intangible Assets

 

In October 2016, Red Earth entered into an Asset Purchase and Sale Agreement to purchase the Certificate from the seller for $300,000. To initiate the purchase and transfer of the Certificate, Red Earth 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 Certificate.

 

The Nevada Department of Taxation approved the Certificate in April 2018. Once the Company completes the construction of the cultivation and agritourism destination facility, and obtains the required state and city approvals, it will begin cultivating marijuana. At that point, the intangible asset will be amortized over its useful life.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.10.0.1
Available for Sale Securities
9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
Available for Sale Securities

Note 7 — Available for Sale Securities

 

On August 13, 2018, the Company entered into a Stock Exchange Agreement with Healthier Choices to acquire 1,500,000,000 shares of Healthier Choices’ common stock in exchange for 85,714 shares of the Company’s common stock. 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, and the shares issued are restricted. The shares of common stock constitute “restricted securities” that may be eligible for resale pursuant to Rule 144 of the Securities Act of 1933. Please see note 4, Prepaid Inventory, for further discussion of the Company’s additional business interests with Healthier Choices. The Company accounted for this purchase of shares using the cost method and intends to mark the value to market each reporting period based on the then 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 and $.0002 as of September 30, 2018, resulting in a $150,000 unrealized gain.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.10.0.1
Convertible Note Payable Due to Related Party
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
Convertible Note Payable Due to Related Party

Note 8 — Convertible Note Payable Due to Related Party

 

On December 15, 2017, the Company issued a convertible note payable in the amount of $900,000 to the members of Red Earth. The managing partner and 50% owner of Red Earth at the time of the transaction was Paris Balaouras, the Company’s current Chief Executive Officer. The convertible note payable was due October 15, 2018. The note was convertible into shares of the Company’s common stock at the holder’s discretion at a conversion price of $0.75 per share. The note accrues interest, commencing nine months from the issuance date, at a rate equal to one half of one percent (0.50%) per annum. Interest was payable on the maturity date or the conversion date, if applicable.

 

The Company assessed the embedded conversion feature of the note payable and determined that the fair value of the underlying common stock at inception did not exceed the conversion price of the convertible note. Since, at the time the convertible note was issued, the Company’s common stock had limited publicly traded volume, the Company based the fair value of the Company’s common stock on the sales of the Company’s common stock, which were sold at $0.75 per share.

 

The Company repaid the note in full in January 2018.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.10.0.1
Preferred Stock
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Preferred Stock

Note 9 — Preferred Stock

 

On August 9, 2018 (the “Transaction Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), pursuant to which the Company sold and issued 2,500 shares of its Series A Convertible Preferred Stock (the “Preferred Stock”) to a single institutional, accredited investor for $1,000 per share or an aggregate subscription of $2,500,000. Subject to a standard “4.99% Beneficial Ownership Limitation blocker,” the Preferred Stock is convertible into 3,335,000 shares of the Company’s Common Stock at a conversion price of $0.75 per share, subject to adjustment as described in the Certificate of Designation. 

 

The Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the purchaser, pursuant to which the Company is obligated to file a registration statement with the SEC within 30 calendar days of the Transaction Date, to register for resale the shares of common stock underlying the Preferred Stock. The Company filed the required registration statement on October 5, 2018. If the SEC has not declared the registration statement effective by the 60th calendar day following the Transaction Date (or, in the event of a “full review” by the SEC, the 90th calendar day following the Transaction Date), or upon the occurrence of other events, then the Company was obligated to pay to the purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 4.0% multiplied by the aggregate subscription amount paid by the purchaser pursuant to the Securities Purchase Agreement on a monthly basis until the event has been cured. On October 24, 2018 the Company was notified by the SEC that its registration was deemed effective on this date. Accordingly, the Company is not subject to any further fees or damages related to this provision.

 

On August 13, 2018, the Company filed a Certificate of Designation of its Series A Convertible Preferred Stock with the Secretary of State of the State of Nevada to designate a series of its convertible preferred stock, consisting of 2,500 shares. The stated value of each share of Preferred Stock is $1,000. Subject to a standard “4.99% Beneficial Ownership Limitation blocker,” each share of Preferred Stock is convertible into shares of the Company’s common stock at any time or from time to time at a conversion price equivalent of $0.75 per share, subject to adjustment as described in Certificate of Designation. 

 

Beneficial Conversion Feature

 

Pursuant to GAAP, a beneficial conversion feature (“BCF”) exists to the extent that a convertible security is issued at a price that is less than the fair value of the security into which it is convertible. This guidance applies to the Preferred Stock as these shares were issued at $1,000 per share which, based on the Conversion Rate computes to a common share equivalent price of $.75 per share, which was less than the share price of the Company’s common stock at the time of issuance of $1.90 per share. The difference between these two prices, created a BCF. The BCF is treated as a deemed dividend to the holders of Preferred Stock since the conversion feature is immediately exercisable for the Preferred Stock. The BCF is recorded as a decrease to Retained earnings and an increase to Additional paid-in capital. The deemed dividend also affects the Company’s earnings per share calculations by increasing the loss attributable to common stockholders to the extent that it is not anti-dilutive. As a result of the BCF, the Company recorded a $2,500,000 non-cash deemed dividend for the quarter ended September 30, 2018.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.10.0.1
Capital Stock
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Capital Stock

Note 10 — Capital Stock

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 4,384,664 shares of the Company’s common stock at $0.75 per share for gross proceeds of $3,288,498, $597,000 of which were received in October 2018, and $400,000 was received prior to January 1, 2018.

 

During the nine months ended September 30, 2018, the Company issued 91,177 shares of the Company’s restricted common stock for gross proceeds of $232,500 under a License agreement with the third party. (See Note 12, Commitment and Contingencies, Memorandum of Understanding).

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 60,518 shares of the Company’s common stock in exchange for professional services valued at $99,992.

 

During the nine months ended September 30, 2018, the Company issued 85,714 shares of the Company’s restricted common stock valued at $150,000 under a Stock Exchange Agreement. For additional information, see Note 7, Available for Sale Securities, to these unaudited consolidated financial statements.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.10.0.1
Warrants and Options
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Warrants and Options

Note 11 — Warrants and Options

 

Warrants

 

Prior to the reverse merger with Red Earth, the Company had issued warrants as compensation for consulting services. The warrants expire between June 2019 and October 2019. The following table summarizes all stock warrant activity of the Company for the nine months ended September 30, 2018:

 

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017   166,665   $5.88 
Issued        
Exercised        
Expired        
Balance at September 30, 2018   166,665   $5.88 

 

Options

 

On July 1, 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 term of 3 years. The fair value of these stock options was determined to be $6,736 using the Black-Scholes Merton option-pricing model based on the following assumptions: (i) volatility rate of 199%, (ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 3 years. The following table summarizes all stock option activity of the Company for the nine months ended September 30, 2018:

 

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017      $ 
Issued   10,000    1.20 
Exercised        
Expired        
Balance at September 30, 2018   10,000   $1.20
XML 29 R18.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 12 — Commitments and Contingencies

 

Termination of Advisory Agreement

 

In September 2018, the Company terminated the Advisory Agreement pursuant to its terms and paid to the Consultant compensation consisting of 25,000 shares of the Company’s common stock and a $6,000.00 cash payment.

 

Operating Leases

 

The Company leases an office facility and a production / warehouse facility under two non-cancelable operating leases that expire in May 2019 and June 2027, respectively. Future minimum rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of September 30, 2018, are as follows:

 

   Amount 
Fiscal year ending December 31:    
2018  $69,960 
2019   249,090 
2020   230,640 
2021   230,640 
2022   230,755 
Thereafter   1,043,315 
Total minimum lease payments  $2,054,400 

 

Rental expense is accounted for on the straight-line method.  Deferred rent payable as of September 30, 2018 represents the excess of rent recognized in the financial statements over scheduled lease payments. Rent expense, including deferred rent expense of $203,754, incurred pursuant to operating leases for the nine months ended September 30, 2018 and 2017, was $99,188 and $0, respectively. 

 

Application Services Memorandum of Understanding

 

We entered into a Memorandum of Understanding (the “MOU”) with an unrelated third party (the “Party”) in September 2018. Pursuant to the MOU, the Party and we agreed that, during the application period (September 7, 2018 through September 20, 2018), the Party agreed pay us the sum of $77,500 for each medical marijuana license jointly applied for in Nevada, up to three (3) licenses. The maximum owed to be paid to us pursuant to the MOU is $232,500, which was paid during the three months ended September 30, 2018. The Party was entitled to shares of our restricted common stock with a fair market value as of the trading day immediately preceding the date the first license application was submitted equal to $232,500. The Party and we agreed that the Party would hold a ten percent (10%) interest in each license applied for and granted by Nevada. The Party has agreed that, upon Nevada granting such license or a provisional license, it shall pay us $1 million to be used to construct and operate the dispensary contemplated by the license. In exchange, we agreed to issue to the Party additional shares of restricted common stock in the fair market value of $1 million using a 30-day moving average price. The Party was also granted a ten percent (10%) ownership interest in any such dispensary and will be entitled to an annual distribution equal to ten percent (10%) of the net profits of the dispensary.

 

Litigation

 

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.

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.10.0.1
Subsequent Events
9 Months Ended
Sep. 30, 2018
Subsequent Events [Abstract]  
Subsequent Events

Note 13 — Subsequent Events  

 

Filing of Registration Statement on Form S-1

 

On October 5, 2018, in accordance with the Company’s obligations under the Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 (File No. 333-227735) (the “Registration Statement”) with the SEC to register 3,335,000 shares of the Company’s stock for resale. The Company filed Amendment No. 1 to the Registration Statement in response to comments received by the SEC. The SEC declared the Registration Statement effective on October 24, 2018.

 

Purchase of Office Building

 

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 for $1,500,000, subject to seller financing in the amount of $1,100,000, at an interest rate of 6.5% per annum, utilizing a 30 year amortization schedule, regular monthly installments of $6,952.75 shall be payable on or before the same day of each month beginning on November 1, 2018, and continuing on the same day of each month thereafter until October 31, 2023, at which time the entire sum of principal and accrued interest in the amount of $1,031,140 is due and payable. On or before the one-year anniversary, November 1, 2019, a principal reduction payment in the amount of $50,000 will be due. Upon the one-year anniversary of the note 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 $6,559.00. The Company closed the purchase on October 18, 2018. The building will be home to the Company’s business operations. In addition, the Company intends to lease the available portions of the building to other entities engaged in the regulated cannabis business. The Company moved into the building in November 19, 2018. 

 

Issuance of Common Stock

 

On October 15, 2018 the Company issued 250,000 shares of common stock for services rendered in regards to our proposed strategic partnership with an Oklahoma license holder. Between November 6, 2018 and December 3, 2018 the holders of Preferred Stock converted 2500 shares of Preferred Stock into 3,335,000 shares of the Company’s common stock. On November 28, 2018 the Company issued 75,000 shares for services rendered to a member of our Advisory Board.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.10.0.1
Warrants and Options (Tables)
9 Months Ended
Sep. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of warrants issued, exercised and expired

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017   166,665   $5.88 
Issued        
Exercised        
Expired        
Balance at September 30, 2018   166,665   $5.88 

Summary of stock option activity

       Weighted 
       Avg. 
       Exercise 
   Shares   Price 
Balance at December 31, 2017      $ 
Issued   10,000    1.20 
Exercised        
Expired        
Balance at September 30, 2018   10,000   $1.20 

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies (Tables)
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Schedule of future minimum rental and lease commitments

   Amount 
Fiscal year ending December 31:    
2018  $69,960 
2019   249,090 
2020   230,640 
2021   230,640 
2022   230,755 
Thereafter   1,043,315 
Total minimum lease payments  $2,054,400 

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.10.0.1
Nature of the Business (Details)
1 Months Ended 9 Months Ended
Apr. 30, 2018
ft²
Sep. 30, 2018
Apr. 18, 2018
a
Nature of the Business (Textual)      
Option to buy building for cultivation facility 17,298   3
Construction of area, description We completed the construction of a 120,000 square-foot outdoor grow facility, including the construction of an 8,000 square-foot building and installation of required security fencing, meeting the State of Nevada building codes and regulations. Operation of this facility commenced in August, 2018. The Company will account for the biological assets at fair value as inventory in accordance with ASC 905 Agriculture. At September 30, 2018 the seedlings were in an immature state.    
Bonus compensation to manager, description   The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.  
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.10.0.1
Going Concern (Details) - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Going Concern (Textual)    
Accumulated deficit $ (4,708,331) $ (362,521)
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.10.0.1
Prepayments and Deposits (Details)
1 Months Ended 9 Months Ended
Apr. 18, 2018
a
Sep. 30, 2018
USD ($)
ft²
a
Apr. 30, 2018
ft²
Prepayments and Deposits (Textual)      
Deposits   $ 386,416  
Prepaid expenses   335,083  
Condition of operator terminate sales agreement, description The Company agreed to generate sales of at least $5 million per year from product cultivated from the outdoor cultivation facility. The Licensed Operator may terminate the agreement, in accordance with the terms of the management agreement, if it does not generate at least $5 million in annual revenues. Prior to the termination of the management agreement by the Licensed Operator, the Company may cure a breach of this provision by paying 10% of the revenue shortfall to the Licensed Operator.    
Amount to paid from revenue, description 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 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 cultivation facility begins production, the Company has agreed to pay the Licensed Operator $7,000 per month for compliance, security, and other administration costs incurred by the Licensed Operator during the term of the agreement.    
Licensed operator as prepaid expenses   300,000  
Term of agreement 8 years    
Area of land 3   17,298
Purchased goods from the seller   $ 2,000,000  
Exclusive distribution agreement renewals description   The initial term of the Exclusive Distribution Agreement is for one year, with additional successive one-year renewals, subject to certain standard termination provisions. The Exclusive Distribution Agreement is subject to standard termination provisions; however, Healthier Choices has the option to terminate the Exclusive Distribution Agreement, on 30 days’ written notice, if the Company fails to purchase a sufficient minimum quantity of Q-Cups from Healthier Choices. The Company has met its obligations for the first year of the Exclusive Distribution Agreement through the payment of $2,000,000. Thereafter, for each renewal term, the Company’s minimum purchase obligation for Q-Cups is currently $500,000, subject to a good faith negotiation at the end of each year.  
Percentage of gross sales of goods   5.00%  
Bonus compensation to manager, description   The Manager is entitled to bonus compensation equal to 2 percent of gross yield sales in excess of $10,000,000 but less than $12,500,000; three and one-half percent of the gross yield sales in excess of $12,500,000 but less than $15,000,000; and, five percent of any gross yield sales in excess of $15,000,000. All bonus’ are payable in the form of the Company’s common stock.  
Farm Road, LLC [Member]      
Prepayments and Deposits (Textual)      
Prepaid expenses   $ 50,000  
Area of land | a   260  
Office building [Member]      
Prepayments and Deposits (Textual)      
Prepaid expenses   $ 95,000  
Area of land | ft²   10,000  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.10.0.1
Leasehold Improvements (Details)
12 Months Ended
Dec. 31, 2017
USD ($)
Sep. 30, 2018
USD ($)
ft²
Leasehold Improvements (Textual)    
Capitalized costs   $ 74,833
Area leasehold | ft²   17,298
Improvements on leasehold $ 17,535  
Leasehold Improvements [Member]    
Leasehold Improvements (Textual)    
Capitalized costs   $ 1,154,842
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.10.0.1
Intangible Assets (Details) - USD ($)
1 Months Ended 9 Months Ended
Feb. 28, 2017
Oct. 31, 2016
Sep. 30, 2017
Intangible Assets (Textual)      
Agreement amount received from seller     $ 300,000
Asset Purchase and Sale Agreement [Member]      
Intangible Assets (Textual)      
Agreement amount received from seller   $ 300,000  
Deposit to seller   $ 25,000  
Advanced received from investor $ 350,000    
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.10.0.1
Available for Sale Securities (Details) - USD ($)
9 Months Ended
Aug. 13, 2018
Sep. 30, 2018
Dec. 31, 2017
Common stock in exchange, shares 2,500    
Common stock per share   $ 0.001 $ 0.001
Stock Exchange Agreement [Member]      
Shares acquired 1,500,000,000    
Common stock in exchange, shares 85,714    
Common stock in exchange, value $ 150,000    
Common stock per share $ 0.0001 $ .0002  
Unrealized gain   $ 150,000  
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.10.0.1
Convertible Note Payable Due to Related Party (Details) - USD ($)
Dec. 15, 2017
Aug. 13, 2018
Convertible Note Payable Due to Related Party (Textual)    
Conversion price   $ 0.75
Red Earth LLC [Member]    
Convertible Note Payable Due to Related Party (Textual)    
Convertible note payable amount $ 900,000  
Conversion price $ 0.75  
Percentage of accrues interest 0.50%  
Sold of common stock per shares $ 0.75  
Related party transaction, percentage 50.00%  
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.10.0.1
Preferred Stock (Details) - USD ($)
3 Months Ended 9 Months Ended
Aug. 13, 2018
Aug. 09, 2018
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Issuance of series A convertible preferred stock 2,500          
Series A convertible preferred stock per share $ 1,000          
Beneficial ownership limitation blocker 4.99%          
Conversion price $ 0.75          
Preferred stock deemed dividend     $ 2,500,000 $ 2,500,000
BCF, Description         The Preferred Stock as these shares were issued at $1,000 per share which, based on the Conversion Rate computes to a common share equivalent price of $.75 per share, which was less than the share price of the Company’s common stock at the time of issuance of $1.90 per share.  
Securities Purchase Agreement [Member]            
Issuance of series A convertible preferred stock   2,500        
Aggregate value   $ 2,500,000        
Series A convertible preferred stock per share   $ 1,000        
Beneficial ownership limitation blocker   4.99%        
Preferred stock is convertible into common stock   3,335,000        
Conversion price   $ 0.75        
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.10.0.1
Capital Stock (Details) - USD ($)
1 Months Ended 9 Months Ended
Oct. 05, 2018
Nov. 28, 2018
Oct. 31, 2018
Sep. 30, 2018
Capital Stock (Textual)        
Common stock exchange for professional services       25,000
Common stock in exchange for professional services, value       $ 6,000
Stock Exchange Agreement [Member]        
Capital Stock (Textual)        
Common stock sold and issued an aggregate       85,714
Gross proceeds from stock       $ 150,000
License Agreement [Member]        
Capital Stock (Textual)        
Common stock sold and issued an aggregate       91,177
Gross proceeds from stock       $ 232,500
Subsequent Event [Member]        
Capital Stock (Textual)        
Common stock sold and issued an aggregate 3,335,000      
Received from stock amount     $ 597,000  
Common stock exchange for professional services   75,000    
Capital Stock [Member]        
Capital Stock (Textual)        
Common stock sold and issued an aggregate       4,384,664
Sale of common stock, price per share       $ 0.75
Gross proceeds from stock       $ 3,288,498
Received from stock amount       $ 400,000
Common stock exchange for professional services       60,518
Common stock in exchange for professional services, value       $ 99,992
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.10.0.1
Warrants and Options (Details)
9 Months Ended
Sep. 30, 2018
$ / shares
shares
Options [Member]  
Warrants/Options:  
Shares, Beginning Balance | shares
Shares, Issued | shares 10,000
Shares, Exercised | shares
Shares, Expired | shares
Shares, Ending Balance | shares 10,000
Weighted Avg. Exercise Price, Beginning Balance | $ / shares
Weighted Avg. Exercise Price, Issued | $ / shares 1.20
Weighted Avg. Exercise Price, Exercised | $ / shares
Weighted Avg. Exercise Price, Expired | $ / shares
Weighted Avg. Exercise Price, Ending Balance | $ / shares $ 1.20
Warrant [Member]  
Warrants/Options:  
Shares, Beginning Balance | shares 166,665
Shares, Issued | shares
Shares, Exercised | shares
Shares, Expired | shares
Shares, Ending Balance | shares 166,665
Weighted Avg. Exercise Price, Beginning Balance | $ / shares $ 5.88
Weighted Avg. Exercise Price, Issued | $ / shares
Weighted Avg. Exercise Price, Exercised | $ / shares
Weighted Avg. Exercise Price, Expired | $ / shares
Weighted Avg. Exercise Price, Ending Balance | $ / shares $ 5.88
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.10.0.1
Warrants and Options (Details Textual)
Jul. 02, 2018
USD ($)
$ / shares
shares
Warrants And Options  
Option acquire upto additional shares of common stock | shares 10,000
Strike price | $ / shares $ 1.20
Term of options 3 years
Fair value of stock options | $ $ 6,736
Volatility rate 199.00%
Method used Black-Scholes-Merton option-pricing model
Discount rate 0.00%
Expected dividend yield 0.00%
Expected life 3 years
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies (Details)
Sep. 30, 2018
USD ($)
Summary of future minimum lease obligation  
2018 $ 69,960
2019 249,090
2020 230,640
2021 230,640
2022 230,755
Thereafter 1,043,315
Total minimum lease payments $ 2,054,400
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.10.0.1
Commitments and Contingencies (Details Textual) - USD ($)
9 Months Ended
Sep. 20, 2018
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Commitments and Contingencies (Textual)        
Deferred rent expense   $ 203,754   $ 104,565
Operating leases rent expense   $ 99,188 $ 0  
Description of operating lease expiration   The Company leases an office facility and a production / warehouse facility under two non-cancelable operating leases that expire in May 2019 and June 2027, respectively.    
Memorandum of understanding, description The Party was entitled to shares of our restricted common stock with a fair market value as of the trading day immediately preceding the date the first license application was submitted equal to $232,500. The Party and we agreed that the Party would hold a ten percent (10%) interest in each license applied for and granted by Nevada. The Party has agreed that, upon Nevada granting such license or a provisional license, it shall pay us $1 million to be used to construct and operate the dispensary contemplated by the license. In exchange, we agreed to issue to the Party additional shares of restricted common stock in the fair market value of $1 million using a 30-day moving average price. The Party was also granted a ten percent (10%) ownership interest in any such dispensary and will be entitled to an annual distribution equal to ten percent (10%) of the net profits of the dispensary.      
Application services issued, value   $ 232,500    
Common stock consultant compensation, shares   25,000    
common stock consultant compensation, value   $ 6,000    
Party agreed to pay license amount   $ 77,500    
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.10.0.1
Subsequent Events (Details)
1 Months Ended 9 Months Ended
Oct. 15, 2018
shares
Oct. 05, 2018
shares
Nov. 28, 2018
shares
Oct. 31, 2018
USD ($)
Sep. 21, 2018
USD ($)
ft²
Sep. 30, 2018
shares
Apr. 30, 2018
ft²
Apr. 18, 2018
a
Dec. 31, 2017
shares
Area of land             17,298 3  
Shares of common stock, services           25,000      
Preferred stock shares           2,500     0
Prescott Management, LLC [Member]                  
Area of land | ft²         10,000        
Annual interest rate         6.50%        
Purchase price | $         $ 1,500,000        
Seller financing amount | $         $ 1,100,000        
Description of subsequent event         Regular monthly installments of $6,952.75 shall be payable on or before the same day of each month beginning on November 1, 2018, and continuing on the same day of each month thereafter until October 31, 2023, at which time the entire sum of principal and accrued interest in the amount of $1,031,140 is due and payable. On or before the one-year anniversary, November 1, 2019, a principal reduction payment in the amount of $50,000 will be due. Upon the one-year anniversary of the note 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 $6,559.00.        
Subsequent Event [Member]                  
Seller financing amount | $       $ 597,000          
Resale of shares   3,335,000              
Shares of common stock, services     75,000            
Subsequent Event [Member] | Between November 6, 2018 and December 3, 2018 [Member]                  
Shares of common stock, services 250,000                
Converted preferred stock 2,500                
Preferred stock shares 3,335,000                
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